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No Bottom in House Prices Until Government Admits It.

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February 16, 2009 – Comments (6)

Again, that's what this story explains.

"Obama has committed at least $50 billion in guarantees for lenders that negotiate new mortgage terms, and proposes putting taxpayer funds at risk for half of $444 billion of loans that would be modified this year. Fifty-eight percent of the modifications made during the first quarter of 2008 ended up back in default, according to the U.S. Treasury’s Office of the Comptroller of the Currency. Unless lenders cut principal owed to reflect the current market value of properties, the same thing may happen this year, Miller said."

That last bit is the important part. Comrades Bair and Obama, along with Comrade Johnny Issacson (Ga.) talk about putting a floor under home prices, but the only way to stem to walkaways and foreclosures is to do the opposite -- drop the real floor out from under the inflated prices of the recent past so that people can afford the houses they bought.

Leaving aside whether or not this is fair, or a good idea (I say "no" and "no") it does allow us to see that there's simply no way to avoid adjusting prices downward. The market will do it for us, and any loan mod program will do the same thing.

Now, when will the crooked National Association of Realtors finally admit this?

6 Comments – Post Your Own

#1) On February 16, 2009 at 9:13 AM, TDRH (99.68) wrote:

You cannot fight the tide.   Prices need to fall.

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#2) On February 17, 2009 at 9:45 AM, Gemini846 (60.08) wrote:

I posted this in another person's blog, but suppose I'm sitting on 10k in cash and no bank will touch me at overinflated 150k houses. If those houses were marked to 50k which they are really worth, then I've got 20% and the banks will line up to make me a loan.

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#3) On February 17, 2009 at 5:00 PM, TMFBent (99.82) wrote:

Yup. No one likes to talk about that.

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#4) On February 17, 2009 at 5:25 PM, dwelllewd (27.82) wrote:

Funny how everyone agrees priced should drop.  All that agreement should set off warning bells, it does for me.

When I get an answer to my typical enquiry about the level to which prices should fall, or what houses are really worth; after tossing out the rhetoric and cheereleading, the only answer of substance i usually get, wants to relate housing prices to median wage.....

At least some thought went int o those type responses.  The problem is that housing prices are not falling in a vaccuum.  Everythign is falling.

Great you say, I can get gas and food and books for less money.  Yeah but the biggest component in almost everything transacted ends up being labor, the cost of which which is falling right along with everything else.

So yes, you can get whatever for less money, but you will get less money for whatever you havce to offer.   Less money it is, less affordable it isn't.

there are many factors in housing prices, so exactly where prices should be is nebulous.....BUT it is easy to tell when prices are too cheap...

If houses are selling for less than the cost to build the house (even if land were gifted)... then prices are too low and deflation has likely taken hold.

Guess what?

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#5) On February 17, 2009 at 5:43 PM, murugan2 (48.71) wrote:

I am fortunate enough to be employed in the home building industry.  80% of the people I worked with are now unemployed.  I can tell you one thing for certain:  in land deals going forward, land has an essentially negative value.  How can I say this?  Because I see deals offered every day for developed lots which are priced lower than the cost of land development (cost of putting in water, sewer, curbs etc).    So we are already at a point of having land for essentially nothing, or in some cases less than the cost of development.  It is true that no is selling homes for less than their true vertical (construction) cost.  The question is, why would anyone ever do such a thing?  If land holdings are written down to zero, and you still cant sell for more than it costs to build, you may as well give the lots back to the bank.  That is exactly why deals such as the one I outlined above, exist.  Big, publically traded companies write their land down to zero, you the poor shareholders pay through loss of share value, and if it still doesn't work, they just walk away.  Trust me, this is happening all over the place, every day.  I was at an industry meeting recently in which a president of a homebuilding company said "honestly, if I was $100,000 or more under water on my house, I would just walk away.  That's what we do when it turns out that we paid too much for lots.  It just makes good business sense."

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#6) On February 19, 2009 at 2:16 PM, kdakota630 (29.76) wrote:

It's such a Catch-22.  The economy won't rebound until housing prices fall, but the gov't is doing their best to prevent housing prices from falling because too many people will be tempted to walk away from their "under water" mortgages.

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