Short Retirement: Horrible Housing Market
OK, so I barely made it two weeks. I just can't ignore some of the idiocy out there in the world. I won't be talking stocks or linking anything even remotely related to stocks, because I'm still buying. But I do want to stress just how bad the housing market is (especially around here) and how far things have yet to fall.
Exhibit A is, of course, the new, moronic, Sheila Bair-led "stop the foreclosures" movement taken up by the government. Apparently, comrade Bair thinks she can, by fiat, raise or stop the fall of housing prices and this is, of course, impossible. I'm going to leave aside the moral and moral hazard arguments against this, because they're just too obvious. Instead, let's look at what this will eventually mean for home prices. It will not, as Bair seems to think, support them. It will instead reveal that home prices are still too high -- but instead of letting the market take care of it they'll give preferential, taxpayer-funded "help" to deadbeats.
If they force banks and other mortgage-owners to write down principal to a level that allows homeowners to "afford" the payments, they are, in fact, saying that all homes in the area are worth less. The "comp" price by which other prices are gauged should, obviously, be the "real" price, not the fake price set by a purchase document (or a large set of them) which is then negotiated down in an under-the-table, after-the-fact deal.
Let's look at the $460,000 asking price (estimated) for foreclosed crapshacks that I know very well. The following info comes from RealtyTrac, the images from map.live.com's awesome "bird's eye" view. The properties all happen to be in a neighborhood I know like the back of my hand, because I run through it nearly every day. These properties are overwhelmingly old (1950s) small, and very run-down. They were selling for $550,000 a couple of years back, and they're still WAY overpriced. Most have not been updated and a large number have been rented for years, rented usually to large groups of laborers, to judge by the 4-5 beat up cars per home.
First off, here's RealtyTrac's heat map for Virginia. Note that Northern Virginia is one of the nation's most "affluent" regions.
Not so good, and it's only going to get worse now that constuction has skidded to a halt (those laborers weren't just renting these crapshacks...) and after Comrade Obama wins the presidency, defense spending takes a major whack, etc. Things around here are going to shrink even more.
So, let's look at what $460,000 (estimated, and broadly confirmed by what I see and hear when I make the occassional call on an interesting-looking property) gets you here. Unless you pay up, RealtyTrac doesn't give you the exact address, but since these lousy homes are pretty much interchangeable, that won't matter much.
I'm pretty sure this is the Kilgore Road property. I run down with road and this house nearly every day. (If it's not this one, it's one of the others immediately to either side.)
As best I can recall, this house has been empty for over a year. The lawn generally gets about a foot high and weed-choked before the bank's mower comes by to cut it back. It's tiny, and falling apart. You can rent a bigger, better space within 1/2 a mile for about $1,300-$1,500 per month. Or you can buy this piece of junk for nearly half a million dollars.
This view of Fay Place (this is the whole thing, so the foreclosure has to be one of these) gives you an idea of just what a classy neighborhood this is. Half a million bucks gets you white goods on the lawn, trampolines, junkpiles, car seats on the porch, and hillbilly neighbors who leave cars on blocks in the streets.
Or, it gets you a piece of small, whitewashed monotony.
The best you can hope for is one of these:
But I have been inside several of these when I happened to be passing during weekend open house sales events. They are VERY shabbily made, and horribly laid out. You need to head up and down stairs to do just about anything, the rooms are tiny, and, of course, you get to pay an association fee on top of your mortgage, meanwhile you could rent something equivalent for about $2,000 per month.
These prices need to fall about 20% before they get close to parity with renting, more like 30% in the case of those awful old houses. Trouble is, with more of these coming on the market, more rentals are coming too. Our rental community has empty units all over the place right now, and all this means rents will be falling too. That's good news for those of us who didn't buy into the Ponzi scheme and waste our money on overpriced crapshacks during the bubble. But it's horrible news for weathervane politicians (both McCain and Obama) who seem to believe that inflated home prices are somehow sacrosanct, and deserve to be protected.
The best solution will be the quick one. Let these loans fail. Let the people who won't pay their bills go rent and lick their financial wounds. And let the people who behaved responsibly spend their capital when the prices are right.