What if the they threw a bailout and no one got drunk?
Hmm. “Markets” don’t seem too amused with our bailout plan. Dow down 2.7%. Naz down more than 3%. Hang Seng down 4.3%.
Why isn’t everyone more pleased? Doesn’t this solve the problems? “Liquidity” will return to the markets soon, and that will mean more home loans and that will stop the foreclosures and make home prices go up and then consumers will be able to HELOC-ize and the world is wonderful again?
Of course not. None of what’s supposed to happen (even if this passes) fixes $4 dollar gas, as Charly Travers pointed out during our morning gripe session. Nor does it change the fact that houses are still insanely expensive in many markets. Once again, this weekend, we looked at the going price on houses in the Falls Church area. Anything we like? $1.3 million, or $7-$8K per month. Anything we can live with? $650-$750k, which is about triple our monthly rent after you throw in taxes, maintenance, etc. There’s simply no way most folks can afford prices like that without ridiculous loans – the kind that aren’t coming back no matter what happens with this bailout.
In fact, a look at the bailout language (a peek provided by the WSJ) shows precisely what the politicians don’t have the guts to say: home prices need to fall.
The bill calls on the government, as the owner of mortgages, mortgage-backed securities and other assets backed by real estate, "to implement a plan that seeks to maximize assistance to homeowners and use its authority to encourage the servicers of underlying mortgages, and considering net present value to the taxpayer, to take advantage of...available programs to minimize foreclosures."
The trouble is, as the article points out, a huge number of these workouts re-fail within a short time period. Turns out people just plain borrowed more than they could afford. (Nice job with the “investment” advice, NAR!) Until prices drop a long way back and get to parity with usual rent-equivalencies, there’s simply going to be no great recovery in the housing market, and we’re certainly not going to get back to a place where homes are zooming up in price enough to support a consumer-spending binge. The markets today seem to me to be digesting the idea that we can’t borrow our way out of a credit bubble. Welcome to reality.