May 22, 2011 original publish date
February 17, 2020 replaced cnbc broken video link with similar Bloomberg link
Housing Market Likely to Remain Under Pressure
original article written by Net Advisor™
America. The news about the existing home sales should not be a surprise. Previously owned homes saw their sales sink last month. In addition, home values also plummeted “to their lowest level in 9 years” (Source: Reuters).
We hear a lot of ongoing chatter about how “the housing market has bottom out,” how the “recession was over in 2009,” and all the so called “job growth.” None of this has really panned out. It’s hard to say that when 1 in 8 Americans are earning below the poverty line that they are not in recession. It’s also hard to call a record 40 million Americans receiving food stamps that we are not in a recession. Unemployment is still near recession highs and the housing market has not rebounded as the so called “experts” have been calling for such.
Let’s take a quick look at the so called housing market rebound chatter:
“Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009.”
— (Former FED Chairman) Alan Greenspan said 08-14-2008 (Source: CNN)
“Economics blogger Carpe Diem thinks the housing market has finally bottomed out.”
— Source: U.S. News, 04-07-2009
There are many more economic and housing expert misses, but this is one is perhaps my favorite:
“Unless there is a blowup in the lending on prime loans (unimaginable), there is not likely to be a further notable sales decline from this point.”
— Lawrence Yun, Ph.D. and Chief Economist, National Association of Realtor’s said 02-15-2008 (original link since deleted by NAR)
The “unimaginable” is what I thought was a problem:
“Igor all the ****** who have their head in the sand and think the market is “near bottom” or turning around soon, or by next spring. They are all WRONG! And have been wrong for the last 2 years. Many mortgages will reset ARMs issued 2 years ago again next spring. This means more foreclosures are expected. This means the issue will continue to get worse before it gets better. The market is going through a HISTORIC “shake out”.”
—- Net Advisor™ said on Yahoo! Answers, Oct/Nov 2007
In 2008, USA Today apparently named Dr. Yun as “…among the top 10 economic forecasters in the country.” Guess we all make mistakes.
Experts Still Can’t Find Their (Housing) Bottom
The housing proponents have tried year after year to talk up the housing market and continue to get it wrong. In 2009, we had record home foreclosures, and the problems increased each year since 2007.
“RealtyTrac, the online marketer of foreclosed homes, reported that one in 45 households — or 2,824,674 properties nationwide — were in default last year (2009). That’s 21% more than in 2008, and more than double 2007’s total.”
— Source: CNN, 01-14-2010
Just five months later CNN reported that RealtyTrac CEO James Saccacio said, “The foreclosure plague may have finally reached its peak in April 2010…”
Our January 22, 2010 article discussed why foreclosures would increase in 2010 and they did – by an all new record:
“Foreclosures Hit Record Highs in 2010”
— Source: Bloomberg
Home Foreclosures Expected to Hit a New Record in 2011
Unfortunately, home foreclosures did not peak in 2010, and in fact are expected to get even worse in 2011.
According to MS-NBC, “Lenders are poised to take back more homes this year (2011) than any other since the U.S. housing meltdown began in 2006.” I believe this will likely come true. The housing market is simply not in recovery. Sure, there may be some isolated markets doing better and some doing worse, but I would not expect to see home prices rise by any rapid rate for many more years. I would also not expect to see home prices to head back to their spring 2006 peak anytime in future years, if not for a decade or longer.
“Lenders are poised to take back more homes this year (2011) than any other since the U.S. housing meltdown began in 2006.”
— Source: MS-NBC, 01-13-2011
Part of the problem with the housing bubble was that the economy was booming, interest rates were low (prior to spring 2004), the unemployment rate was low, and most importantly demand was high for home buying.
Now, with high unemployment, the economy not nearly as strong as it was in 2006, and most importantly, we see that demand for housing is down.
We have tons of homes in foreclosures or in default leading to possible foreclosure, and fewer credit worthy buyers. This is a simple high supply low demand model. Prior to spring 2006 we had a high demand, low supply model, where we had tons of buyers and fewer sellers, making prices go up. Now we have fewer buyers, and lots of homes, and thus prices have come down.
With people bailing out of their homes they cannot afford, or through job losses (or both). There is simply too much supply on the market and not enough buyers. Until these foreclosures, short-sales, defaults, etc. get cleaned up, this will likely keep prices down in many affected regions especially in states such as California, Arizona, Florida, Nevada, and Michigan.
What Could Help the Housing Market?
Clearly the Obama 2009 Home Buyer Tax Credit did not turn around the housing market, nor prevent or slow home foreclosures. In fact there is a chance if one bought a home in 2009, that it may just well be sitting on negative equity by now. The hard answer to the housing problem is “time.”
- It will take who knows how much time to get rid of the bad real estate loans. It could be another year, it could be longer. This is partially determined by when the banks want to come to terms and actually sell the foreclosed homes at a loss and not hold on to them as if they are carrying inventory like a retailer.
- It will take time (probably years) for the economy to make significant improvements.
- It will take time (probably years) for unemployment to make significant improvements.
- It will take who knows how much time to get the government to stop creating trillion-dollar-a-year deficits and get overall spending, welfare and entitlement programs under control.
- It will take who knows how much time for the FED to stop artificially stimulating the economy by printing dollars and then buying U.S. treasury securities in order to keep interest rates relatively low. Unfortunately this move by the FED creates inflation as we have seen in food, and energy (such as gas) prices.
- The FED said there wasn’t any concern for inflation in 2009. However about two years before this I pointed out the next risk to the U.S. economy would be: Stagflation (a recession + inflation).
“The current risk to the US economy is “Stagflation” (inflation in oil, gold, wheat, copper, milk, and other commodities, and recession in real estate and possibly consumer buying.”
—- Net Advisor™ said on Yahoo! Answers, November 2007
If one takes a look at these commodity prices since 2007 to date of this article, we have seen oil, gold, wheat, copper, milk, and other commodities soar in price, some 100 to 300% in price – that’s inflation! Today (2009-2011), I have repeatedly argued that government spending and the deficit is the biggest risk to the economy.
So, ignore the blips that say home prices are up or whatever bullish talk is being discussed. It may be accurate for that moment, but keep in mind that one month, or a few reports is not long enough to establish a solid trend. Markets move up and down, and so has housing and it will continue to remain volatile for years to come.
short link: https://www.netadvisor.org/?p=8382
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