Housing Plan Stuck, National Recovery In Hands of Real Estate Market
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As the Treasury Department training company, Goldman Sachs, records incredible profits, the housing market is fighting a battle to save the economy. The 275 billion that the Federal Government allocated to infuse into the housing market is failing to get into the hand of the borrowers. It is staying with the bankers paying down their debt and fix their bottom line.
And if you are looking to buy an investment property, God bless you. With 2.1 million empty homes on the market, there is a great deal of excess inventory that needs to be absorbed before the market will have a firm foundation.
The group that could buy up this excess housing is the investor class to turn it into productive rental properties or fix them up (spending more money) and sell them. Instead the assets are sitting idle, a weight on the market and the economy.
Four months after President Barack Obama pledged $275 billion to shore up home sales, the engine that powered every U.S. recovery since 1960 is stalled. Bankers’ reluctance to finance buyers who won’t live in properties is one barrier to a turnaround. Stricter qualifying rules and a rise in the cost of residential loans to 5.42 percent have impeded new mortgage lending, which is at a 13-year low. An inventory of 2.1 million unoccupied houses on the market, created by the fastest foreclosure pace in history, may be a drag on a revival. Bloomberg.com
But as the late Billy Mays said, that’s not all:
If we do not see a housing stabilization soon, many more families will be underwater on their mortgages. Even Alan Greenspan, the retired Fed Chief, is scared. While things are slow right now, restaurants are still humming and people are still spending. Housing is the vehicle that will lead the recovery, but housing could also plunge us into another level of recession just as quickly.
The consequences of a further steep decline in house prices on the overall economy are severe because it would cut so significantly into the American middle class, the vast army of consumers, the ones with conventional Fannie- and Freddie-backed mortgages, dubbed “conforming” in the trade. Any equity that subprime-mortgage borrowers had in their homes is gone. But about eight million conventional mortgages were made for home buyers in 2005 and 2006. House prices have fallen significantly since then.
“The bulk of conforming mortgages made since 2005 are close to being underwater,” says Mr. Greenspan, meaning their mortgages are greater than the market price of their homes. Wow. Although many underwater homeowners will keep making monthly mortgage payments, they can’t refinance or take out home-equity loans — and are at greater risk of default and foreclosure.
“We can take another 5% decline in house prices without much macroeconomic impact,” Mr. Greenspan says. But if prices fall by 12%, more than four million additional homeowners will be underwater. via WSJ
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Great points Tom - the flavor of the day solution is only adding to the instability and volatility.
When Washington ...
I see it all too often where owners decide to be investors without understanding that tenants have rights. Its ...
cont from above post.....
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This is a topic currently being debated in our local Real Estate Board here in Toronto Canada. Online, we ...
A property management company should realize that most potential tenants now will have a foreclosure or bankruptcy on their credit....as ...
my boyfriend and i just fell for the scam ourselves, it's sad what they are able to do. I am ...
Now is an excellent time for business people to buy if they have decent credit (I did not say excellent ...
Comment by John Watch on 30 June 2009:
Your comments are on the mark regarding the availability of financing. But I do think we are missing some critical points. We are on track to have over 4 million property sales this year. That represents about 4% of the residential housing market. These homes are receiving financing.
Secondly property values are reported to be down in value because of the median sales price. The much discussed Case-Schiller Housing Index does not place a relationship of sales price to the size of the home.
Now many economists and bloggers will state that there is no relevance in Sales Price to Square Footage. To this we state that there clearly is. Square Footage does matter! In studies we are just completing, 15 of 20 major metro areas have experienced a decline in sales price compared to last year and to 2006. But the properties being sold are also smaller and by as much as 15% to 20%.
So what is the real decline in housing values and what is the real erosion of the under lying housing market. Well it depends if you do the research or if you are an investor looking to snap up properties at bargain basement prices because incorrect information is being fed to the masses.
Conducting comprehensive research takes time and money, but many of the comments I read just rip into the process, as opposed to trying to understand the process. The markets are in flux and need some clear direction, but if we continue to post inaccurate information we will not see a housing recovery take foot for months.
Comment by Portland Real Estate on 30 June 2009:
I dont think that we should rely on this industry to get the market back. Everytime we try that, it is a short sighted victory that never actually fixes the problem. Houses are too expensive, and people are using credit/mortgages to get them. Why not go back 50 years to where you didnt buy a house until you had the money.
Comment by Brandon on 30 June 2009:
Excellent summary of the current environment.
Comment by Orlando Vacation Homes on 1 July 2009:
I still see liquidity and financing to be an issue with the banks. Until that problem is rectified, inventory will be slow to move from the system.
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Comment by genetic cancer testing on 3 July 2009:
The liberal government policies have facilitated the expansion of the foreign involvement in the Real Estate Investment sector.
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Comment by Temecula California on 10 December 2009:
I wouldn’t hold my breath. We would probably already begin to see a turn around if the government had stayed out of it. All they are doing is prolonging the agony. It’s the same problem you have with big corporations the guys at the top don’t have a clue what is happening in the real world. Short Sales are the stupidest idea anyone could come up with. Especially in California where they will tax you for the Debt Relief you receive. You see California is broke never mind they had $100,000,000 to help big business. You remember they gave $10,000 to everyone who bought a new house last year. The politicians said they were trying to spur job growth by helping the Big Wall Street Corporate Builders sell more homes and they did and once those homes were sold they packed up their tools and left. No new jobs were created it’s just another example of the government protecting big business and who cares about the little guy. They could have used that money to offset the loss of taxes by not taxing people for debt relief. If you want to do a short sale do your self a favor talk to an Attorney (not a BK attorney) and Tax Professional chances are they will tell you the best option for you is foreclosure. No one really know how much it will effect your credit but one thing is definate you won’t have to pay tax on the debt relief and you won’t be suied by the banks.