How A Housing Recovery Is Defined
Readers suggested a topic on the current house buying environment. “How many more FOMC meetings without a QE3 announcement will it take for the QE3 cargo cult to give up their faith that a quantitative easing ‘Third Coming’ is on the way?”
A reply, “It’s like the ‘Age of the Grasshopper’ versus the ‘Age of the Ant.’ We’ve been in the Age of the Grasshopper. An economy that requires growing debt to keep growing or even to stay even is like a junkie who requires more and more drugs.”
“The powers that be are all pointing to growth - reducing debt as a percentage of GDP - as the way out. I think it’s a route fraught with risk. It’s like taking out a too-big mortgage and counting on income growth to eventually make it manageable. Countries add another component - despite all their unmanageable debt, they keep piling on more.”
One said, “The Fed can make it possible for banks to make loans, should a qualified borrower walk in the door. It cannot make more qualified borrowers walk into a bank looking to take out a loan.”
To which was said, “Low interest rates do tend to make more people qualified.”
And another, “Let’s forget having any income and just drop the rate to zero, then EVERYBODY qualifies.”
And finally, “While we are at it, loosen up the length of the loan repayment period to infinity…”
From Reuters. “Highlights from Federal Reserve Chairman Ben Bernanke’s news conference following the Fed’s policy meeting on Wednesday. ‘Housing usually plays a very important role in economic recovery both through construction itself and related industries but also because higher house prices increase consumer wealth and promote consumer spending. Housing does seem to be doing somewhat better. There are some good signs in housing but nevertheless we are not getting the size of the boost, the amount of help in the recovery that would normally get from a housing recovery.’”
“‘Access to credit is a major issue. There’s no question about it. Mortgage access is much tighter than it has been for a long time. Even credit card access is more restricted than it has been in the past.’”
“‘The step we took, the extension of the maturity extension program, I think is a substantive step and it will provide some additional support. Yes, additional asset purchases would be among the things that we would certainly consider if we need to take additional measures to strengthen the economy.’”
“‘There are additional steps that can be taken and we have demonstrated through both communications techniques, guidance about future policy, which is something the Japanese have done as well, by the way - and through asset purchases, also something … Japan has done - that central banks do have some ability to provide financial accommodations to support the recovery even when the short-term interest rates are close to zero.’”
From Reason.com. “Let’s consider the strongest arguments that we are witnessing a housing recovery to see if they stand up to the long-term analysis. Argument #1: With record low interest rates everyone will be looking to get back into homeownership. The Federal government’s goal of lowering long-term rates has been successful. Led by the Federal Reserve’s quantitative easing program and the Treasury’s continued bailouts for Fannie and Freddie, mortgage rates are lower than ever before. Unfortunately, low rates do not always translate into demand.”
“There have actually been ‘record’ low rates for several years now, but the cheapness of a mortgage is only one factor in the home-buying process. Consider while mortgage applications are up with super low rates, nearly four out of five of those have been for refinancing, not home purchases. That is because household debt is still a massive deadweight on the capacity of families to buy a new home. At the same time, household wealth has been crushed over the past few years. Refinancing is not recovery, and low rates are not a sign of a positive future.”
“Outstanding household mortgage debt is still twice the level it was in 2000. And add to that that one in five homes are still worth less than the mortgage that was taken out to buy it. Combined you get very limited amounts of money for buying new homes at this moment.”
“Part of the challenge in this debate is how a recovery is defined. I argue that it will be when foreclosures have been worked out of the system, negative equity is cleared away, and prices have stabilized. By that standard, we still do not have a housing recovery.”
From KPBS. “Real estate agents are struggling to find sellers. One Coldwell Banker broker recently circulated a bold flier in Pacific Beach. It highlighted a $686,000 home that sold at $60,000 above asking price in ’seven days with multiple offers.’”
“Chicago transplants, Maria Minos and her husband, have been looking for a two-bedroom, two-bath home with a yard since January. Like thousands of others in San Diego, the Minos’ routinely compete with up to 15 other would-be buyers on each property. The couple said they’ve begun to over-bid on homes, even if they hadn’t been inside the house. ‘We have started over-bidding. The most I’ve over bid on a house so far is $30,000,’ said Minos.”
“‘What’s really killing this for people like myself who just want to live in the home, is the house flippers. They’re putting down a lot of cash, and it’s being accepted over conventional loans,’ said Minos.”
