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Housing is Housed

I neglected to comment on this last week:

Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and industry experts say more people will miss payments because of job losses and also loans that exceed the value of the homes they are living in.

“2011 is going to be the peak,” said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year.

Quick review. The recovery of the housing sector was the underlying justification for nearly every government emergency action between August 2007 (when the Panic began) and today. Yet foreclosures are at extraordinarily high levels, prices have not “recovered” vacancies are high and “experts” think the worst is still ahead of us.

If this is success, then what would the geniuses in DC claim as failures? Now, I don’t care much for the recovery of the housing sector. My instincts tell me that prices still need to fall, and that there is something still terribly amiss in that sector. But let’s remember what has been done to “save” the housing sector and to prevent its slump from crushing our financial system:

  1. TARP
  2. Fed purchases of trashy toxic mortgage assets from a variety of firms
  3. Fannie and Freddie bailouts to the tune of up to $400 billion (depends on who’s doing the counting)
  4. The FHA has basically taken over the housing market
  5. Extensive loan modification programs (for a fun dinnertime research project, go see how many people this “saved” and what the recidivism rates are)
  6. Record low mortgage rates and easy money

The housing sector remains an albatross. Unemployment sits at 9.4%, the longest stretch over 9% since 1981-82 (and expected to beat that by the end of this year). Financial “reform” leaves Fannie and Freddie in place. FDIC resolutions are on the rise. And the 2011 NFL season is going to be cancelled.

How’s this for a novel idea: let prices fall. Don’t give me that “double-edged sword thing either.” Aren’t the banks far better capitalized today than 3.5 years ago?

How’s this for a novel idea: eliminate Fannie and Freddie.

How’s this for a novel idea: maybe more people ought to be renting housing, especially if we seem to be suffering from such serious structural unemployment.

I’d love to see an estimate of just how much the failure of allowing the housing market to correct itself has really cost us. We can never know of course, but it would be a fun thought experiment. I’m too frightened to try it.

8 Responses to “Housing is Housed”

  1. Harry says:

    Great “novel” ideas, Wintercow.

    Bernancke has this idea that falling prices in the housing sector is synonomous with deflation.

  2. Harry says:

    Not one ever to second-guess Wintercow, I respectfully suggest a better headline: “Housing is Haunted.”

  3. Michael says:

    The government’s next idea will probably be to destroy a certain ammount of housing to remove the excess. Just call it eminent domain and we’ll have “created” jobs for the cleanup, too!

  4. Harry says:

    Michael, that’s called urban renewal.

    I am not trying to be a smartass here.

    Wintercow, being as much of a New Yorker as can be, appreciates how successful urban renewal has been, but I will add to his observations my personal reflections on Chicago, home of Studs Terkel, whom I happened to meet once.

    Cabrini Green was already a spectacularly failed housing project when I saw it in the late ’70s. I saw it from the perspective of a gas company car, riding with black bill collectors.

    I was bewildered, even though fifteen years earlier I had sold Good Humor ice cream in other “projects” in Hartford, where there was the same problem on a much smaller scale. How had we come to this? These projects, decaying before Wintercow’s parents were married, were in shambles, and only the heartless would not feel empathy for the people there.

    So, Michael, tearing down whole city blocks and replacing them with East-German-looking buildings precedes all of us who are above room temperature.

    It is my hope that whatever comment I make does not discourage others, including Michael, from contributing to Wintercow’s thoughtful blog.

  5. Harry says:

    Michael, sorry. After my sermon, I reread your comment, which was an unbroken window point.

  6. chuck martel says:

    There’s more than one factor determining the value of a house. First of all, no house anywhere should be worth more than the cost of its replacement, which is made up of the property and the labor and materials used in its construction. A new house begins to deteriorate upon completion so an existing structure should be worth less than its newer twin in a similar location. As time passes, its value should decrease, not increase, because it will require repair and maintenance. The location of a house has a bearing on its price, proximity to amenities and surrounding housing and population being important.

  7. Harry says:

    Great point, Chuck. Real estate people tell their customers that they are making an investment. For many, buying a house, assuming one manages to do it not at the peak of a housing bubble, is a better idea than buying penny stocks on margin. But it normally IS buying equity on margin, a risky business.

    It took me a long time to learn the principle that the value of any property is what it can earn, not what its market price might be from time to time. The “earnings” on one’s house is the value of what you might pay for the space, the amenities, etc., less the value of the inconveniences and expenses, in rent. I know it is more complicated than that, but it makes your point. All of this assumes we are half sane and can add and subtract, which therefore would include Wintercow when he bought his house in Rochester.

    When our government takes action to depreciate the value of our money, it starts an insidious cycle giving people the illusion that their house is worth more, when, as you astutely point out, that it is worth less with every passing day.

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