Tuesday, February 22, 2011

Housing Woes Continue...

Back in November there was a news report that housing prices were continuing to drop:

Millions of foreclosures and weak demand from buyers are forcing home prices down in most major U.S. cities.

Prices are falling even in places like San Francisco and San Diego, which had posted strong increases just a few months ago. Analysts say many markets won't improve until they see fewer foreclosures and more job gains.

"Unemployment is still high, people are afraid of losing their homes and credit is hard to get," said Maureen Maitland, vice president of Standard & Poor's indices.

A report Tuesday underscored the weakness. Home prices declined in 18 of the 20 cities, according to the S&P/Case-Shiller 20-city index.

The foreclosure crisis (as I had predicted in the past) will continue to steamroll this year:

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.

The blistering pace of foreclosures this year will top 2010, when a record 1 million homes were lost, RealtyTrac said Thursday.

One in every 45 U.S. households received a foreclosure filing last year, a record 2.9 million of them. That's up 1.67 percent from 2009. [emphasis mine]

Housing starts fell 4.3 percent to a 529,000 annual rate, the lowest level since October 2009, Commerce Department figures showed today...

The number of people who bought previously owned homes last year fell to the lowest level in 13 years...

The National Association of Realtors says sales dropped 4.8 percent to 4.91 million units in 2010. That was slightly lower than 2008, which had been the weakest level since 1997. [emphasis mine]

Home prices have been depressed by a record number of foreclosures and high unemployment. Many potential buyers held off on purchases last year, fearful that prices hadn't bottomed out yet.

Via HotAir, the Washington Post had this interesting tidbit:

This “double dip” in real estate represents one of the worst fears of housing analysts and is developing just as it appeared that the overall economy was recovering. For now, many economists expect prices to keep slipping at least through the first half of the year, dragged down by the nation’s large volume of foreclosures and high unemployment rate.

The reason for the upcoming “double dip,” which really has been upon us for a while, is because of ill-advised federal interventions after the bubble popped. Congress passed tax breaks for people buying homes, which did nothing to create more qualified buyers — that still required the normal income-to-debt ratios that got ignored during the bubble period — but instead subsidized sales that would have occurred anyway with tax dollars. It also stole demand from future sales, which has contributed to the poor performance in the second half of 2010.

Otherwise, we wouldn’t have needed a second “dip” to reach the proper market valuation for housing. These interventions only delayed the inevitable, which was the reset of prices to a norm outside of the bubble — perhaps back to 1998-2000 pricing, adjusted for inflation. Those who bought during the bubble understandably resist this, but the valuation of housing had always been coupled to the rate of inflation until Congress and successive administrations made home ownership into a fetish and incentivized lenders to give mortgages out to people who couldn’t afford them. [emphasis mine]

However, those millions of people whose mortgages are underwater make a powerful political force. They want Congress to address a problem that they believe Congress created to support at least the current valuation of homes. The only real way to do that, though, is to create more qualified buyers — and the only way to do that is to create public policy that stimulates growth in large quantities. That can be done through monetary policy, tax policy, and regulatory policy. The Obama administration has gone the wrong direction on the latter throughout its first two years, and until that gets reversed, expect home sales and values to continue their downward drift.

Buyers purchased the fewest number of new homes last year on records going back 47 years.

Sales for all of 2010 totaled 321,000, a drop of 14.4 percent from the 375,000 homes sold in 2009, the Commerce Department said Wednesday. It was the fifth consecutive year that sales have declined after hitting record highs for the five previous years when the housing market was booming... [emphasis mine]

... economists say it could be years before sales rise to a healthy rate of 600,000 units a year.

It's gonna be a long 2011 (and even 2012).

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