Graph from an article called "The Big Picture" (click here). Used to illustrate how a housing market is NOT supposed to work and how false incentives to economic strategy causes hardship rather than economic well being.
There were far too many housing permits than justified by potential legitimate buyers. There is NO WAY, there should have been this many justifible housing starts of new homes in the USA. There was not that much of an increase in population or a legitimate increase in the number of buyers. What occurred was an increase in 'faux impetus' for people to refinance their homes and purchase many more homes way over their ability to pay.
All those that purchased homes in hopes of 'handling' the mortgages through increased housing values and potential of rental incomes were gambling. Nothing more. There was absolutely no sound decision making on the part of these buyers, nor were they educated to the extent of their RISK. Their market failure came as a complete surprise to them. This was exploitation of American hopes and dreams at its worse.
There is an interesting statement in The Washington Post (click here) today by some Real Estate Mogel/Tycoon that wants MOR' MONEY. NO ! Let me find the paragraph, it made me laugh out loud.
..."We need more than low interest rates to encourage enough buyers to enter the market and meaningfully draw down inventory, which would stabilize home prices. That, in turn, would help the economy to recover," Charles McMillan, president of Realtors group, said in a statement.
Bad loans got them into this mess and more of the same isn't going to get them out. Low interest loans are supposed to be available, the Fed can't drop rates any lower without giving money away and we already tried that with the $350 billion bailout to date, so the banks should be able to qualify buyers with fair interest rates already. In my opinino, the statement by Mr. McMillan is simply pandering to a government desperate to avoid a severe depression and nothing more.
In the same article it is noted, "Sales of existing homes fell 8.6 percent...." That was EXISTING homes. Additionally, they were selling for a full 13.2 percent of their market value previously which means there are still plenty of foreclosures going on to warrant a 'maintained' drop in housing values. Americans trying to hold on to their homes have far less reason to stay in them and maintain their mortgages at this rate and any more opportunity to purchase cheap homes will continue that trend. NOT A GOOD IDEA !
The article also stated, "...It was the slowest sales rate in about 18 years and down 35 percent compared with the same period a year earlier.
Median new-home sales prices fell to $220,400 in November, down 11.5 percent from $249,100 a year earlier...." There is no reason to invest in building more homes as existing housing is losing far too much value and my guess is that is true of commercial real estate already.
If people are qualifying for purchase of homes and otherwise and there are already low interest rates, then there is a topping out of any recovery potential to date because of adverse effects of the economy on household income. It is the unemployment rate we are looking at and NOT more faux incentives to purchase more homes by Americans.
It is my estimation the current housing market is not going to recover until the unemployment rate comes down. No reason for tax credits or otherwise, that is simply pandering to the wealthy that have made it past this decline in an attempt to find more opportunity to a few people.
Americans need a return of a reasonsable income to their households and THEN and only then will there be a recovery of existing home prices. To build more simply to bouy an economy is a Bush Re-election Strategy and will only depress housing values and remove incentive to pay existing mortgages.
The Americans still living in their homes need to stay there and demand a market that returns their home's value to them as well as an economic upturn that returns good paying jobs to make homeownership once again affordable and an American Dream.
It might be that we are sneeking up on a return to a manufacturing sector which is where Obama is focusing his economic stimulus. There is no reason to over react. At this point there is much being prepared for a return to manufacturing in the USA, but, far more needed to achieve an increase in jobs. An increase in a sector's income is not a clear indication that the tax base is widening in regard to job 'return'/creation. Sustainable income to the tax base will revert this economy, not 'flash in the pan' economics by handing out free money.CATEGORY: MARKET REPORT - US (click title to entry - thank you)US open: Modest gains posted
Tue 23 Dec 2008
LONDON (SHARECAST) - Wall Street is posting modest gains in light trading as investors contemplate third quarter GDP figures. The Commerce Department said final gross domestic product figures for the third quarter fell at an annual rate of 0.5% in line with expectations. The Department also said corporate profits fell 1.2% in the same period, more than the 0.9% expected. Later, the Commerce Department will report on last month's new home sales, while the National Association of Realtors will report on existing home sales. Also on Tuesday, the University of Michigan is expected to revise down its consumer sentiment index. Commercial financial firm CIT Group said it has got preliminary approval to receive $2.33bn from the government's $700bn bank investment program. Late Monday, Unisys said it will cut 1,300 jobs worldwide in order to reduce costs by more than $225m a year.
