CNBC: Housing in “depression territory”
posted at 11:36 am on January 12, 2011 by Ed Morrissey
The housing market continues to grope towards some sort of rational valuation, and its search for the bottom has it reaching “depression territory,” CNBC reported yesterday. The overall economy has remained mired in a recessionary environment, with some hints that hiring might pick up a little in 2011 — but if a real recovery does start, it won’t include the housing market, at least not initially:
Things were bad but the broader economy never reached Depression territory. The housing market, on the other hand, just crossed that threshold.
Home values have fallen 26 percent since their peak in June 2006, worse than the 25.9-percent decline seen during the Depression years between 1928 and 1933, Zillow reported.
November marked the 53rd consecutive month (4 ½ years) that home values have fallen.
What’s worse, it’s not over yet: Home values are expected to continue to slide as inventories pile up, and likely won’t recover until the job market improves.
Cindy Perman notes with some amusement that Zillow also has devalued the White House, from $335 million at the housing boom’s peak to just $251 million today. That’s a 25% drop in asset value, which may be a typical drop over the last three years in the US.
Of course, the specific problem that created the fall was an overvaluation thanks to a bubble created by government intervention, which is why calling it “depression territory” is probably somewhat misleading. Housing values fell in the Depression not because those values were artificially inflated to begin with, but because of the massive deflation that occurred in the Great Depression across the entire economy. That doesn’t mean that the loss of value hurts any less, but those who bought for the long term will see those values eventually rise again. Those who bought before the bubble mostly still have equity at the current value as well.
The correction to irrational valuation needed to occur in order to build stability back into the housing markets. It wouldn’t have taken 53 months to take place had Congress not fought this painful but necessary process with expensive interventions intended to prop up unsupportable valuation. Had the government also worked to reduce regulatory and tax burdens to investment rather than increase both over the last two years, we may have solved the rest of the housing market’s woes through increased job creation, as unemployment poses the greatest risk for further deflation in real estate.
Blowback
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Houses would be worth more if Palin weren’t damaging them with machine-gun fire.
Just another sign that PBHO’s policies were DOA, it just took a while to manifest.
Bishop on January 12, 2011 at 11:40 AM
CNBC: Housing in “depression territory”
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Thats Hate Speech,or is it political vitriolic discourse,
crap,well,its gonna be offencive for a Lefty Bleed’n Heart!!
canopfor on January 12, 2011 at 11:52 AM
Houses would be worth more if Palin weren’t damaging them with machine-gun fire.
Just another sign that PBHO’s policies were DOA, it just took a while to manifest.
Bishop on January 12, 2011 at 11:40 AM
Bishop:Preach it bro,and I blame her Specially Trained
Moose for romp’n through those territories,and
bringing down the housing values!:)
canopfor on January 12, 2011 at 11:54 AM
In Amity Shlaes book, The Forgotten Man, she makes the argument that what prolonged the Great Depression was Roosevelt’s refusal to let wages and prices fall to a market-clearing level trying, instead, to kick-start growth by a vain attempt to control prices and inflate the economy. Obama is following a similar course of action and getting similar results.
Housing is an engine of growth not only because of the construction jobs involved, but also because of the jobs created in the supporting industries like lumber mills, carpet weaving, copper production, electrical wire-making, furniture-making and cabinetry, mortgage banking, legal service, etc. If housing is not recovering, then any employment figures suggesting a recovery have to be suspect.
potkas7 on January 12, 2011 at 11:57 AM
Had the liberals stayed the hell out of the housing market to begin with there wouldn’t be the problems we have today. Since the bubble burst, they’ve done nothing but prolong the agony.
GarandFan on January 12, 2011 at 11:59 AM
Great news.
After valuations hit rock bottom even Section 8′ers will be able to afford one.
BowHuntingTexas on January 12, 2011 at 12:04 PM
Hard to buy a house when you don’t have a job. Ridiculous is the rhetoric that the stimulus worked. Cancel the 500 billion that hasn’t been spent on the stimulus and then cut spending back. Cancel unspent TARP funds and then cut spending. First thing, however, is to cut taxes. People spend their money more wisely than the government.
Angry Dumbo on January 12, 2011 at 12:05 PM
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canopfor on January 12, 2011 at 12:07 PM
Time for the next phase of Obamanomics: Stimulating stimulants with stimulants that stimulate.
nico on January 12, 2011 at 12:12 PM
Housing is in a vicious downward cycle. Why? Dysfunctional credit markets.
The vast majority of home buyers need credit. Banks these days use strict underwriting standards–including a loan-to-value ratio that is strictly enforced.
But “value” is determined by appraisers, whose job it is to guess market value (as opposed to the agreed-upon price by the seller and buyer, who are actually market participants). Appraisers do this with comparable sales–but most of these comps are distressed properties. The result? The values come in too low–which means the buyers can’t get financed at the price they agreed to pay, which results in either (i) the price dropping or (ii) the sale falling through. This, in turn, causes further value erosion, exacerbating the problem.
Outlander on January 12, 2011 at 12:36 PM
It’s been in a depression for 3 years.
Very simple…houses are too expensive given the incomes of buyers. This didn’t matter when anyone could geta 0% loan for 125% of the value of the house. Now that you actually need a GHASP! downpayment and actually need to show an ability to pay back the loan, all those deadbeats can’t buy houses. And prices are spiraling back down to normal.
It’s economics 101. And for the past 400 years, every single bubble has ended up in the same way.
The only think I am surprised about is that anyone is surprised by this.
angryed on January 12, 2011 at 12:39 PM
Yes. Unless you are one of the tens of millions of people that took out a HELOC to buy a Hummer or an Escalade or go to Tahiti twice a year.
angryed on January 12, 2011 at 12:42 PM
I’ll take it!!
Now, will you accept a four-party, out-of-state, post-dated, bad check drawn on the Bank of Dumbass?
You won’t need any ID to cash it… they know me.
JohnGalt23 on January 12, 2011 at 12:56 PM
Voters also have devalued the Jackass that lives there.
slickwillie2001 on January 12, 2011 at 1:03 PM
Please send me your billing address for the hot coffee that just scalded my nostrils.
TugboatPhil on January 12, 2011 at 1:19 PM
if the government would just stay out of the way home prices would find a realistic level then begin to rise at a sane rate. The fact is not everyone will own a home just like not everyone will go to college. That is neither good nor bad that is just reality. Home values have been inflated most of my life due to the CRA and other government interventions.
JKotthoff on January 12, 2011 at 1:29 PM
And the relentless propaganda of the real estate industry telling you that if you don’t own a house you may as well shoot yourself because life isn’t worth living.
And the propaganda is inherent in the news media as well. Since most members of the MSM own a house, they buy into and gladly repeat the propaganda themselves.
How many times have you seen a news article saying maybe, just maybe, not everyone should own a house? Never. It’s non-stop cliches. Real estate never goes down. Renting is throwing your money down the drain. Buying gives you a tax deduction (which is only true for the 30% of people who itemize but you’ll NEVER hear this little factoid). You can’t make a rental into a “home”. And on and on.
Even today after 3-5 years of a housing depression the propaganda is identical to what it was in the mid 2000s. It’s surreal.
angryed on January 12, 2011 at 1:38 PM
Buying gives you a tax deduction (which is only true for the 30% of people who itemize but you’ll NEVER hear this little factoid).
Preach it.
Back when I owned a home, I was one of the 30% who itemized. Until Bush cut taxes, and the standard deduction for a single dude (me) was greater than the amount of the deductions for the property. Not being a complete moron, I started taking the standard deduction.
I’ve been renting the last 5 years, and I’m a happier camper.
I R A Darth Aggie on January 12, 2011 at 3:34 PM