Housing double-dip approaching?

posted at 10:55 am on January 26, 2011 by Ed Morrissey

There are two ways to look at the November report on house prices from S&P/Case-Shiller, which showed declines across almost every metropolitan area of the US.  One interpretation would be that this is the natural consequence of the bubble popping in 2007-8.  The other is that this is a disaster that has to be averted through more public interventions.  I’m pretty sure I know how the Beltway wants to react, at least:

Home prices slipped in nearly every major metropolitan area in November, with a few cities hitting their lowest levels since prices peaked about four years ago, according to a closely watched index released Tuesday.

From October to November, prices fell in 19 of the 20 metro areas tracked by the Standard & Poor’s/Case-Shiller index, widely considered a gauge of the housing market’s health. The only exception was San Diego, where prices were basically unchanged.

Only four areas posted year-over-year gains in November, including Los Angeles, San Diego, San Francisco and the Washington region. But in the aggregate, prices dipped 1.6 percent in November from the same time a year earlier, falling in 16 cities. …

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.

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.


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So how long now until we have Obamavilles springing up around the vacant housing?

Dark-Star on January 26, 2011 at 10:56 AM

With 20%+ real unemployment, over two years of “shadow” forclosed inventory, and the entire MBS/title chain fiasco – the housing market will be FUBAR for years to come.

Rebar on January 26, 2011 at 11:02 AM

Treat this as an opportunity to recall who made this mess…Democratic largess and GOP unwillingness to put a halt to it. Barney Frank, Chuck Schumer and the now defunct Dodd. Freddie Mac and Fannie Mae being allowed to go hog wild while those on the hill practiced denial. All those empty store fronts, office buildings, homes, long employment lines and the sagging economy are laid at the feet of the Federal Government. The very Institution at whose altar Obama and the Democrat and liberals worship. Never forget.

jeanie on January 26, 2011 at 11:03 AM

They want Congress to address a problem that they believe Congress created to support at least the current valuation of homes.

Whoa. Wait a sec. Are you trying to tell me that the government manipulating the housing market didn’t work?

mankai on January 26, 2011 at 11:03 AM

Well, we could adopt the UK’s squatter’s right policies where homeless people just move into unoccupied buildings and make them their own. That way, people who can afford a new home would have to have one built for them, just as long as they get moved into it before the squatters find it.

Skandia Recluse on January 26, 2011 at 11:03 AM

Sold our home last spring and luckily got out with some spare change. The new owners put it immediately back on the market, where it still sits. Current listing price is $2k under what my wife and I paid for it in 1993.

Limerick on January 26, 2011 at 11:04 AM

We would be extremely lucky if they stop at 1998-2000 prices.

ORconservative on January 26, 2011 at 11:04 AM

Well, we could adopt the UK’s squatter’s right policies where homeless people just move into unoccupied buildings and make them their own

We already do except that the homeowner doesn’t have to move. They just stay in their homes and pay no mortgage or no taxes, eliminates the middle step. Would be okay if the rest of us didn’t have to pay it for them though.

jeanie on January 26, 2011 at 11:09 AM

With 20%+ real unemployment, over two years of “shadow” forclosed inventory, and the entire MBS/title chain fiasco – the housing market will be FUBAR for years to come.

Rebar on January 26, 2011 at 11:02 AM

Obama just need to bring out a new speech and that will fix it.

the_nile on January 26, 2011 at 11:10 AM

This is what you get when you pass federal programs (like HAMP) designed to avoid the inevitable. When you had too many people buying houses they could not afford, why are we surprised that there will be a tick up in foreclosures. Instead of letting this play out in an orderly fashion, the government tried to hold up the damn. Now the floods are coming and it will be even worse.

Why will it be worse? Because people have relied upon the government’s commitment to holding off the inevitable, they have made additional decisions based on that ill advised policy. So, instead of just losing thier homes, people will lose the additional money they wasted on the home (taxes, utilities, etc.) instead of finding a more cost efficient solution. This wasted money could have been used more effectively for those people. Now it is just wasted.

RedSoxNation on January 26, 2011 at 11:14 AM

Quick! Take over the carpenters!

rogerb on January 26, 2011 at 11:15 AM

FDR burned crops and slaughtered livestock in an attempt to boost prices. Obama will try to bulldoze houses before it’s all over. He’ll want a trillion dollars to buy D10 Caterpillars for every municipality in America. Just think of all the union jobs…

flyfisher on January 26, 2011 at 11:19 AM

There’s a town about 30 miles from me with little homes that were built back in the 50′s and 60′s… A lot of turnover during the boom. Now what used to be a nice mom and pop type area is overrun with squatters, dealers and bums.

The homes look like they are vacant, but they’re not.

Obamaville 2011.

Key West Reader on January 26, 2011 at 11:19 AM

I’m sure my property taxes will be going down soon to reflect this new dip. Not going to hold my breath on that one.

Kissmygrits on January 26, 2011 at 11:19 AM

Time to start thinking about buying investment property.

LincolntheHun on January 26, 2011 at 11:20 AM

Do you want another example of how the government policy of trying to hold off the inevitable causes more waste? You only have to look at what the government did with Bear Stearns. When the government bailed out Bear Stearns with its various guarantees, it sent signals to companies like Lehman Brothers that the government would never let a company its size fail. So, when Warren Buffet came to Lehman Brother’s CEO, Nick Fold, to offer a deal to save the company, Fold rejected him because he thought he’d get a bette deal from the government. Moreover, given what the government had done with Bear Stearns, money market funds had continued investing in Lehman Brothers even though Lehman’s books looked a lot like the books of Bear Stearns. Why would these “safe” investment funds do this?! The answer is simple: the expectation that the government would bail them out. When the government balked on a bailout for Lehman, the financial markets started to crash because, among other things, it sent a signal to the market that the rules of bailouts had somehow changed in the middle of the game. The government’s bailout game, which started in the early 1970s and was used for banks in the mid-1980s (e.g. Continential Illonois), created the expectation that bailouts would “save” the inevitable for banks that were too big to fail. When that changed, the markets crashed and we are all now paying for it.

What do you think will happen when the government stops its futile attempt to “save” the mortgage holders from holding on to a house they cannot afford? For me, the answer is simple: the market will crash.

RedSoxNation on January 26, 2011 at 11:24 AM

Mask symptoms temporarily with government money or take steps to actually free up individuals and businesses to create wealth?

“Maybe you’re better off not having the surgery, but taking painkillers.“ – the President

This answer works every time for progressives.

forest on January 26, 2011 at 11:26 AM

Not surprising, mortgage rates are returning to 8% traditional rate. Home buyers purchase on month payment affordibility not home pricing.

This housing bubble started when we lowered the Federal below inflation and it created a artifical bubble. It was further pushed with the “promise” from Fannie Mae and Freddie Mac if your loan.

Now, their were some private problems too like credit agencies rates, some crazy stuff at Goldman sacks, and affordibility products from places like Country-wide But the bubble was started via the Fed, quasi government agencies, and FHA/low income housing. And lack of enforcement on current government regulations. The whole congress was on the take.

Please just the housing market go fully private and I’ll support ending too big to fail.

Oil Can on January 26, 2011 at 11:28 AM

On the bright side, once our housing market has crashed down to Central American levels – we won’t have to worry about minorities who can’t afford homes.

abobo on January 26, 2011 at 11:31 AM

Even if you are lucky enough to be secure in your mortgage, if really has put a damper on people who wanted to use their biggest asset to retire or move. There are probably people that could move to places with jobs but their house is holding them where they are. It’s amazing how this impacts so many levels of society.

Cindy Munford on January 26, 2011 at 11:32 AM

Sacramento houses selling for the price of a car.

[Note: Link a little slow to load.]

Emperor Norton on January 26, 2011 at 11:33 AM

Well, we could adopt the UK’s squatter’s right policies where homeless people just move into unoccupied buildings and make them their own.

Skandia Recluse on January 26, 2011 at 11:03 AM

Ever been to San Francisco?

steebo77 on January 26, 2011 at 11:34 AM

With 20%+ real unemployment, over two years of “shadow” forclosed inventory, and the entire MBS/title chain fiasco – the housing market will be FUBAR for years to come.

Rebar on January 26, 2011 at 11:02 AM

Speaking from experience as a real estate broker in the midwest, I can assure you, this is correct, at least it is in my neck of the woods.

Tim Zank on January 26, 2011 at 11:35 AM

It is predictable what will happen, especially to ARMs as interest rates return to their realistic level.

Vashta.Nerada on January 26, 2011 at 11:36 AM

But Obama says the worst of the recession is over!

It’s PalinBeckLimbaughNAZIco fault!

csdeven on January 26, 2011 at 11:41 AM

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.

Private sector employment growth will cure all ills. Unfortunately, that might get Obama re-elected which may be ok if the Republicans get the credit for the job growth.

Vince on January 26, 2011 at 11:42 AM

Why not just stick with the real unemployment — U6. Let the truth out.

tarpon on January 26, 2011 at 11:43 AM

Re who created this mess: Federal Inquiry Finds that Financial Meltdown Was ‘Avoidable’

“…shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.”

What, it wasn’t all ‘greedy Wall Street’ as the Progs would have us believe?

slickwillie2001 on January 26, 2011 at 11:45 AM

Time to start thinking about buying investment property.

LincolntheHun on January 26, 2011 at 11:20 AM

….in Singapore

PatriotRider on January 26, 2011 at 11:49 AM

First you have to get the government OUT Of regulatory policy for home ownership and OUT of subsidizing home owners via tax policy, and then get a balanced budget that takes on no debt and works hard to pay off the existing debt.

A clean-sheet, flat rate tax policy that has everyone pay something in taxes, yes even the working poor, gives everyone a stake in our government. A tax code that can be understood and has no exceptions for anyone or anything will create trust in that tax code and that it will not be gamed by anyone.

By removing the politically created atmosphere in home mortgages, creating a sane and easy to understand tax code, by no longer devaluing the dollar through printing more of them and by letting the law run its course on contracts you will get a recovery. Any ‘quick fix’ by more regulation will just guarantee a worse, less transparent system more prone to failure. Clear out the opaqueness, let contracts rule what happens and make people responsible for when they put their name on the dotted line that government will no ‘help’ them if they screw up. End the subsidies, the inflators, the market games by government and then housing will recover… and we will see homes as a place to live, not an ‘investment’.

ajacksonian on January 26, 2011 at 11:53 AM

LincolntheHun on January 26, 2011 at 11:20 AM

If I had money, I would be all over it. You would have to be willing to hang onto them, not flip them as in the past.

Cindy Munford on January 26, 2011 at 11:53 AM

If I had money, I would be all over it.

Cindy Munford on January 26, 2011 at 11:53 AM

There’s a reason why people are not touching these “bargain” foreclosed properties:

Toxic Titles. The chain of title has been lost on most all of these properties, and title insurance companies will not write policies for them. The risk of buying then having the “real” title holder showing up and claiming the properties is simply too high.

Rebar on January 26, 2011 at 12:04 PM

This was entirely predictable.

Talk to anyone whi is in the real estate or mortgage lending business. A vast array of harsh new regulations have been dumped on this industry in the last year. Lenders are being forced to buy back loans from Fannie and Freddie for the slightest mistakes. Mortgage brokers have pretty much gone the way of the dodo bird, which has been great for the big banks but pushed prices up for consumers. Appraisers are so afraid of screwing up and getting hammered by the government that they routinely come in with appraisals $30-50,000 below the agreed on price, and then either the seller has to drop the price or the buyer has to come up with more cash.

*Mortgages harder to get and more expensive
*Lenders far more risk-averse and skittish about lending to anyone
*Appraisers lowballing home prices and forcing them down

ALL of this due to misguided government policy!

rockmom on January 26, 2011 at 12:06 PM

Ever been to San Francisco?

steebo77 on January 26, 2011 at 11:34 AM

Actually, yes, but it was get in, get unloaded, get dispatch to answer the [expletive] ‘phone and get out. Mainly ‘cuz if dem wheels weren’t turning I wasn’t making any money. But that was ten years ago.

Being there, and knowing what was going on there are two different things.

Skandia Recluse on January 26, 2011 at 12:09 PM

Rebar on January 26, 2011 at 12:04 PM

I’d still try it, that’s what title insurance is for. We have friends who are getting ready to buy their second property. The first one was just a good deal, the second is a short sale. I would love to have the money to help my kids get into home ownership.

Cindy Munford on January 26, 2011 at 12:11 PM

There’s a reason why people are not touching these “bargain” foreclosed properties:

Toxic Titles. The chain of title has been lost on most all of these properties, and title insurance companies will not write policies for them. The risk of buying then having the “real” title holder showing up and claiming the properties is simply too high.

Rebar on January 26, 2011 at 12:04 PM

Worse, the previous homeowner shows up and squats in what you think is your new property and refuses to leave. TV News shows up and portrays you as the evil investor. Democratic party Sheriff refuses to do anything. Al Sharpton shows up with bullhorn….

slickwillie2001 on January 26, 2011 at 12:13 PM

I’d still try it, that’s what title insurance is for.
Cindy Munford on January 26, 2011 at 12:11 PM

That’s just it – title insurance companies will not write policies for foreclosed properties.

Title insurance underwriters naturally do not want to place insurance where they know there is a high likelihood that there will be litigation over the matter being insured. As a result at least one major title insurer has announced today that it will not insure REO sales until further notice

Worse, the previous homeowner shows up and squats in what you think is your new property and refuses to leave.
slickwillie2001 on January 26, 2011 at 12:13 PM

Already happened:
http://whatcomforum.blogspot.com/2010/10/wells-fargo-lacks-standing-to-file.html

A real mess.

Rebar on January 26, 2011 at 12:19 PM

If I had money, I would be all over it. You would have to be willing to hang onto them, not flip them as in the past.

Cindy Munford on January 26, 2011 at 11:53 AM

.
I’ve actually seen houses listed to 20K. In St Pete Florida, and not in the worst neighboorhoods and in move in condition.

LincolntheHun on January 26, 2011 at 12:31 PM

Rebar on January 26, 2011 at 12:19 PM

I wonder if it’s better to do a short sale instead of a foreclosure? I don’t know why I care, I don’t have any spare cash to invest anyway.

Cindy Munford on January 26, 2011 at 12:51 PM

LincolntheHun on January 26, 2011 at 12:31 PM

I’m in the NE part of Florida, $20K still buts you where you don’t want to be. That’s sad.

Cindy Munford on January 26, 2011 at 12:51 PM

Yes, there are a lot of homeowners who are underwater on their mortgages. But everybody has to live somewhere. Just because you owe more than it’s worth doesn’t mean you have to dump the property at a loss.

No, what’s happening is that a lot of those underwater folks have stopped making payments; literally daring the lenders to come after them. If the lenders do initiate proceedings, then they pretty much have to write off the loan. And they do not want to do that. That’s why you hear stories about people who haven’t made a payment in years: the lenders do not want to recognize those bad loans on their balance sheets.

Double-dip housing market? I’m expecting a triple-dip. I’m not an accountant, but there has got to be some sort of time limit on when you have to recognize the loan loss in your books. When they do, we will have another dip in the prices, but at that point we will finally have hit bottom. Then, and only then, will we start to develop a real real estate market.

ss396 on January 26, 2011 at 12:54 PM

qualified buyers — that still required the normal income-to-debt ratios that got ignored during the bubble period

H8er

Branch Rickey on January 26, 2011 at 1:10 PM

I wonder if it’s better to do a short sale instead of a foreclosure?

Cindy Munford on January 26, 2011 at 12:51 PM

No, a toxic title is a toxic title, if the title chain has been broken it doesn’t matter the circumstances of the sale.

Right now, the only sure way to be guaranteed a clear title, is to buy a house owned free and clear, or brand new.

Rebar on January 26, 2011 at 1:24 PM

I live in a great neighborhood. My home value has sunk 25% in two years. It’s depressing. Pun intended!

Paul-Cincy on January 26, 2011 at 1:48 PM

Housing double-dip approaching?

Umm, would not the housing market have to have actually recovered first in order for there to be a “double dip”? IMO we`re only 1/2 way to the bottom as of now…more (lots) pain is on the horizon.

NY Conservative on January 26, 2011 at 2:14 PM

Wish I had seen this sooner..

http://www.guardian.co.uk/world/2011/jan/26/venezuela-chavez-housing-crisis-squats-caracas

Skandia Recluse on January 26, 2011 at 6:05 PM