Video: Has the obvious dawned in the housing crisis?

posted at 6:00 pm on July 5, 2011 by Ed Morrissey

CNN titled this piece, “No pain, no gain in housing market,” in order to make the point that the faster home values fall, the closer we will get to an honest recovery. They frame the statement with the ubiquitous “Some economists argue” the point, but there are few things more certain in economics that assets overvalued in bubbles have to return to rational valuation in order to stabilize their markets. After three years of sinking home values continuing even after short-term interventions by government, is this really still a controversial point?

Kudos to CNN for at last providing some common-sense analysis, although their report ignores the reason we’re not seeing more qualified buyers: unemployment. The buyer’s market exists in part because of still-too-high home prices and a lack of qualified buyers. Even when home values reach a rational level consistent with inflation — a point still some distance off — the lack of qualified buyers might further depress sale prices. We need economic policies that create job growth and keep people from being forced into foreclosure. When prices reach a rational value and we get more qualified buyers into the market, then housing markets will recover and construction will follow shortly after.

This analysis should prompt a serious review of the attempted interventions into the market over the past three years, however.  Taxpayer money went to waste, encouraged people to lose money on homes by accelerating their purchases at artificially-inflated prices, and failed to prevent the utterly rational and natural evaporation of the bubble valuation.  That should remind everyone to get government out of the business of short-term interventions, and not just in housing markets, either.

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Kudos to CNN for at last providing some common-sense analysis,

Finally stating the obvious is more like it. I wonder if they’ll also start demanding an investigation into Barney Frank.

When prices reach a rational value and we get more qualified buyers into the market, then housing markets will recover and construction will follow shortly after.

As much as the libtards want to cry about the “fairness” of the markets and try their best to legislate their Pollyanna ideals, they’ll never win over simple supply and demand.

BacaDog on July 5, 2011 at 6:05 PM

who cares? As long as the Minorities own homes they can not possibly afford and the Gubermint is there to pay their mortgage it has to be good right???

SDarchitect on July 5, 2011 at 6:05 PM

who cares? As long as the Minorities own homes they can not possibly afford and the Gubermint is there to pay their mortgage it has to be good right???

SDarchitect on July 5, 2011 at 6:05 PM

Which minorities are you speaking of?

katy the mean old lady on July 5, 2011 at 6:09 PM

I’m confused, my house is still overvalued? If that’s the case I guess it’s a good thing no one is buying because I would play heck buying anything but a dump in the market I would like to move to. And we owe 1/3 of the original price of the house. Is gold the next bubble?

Cindy Munford on July 5, 2011 at 6:12 PM

I’m confused, my house is still overvalued? If that’s the case I guess it’s a good thing no one is buying because I would play heck buying anything but a dump in the market I would like to move to. And we owe 1/3 of the original price of the house. Is gold the next bubble?

Cindy Munford on July 5, 2011 at 6:12 PM

It depends on where you live, but yes, in general everyone’s home value will go down before it goes up, and so government interventions (the home buyer tax credit, the suggested mortgage bailouts) are just prolonging the decline by keeping prices high with taxpayer dollars. Once the taxpayer dollars go away, the decline resumes, leaving us with nothing for our tax money.

The “no one is buying” dynamic IS the housing slump. What it really means is “no one is buying at that price.” Your house is only worth what someone else will pay for it. To sell it within, say, 6 months if you put it on the market today, you would have to go way under what your real estate agent would tell you to ask for; hence, “overvalued.”

On the other hand, the house you would want to buy in the market you want to move to might be cheap right now, too.

HitNRun on July 5, 2011 at 6:25 PM

If we get 5 1/2 more years of the DOTUS…

We’ll ALL be renting from China Land and Development Company. We’ll all be buying our Electricity from Coal fired Power plants based in Foreign Trade Zones like the one in Idaho and we’ll be getting our medical care from Beijing Memorial Health Centers in your local areas.

Housing Crisis?……naaaaah.

PappyD61 on July 5, 2011 at 6:25 PM

I’m confused, my house is still overvalued?

Cindy Munford on July 5, 2011 at 6:12 PM

Yes.

ernesto on July 5, 2011 at 6:26 PM

PappyD61 on July 5, 2011 at 6:25 PM

You willing to place a wager on that prediction ;) ?

ernesto on July 5, 2011 at 6:27 PM

I recently heard a speaker review some research that showed that over the last 40 year period mortgage loan delinquencies and defaults we NOT correlated to the amount of down payment paid by the borrower – until the advent of the subprime loans when borrower qualifications were essentially jettisoned in order to fulfill the left’s wet dream housing equality.

His bold suggestion is to realize that new buyers will take decades to save up a 20% down payment at the inflated prices but if loan rules and customs were modified to allow 0% down for TRULY INCOME QUALIFIED borrowers based on ability to meet monthly payments we could see a much faster absorption of the FC’d and vacant properties nationwide starting immediately. Prices would soften but not collapse and a decades long real estate recovery could be over in just a few years.

We need some out of the box thinking to restart the economy – especially the housing sector.

in_awe on July 5, 2011 at 6:27 PM

Is gold the next bubble?

Cindy Munford on July 5, 2011 at 6:12 PM

Yep

joejm65 on July 5, 2011 at 6:28 PM

Cindy Munford on July 5, 2011 at 6:12 PM

Yep. Gold is the next bubble – if we begin acting responsibly with our national debt.

And Glen Neck better build a moat around one of his castles, cause there’s gonna be some REALLY mad suckers who listened to his advice…

KMC1 on July 5, 2011 at 6:29 PM

His bold suggestion is to realize that new buyers will take decades to save up a 20% down payment at the inflated prices but if loan rules and customs were modified to allow 0% down for TRULY INCOME QUALIFIED borrowers based on ability to meet monthly payments we could see a much faster absorption of the FC’d and vacant properties nationwide starting immediately. Prices would soften but not collapse and a decades long real estate recovery could be over in just a few years.

We need some out of the box thinking to restart the economy – especially the housing sector.

in_awe on July 5, 2011 at 6:27 PM

Great point. Unfortunately, the government isn’t quite that innovative. But it is a good idea.

joejm65 on July 5, 2011 at 6:30 PM

We are all supposed to rent.

Starlink on July 5, 2011 at 6:03 PM

I thought we were all going to be living in Government Housing projects.

oldleprechaun on July 5, 2011 at 6:33 PM

Where’s the bottom at? Who’s going to buy a house in an economy where the house depreciates in value the day after you sign the papers?

As of yesterday my bank’s stocks dropped to .25 cents a share. They haven’t paid back a dime of the TARP money and they’re sitting on a bunch of foreclosed properties that look to be foreclosed for quite some time.

We haven’t even begun to see the bottom of this mess yet.

repvoter on July 5, 2011 at 6:37 PM

Hannah…glen neck…..stupid autospell…

KMC1 on July 5, 2011 at 6:37 PM

CNN hasn’t even figured out the housing crash was caused by the liberals .. What did they expect would be the result of government backing the sale of houses with no money and and no ability to pay. And government backed loans at that. Now why would anybody with a functioning brain watch CNN?

tarpon on July 5, 2011 at 6:45 PM

I’m confused, my house is still overvalued? If that’s the case I guess it’s a good thing no one is buying because I would play heck buying anything but a dump in the market I would like to move to. And we owe 1/3 of the original price of the house. Is gold the next bubble?

Cindy Munford on July 5, 2011 at 6:12 PM

Unless you are planning on a move the value is not a factor. If your house has gone down that much. have the property tax adjusted to reflect the new appraisal. Too many people treated their house like a piggy bank instead of a home.

katy the mean old lady on July 5, 2011 at 6:47 PM

repvoter on July 5, 2011 at 6:37 PM

The bottom is when one wage earner is able to pay mortgage.

This whole mass would have been over by now if the government allowed the big banks, big companies, and home owners to default. What you have now is a lot of zombie banks and companies that is sucking the life out the economy. Until these business are gone the economy cannot recover.

jdun on July 5, 2011 at 6:51 PM

Cindy Munford

If you think we’re entering or already in a deflationary cycle. Gold is a good investment. However once the economy is out of deflationary cycle Gold will sink like a rock.

jdun on July 5, 2011 at 6:57 PM

I’m waiting for CNN to run an hour long special on Reckless Endangerment. Naming names.

r keller on July 5, 2011 at 7:06 PM

Snort. We are all supposed to rent.

Starlink on July 5, 2011 at 6:03 PM

Well with taxes, we all do rent, even if you think you own it!

bluemarlin on July 5, 2011 at 7:28 PM

So how much money have you been investing in real estate lately, ernesto?

andycanuck on July 5, 2011 at 7:52 PM

katy the mean old lady on July 5, 2011 at 6:47 PM

I think I could live with what we can get for the house, we are lucky, bought in 1997 with a good chunk down. It’s just weird not to even have the option. With no one buying, the only thing moving are distress sales and they aren’t going that fast.

Cindy Munford on July 5, 2011 at 7:55 PM

Did you notice the sign on the lawn at the end? Rand real estate.

keep the change on July 5, 2011 at 8:35 PM

Interesting development: Reid’s Sudden Regret

Subprime Scandal: The corrupt process by which the Democrat-appointed Financial Crisis Inquiry Commission was formed and ran its “investigation” is finally getting press.

In an extraordinary development, Senate Majority Leader Harry Reid now says he regrets naming fellow Democrat Byron Georgiou to the commission because of “ethical concerns” first raised by this paper regarding Georgiou’s tenure at the FCIC.

Until both parties face the fact that the meltdown was caused by politicians and thuggish community organizers forcing lenders to make bad loans, we will not be able to correct the problem.

slickwillie2001 on July 5, 2011 at 8:50 PM

One reason why we are not seeing more rapid recovery is because there are still millions of homes out there with mortgages that are under water. The entity owning that mortgage must keep large reserves frozen because of the number of under water mortgages. These are loans that are being paid every month by good folks with good jobs. But things happen.

As home prices continue to fall, it makes the situation even worse. Mortgages that were not under water last month are this month.

Say Joe Sixpack bought a house several years ago for $400,000. It got all the up to $650,000 in value but he resisted the urge to pull out that additional $250,000 in equity with a re-fi. Great, but now the mortgage is paid down to $350,000 but the house is worth only $200,000. Joe is now $150,000 in the red. He has negative equity. If anything should happen to Joe, the bank is going to lose serious money. Maybe his plant closes or he gets sick and can’t work. If the bank forecloses, it is still $150K in the hole.

Banks are still holding a lot of reserves because of this.

Things aren’t going to firm up until the direction of prices turns around.

crosspatch on July 5, 2011 at 9:18 PM

I’m confused, my house is still overvalued? If that’s the case I guess it’s a good thing no one is buying because I would play heck buying anything but a dump in the market I would like to move to. And we owe 1/3 of the original price of the house. Is gold the next bubble?

Cindy Munford on July 5, 2011 at 6:12 PM

In the long run, a house cannot be worth less than the cost to build it. Right now bankruptcies and foreclosures are causing many houses to be sold for less than the build cost but eventually this has to unwind. The cost of a new house has an absolute floor and eventually that becomes the floor for all housing. The existing houses are a finite supply and unless the population stops growing, they cannot satisfy all the demand forever.

Unfortunately, this prediction has no timetable. We’re definitely not talking months here.

Pythagoras on July 5, 2011 at 9:28 PM

The absolute floor is the price of a lot of the same size without a house on it. Sometimes a house on a lot actually decreases its value. A house that is more than 40 years old is probably reducing the value of the lot on which it sits unless it has some historic significance.

crosspatch on July 5, 2011 at 9:36 PM

SDarchitect on July 5, 2011 at 6:05 PM

I’m sure you are taking a general shot at the goofy loan programs and not being racist.

The shame of it all is the way the Dems play minorities with dead end ideas and gimmicks like affordable housing. The real key in the words of our beloved VP is that three letter word “jobs”.

There was a Wa Po article at the beginning of all this which inexorably led to the conclusion that we must buy out all the bad loans and keep the poor folks in homes they couldn’t afford. Why they were often just ripped off by crooked mortgage lenders or banks!

They never mentioned the people who kept saving for a home they could afford or who only told the truth on loan apps or who has enough sense to realize what payment they could afford. The Dems idea, of course, is to take their money to pay for the crooks and idiots. Then leave them in their little condos.

katy the mean old lady on July 5, 2011 at 6:09

The sad fact is that the Dems buy votes with this waste and we all know who is the target of the largess. This gets me called a racist and nothing could be further from the truth.

IlikedAUH2O on July 5, 2011 at 10:37 PM

His bold suggestion is to realize that new buyers will take decades to save up a 20% down payment at the inflated prices but if loan rules and customs were modified to allow 0% down for TRULY INCOME QUALIFIED borrowers based on ability to meet monthly payments we could see a much faster absorption of the FC’d and vacant properties nationwide starting immediately. Prices would soften but not collapse and a decades long real estate recovery could be over in just a few years.

We need some out of the box thinking to restart the economy – especially the housing sector.

in_awe on July 5, 2011 at 6:27 PM

How about the government keeping its dirty hands off of the “Trust Funds” and spending only what it actually has??? Is that “out of the box” enough for you???

Allowing people to buy houses they cannot afford (symptom: they don’t have down payment) is stupid. And for those who cannot envision how stupid this idea is….we’ve actually tried this stupid scheme. Predictably, it resulted in financial collapse of the housing industry.

The housing market cannot improve until the government ceases its war on jobs and private business. Only then will there be money for housing.

landlines on July 5, 2011 at 10:55 PM

I think these craven b*st*rds over-played the housing crisis. They never really tried to fix the economy; instead they: 1) used the economy to consolidate government control over industry and the markets; 2) solidified the implementation of fair housing practices (which will maintain government intervention even when the markets rebound); and 3) actually sandbagged the economic recovery until 2011-2012 in order to improve their chances of re-election.

I think they knew the American people would give them plenty of time to get the economy out of the ditch, so they took advantage of our patience. They assumed the markets would rebound because they always do (smart power!) but had no idea why they were down. In this I think of fat Uncle Fred at the swimming pool; the inner tube keeps everyone afloat except Fred, but Fred cannot float until he loses weight. The innate capabilities of the flotation device are overcome by the discriminating effects of reality.

Unfortunately for all of our current benefit, I think they grossly exaggerated the markets’ ability to rise once they stop deflating them. (partly because the jackasses don’t know how to stop deflating them.)If the economy stays recessed until recovering in Summer, 2012, Obama gets re-elected in spite of his irresponsible, callous policies–unless Republicans hound him down to 30% approval NOW. Rs need to win this election NOW.

Don’t allow the Dems the possibility of winning in 2012! In important contests, you can never count on your opponents’ continued incompetence! Don’t give O’Bama a chance to regroup!

This callous, self-seeking, disengenous, under-achieving, over-respected tyrant needs to be kicked up the road to the UN.

rwenger43 on July 5, 2011 at 11:32 PM

Economists can ‘argue the point’ all they want. The economy does not care. It will take care of the problem in its own sweet time – absent further meddling by Progressives and “The Smartest Man in the World”.

GarandFan on July 5, 2011 at 11:54 PM

Until both parties face the fact that the meltdown was caused by politicians and thuggish community organizers forcing lenders to make bad loans, we will not be able to correct the problem.

slickwillie2001 on July 5, 2011 at 8:50 PM

A big part of it to be sure. But I think also just average homeowners getting in over their heads with initial buys as well as second mortgages, coupled with cyclical banking, interest and monetary drops. Throw in Socialist “nudging” in other sectors of the economy, a housing glut, government interference, crony capitalism, loss of jobs overseas and so on and you get what we have now.

I don’t think it’s any one factor we can easily grab a hold of.

Dr. ZhivBlago on July 6, 2011 at 12:41 AM

When I bought my house in 1999, I paid $70,000 (three bedroom, one bathroom box, all I need). The mortgage broker acted like I was wasting her time and told me that I was “qualified” for $200,000. I looked at her like she had fallen from the sky and said, emphatically, “THIS IS WHAT I CAN AFFORD. PERIOD.” She shrugged her shoulders and looked at me like I was an idiot.

Now, 12 years later, the house is assessed for $120,800, down from $132,400 since last year. It’s really worth about $98,000, since that is what the house across the street that had been foreclosed on and was sitting for over a year finally sold for.

So who’s the idiot now?

Sarah2053 on July 6, 2011 at 9:51 AM

How about the government keeping its dirty hands off of the “Trust Funds” and spending only what it actually has??? Is that “out of the box” enough for you???

landlines on July 5, 2011 at 10:55 PM

Quite a non-sequitur there. Trust funds (don’t you wish there really were “Trust Funds”? In any event it has nothing to do with my comment or the housing crisis.

Allowing people to buy houses they cannot afford (symptom: they don’t have down payment) is stupid. And for those who cannot envision how stupid this idea is….we’ve actually tried this stupid scheme. Predictably, it resulted in financial collapse of the housing industry.

landlines on July 5, 2011 at 10:55 PM

Well, you conveniently skipped over the part of the idea that:
(1) indicated that prior to the subprime loans fiasco where income qualifications were thrown out the window, the amount of down payment did NOT CORRELATE with mortgage loan defaults
(2) only those borrowers who could genuinely show an ability to service the debt would be eligible – liar loans would not be allowed.

If we follow your thinking the younger generation will take 20-30 years to accumulate enough money to buy current housing stock despite having the ability well before then to actually service the debt from their verified income. I just don’t agree that we should wait 20-30 more years for the housing crisis to self correct.

As to this being the cause of the housing crisis, dream on. Government interference for social policy reasons set off the chain of events and the trashing of loan qualification related to income – not down payment – in subprime and Alt-A loans was the other major contributor.

So, I am saying eliminate the liar loans, go back to WHAT WORKED for 4 decades re income qualifications and get the ball rolling. Having record high SFR vacancies in this country is problematic and needs to be addressed.

in_awe on July 6, 2011 at 5:18 PM