Doug French on the housing bust and "stuck factor"

Existing home sales are undergoing a historic sharp contraction in sales.  And, what will keep the residential market sluggish is what [Ivy] Zelman calls the “Stuck Factor.” An incredible 92% of homeowners with mortgages have a 5% rate or lower.  Nearly half of those with a mortgage have a rate of 3.5% or lower.  As long as rates stay where they are, or higher, people aren’t moving anywhere except in the case of the three D’s-divorce, death, or default.

~ Doug French, "'Poison Ivy' Zelman's says 'Stuck Factor' has Housing Market Stuck," DouglasInVegas.com, October 19, 2022

Alan Abelson builds the skeptic's case against economic recovery

That the market is on a roll is undeniable (and who but a cockeyed grizzly would want to deny it). But what's providing the biggest lift is the prevailing investor tendency to respond like gangbusters to even a glimmer of good news and to ignore bad news no matter how telling. Take the response to the latest data on housing.

First came the disclosure that existing home sales were up 7.6% in August—immediately seized upon as evidence that housing was on the mend, supposedly a harbinger of an accelerated recovery and reason enough to take the plunge into equities. But it ain't necessarily so.

As Mark Hanson, of Hanson Advisors, is quick to point out, while last month's sales were better than economists' forecasts (most of whom never saw the housing crash coming), they were down 19% from sales in August '09, and inventory edged up to 11.6 months. That awesome pile of unsold homes all by itself is going to be exceedingly tough to unload.

Moreover, Mark warns that you better be prepared from here on for the full impact of the end of government stimulus, including some pretty irresistible tax breaks, which helped goose demand this year. The absence of such artificial resuscitation is likely to translate into extremely disappointing year-to-year comparisons, including more than a few months of double-digit declines in existing home sales. He also sees the heavy mass of foreclosures and so-called short sales "pushing median and average prices lower, quickly."

As for new home sales in August, they were flat at a pitiable annual rate of 0.288 million units, just a sneeze above May's all-time low of 0.282 million. As a matter of fact, Mark says August sales were the smallest for the month ever. And he notes that foreclosure starts and actual foreclosures were close to 300% of overall new home sales, which stacks up as "a huge obstacle to builder sales" as we head into the slow season for housing.

Again, maybe we're missing something, but a decent recovery without a revival in housing strikes us as a BLT on toast without bacon. It just isn't going to happen. But investors at the moment apparently couldn't care less.

~Alan Abelson, Barron's magazine, "The Bad News Bulls", September 25th, 2010

Howard Glaser on the housing market

The housing market is the Vietnam War of the American financial system. The federal government is in so deep, they have to keep ramping up to find a way out. We’re going to have to destroy all these mortgages in order to save them.

~ Howard Glaser, housing consultant, from The New York Times

AEI's Desmond Lachman on the housing bust

[U]nless there’s government intervention on a big scale... we’re really not going to bottom.

~ Desmond Lachman, American Enterprise Institute, "Nev., Mich., Fla. lead ‘underwater’ homes list; New report underscores staggering depth of U.S. housing recession," msnbc.com, October 31, 2008

Peter Bernstein on the perfect financial storm

Nothing like this has ever happened before. There have been credit crunches and housing crises and dollar crises, but having all the chickens coming home to roost at the same time and interacting with one another is unique. We have historical perspective on the parts, but not the whole, and that makes things both interesting and scary.

~ Peter Bernstein, author of risk management classic, Against the Gods, "Retirement: Safety First," Barron's, September 15, 2008

Karl Case on calling the housing bottom

Anybody who tells you they know when the housing market will bottom is delusional, but anybody who denies there are some positives out there that could make the housing market bottom fairly soon is equally delusional.

~ Karl Case, professor at Wellesley College in Massachusetts and co-developer of the S&P/Case-Shiller home price indices, "Ray Of Hope Amid U.S. Gloom?," National Post, August 14, 2008

Barney Frank on the package to rescue Fannie Mae and Freddie Mac

Of the problems that were created by the reckless deregulation that led to the subprime crisis and the neglect of affordable housing that has marked Republican rule in Congress, this package of measures is the best response we could make. It cannot solve all of these deep rooted problems immediately but the bill does represent a mutually reinforcing set of approaches that will begin to diminish the problem. This will begin to lay the groundwork for a turnaround in the housing market and hopefully in the broader economy as well.

~ Barney Frank (D-MA), House Financial Services Committee Chairman, House Committee on Ways and Means press release, July 30, 2008

Thomas Donlan on the mortgage mess and political capitalism

Fannie and Freddie and the whole mortgage mess represent capitalism at its worst - the Invisible Hand in the taxpayer's pocket. First, it pays out bonuses and benefits to politically connected big shots. Then, it takes money from some citizens to redress the bad investments of others. It's the classic ‘mixed economy,’ in which rewards are private and risks are socialized.

~ Thomas Donlan, Barron's

Phil Duffy on the housing bill attempting to rescue Fannie Mae and Freddie Mac

You and I have just assumed responsibility for the irresponsible actions of these organizations and their investors. This has very little to do with home buyers and everything to do with bailing out bankers and investors. It has no effect on existing home owners. They already have their mortgages. It doesn’t matter to them if their mortgager goes out of business. The case that is being made for home buyers of the future is that they can’t do without Fannie Mae and Freddie Mac. But the market would move in to fill the role currently being played by these organizations. The market would be more prudent, but it is a lack of prudence that has caused the housing bubble and the demise of these government sponsored enterprises (GSEs).

Certainly the action by Congress with Fannie Mae and Freddie Mac, the bailout of Bear Stearns and hundreds of other interventions in the market have nothing to do with free enterprise and constitutional government. So what label accurately describes the nature of our current government? This was an issue addressed by Friedrich von Hayek, the author of The Road to Serfdom (Hayek was the co-winner of the 1974 Nobel Prize for Economics). He pointed out that socialism and fascism have many similarities. Certainly if the government owned Fannie Mae and Freddie Mac outright, that would be socialism. The government ‘sponsors’ but doesn’t own these entities. We the people don’t own them either, although we are forced to fund them. They will still be owned by private investors who will benefit at the expense of the rest of us. That describes a system called fascism. Surveillance of ordinary citizens is also a characteristic of fascist nations. As difficult as it may be to accept, our government is becoming increasingly fascist by any objective measure. We can no longer claim to be a constitutional republic because we refuse to be limited by our own Constitution.

Having lived through the World War II days and grown up in its aftermath when the question was asked, “How could Nazi Germany have occurred?”, I remember how we lulled ourselves to sleep. It couldn’t happen here. The problem was in the inherent nature of German stock (today we would call that DNA). We were biologically different, or so we convinced ourselves. The truth is that we are on the road to serfdom.

Phil Duffy, July 27, 2008

Ron Paul on the housing bust

The situation facing us now in the mortgage industry has its roots in the Federal Reserve's inflationary monetary policy. Without addressing the roots of the current crisis, any measures undertaken to improve the situation will be doomed to fail.

As with asset bubbles and investment manias in past history, the fuel for the current housing bubble had its origins in monetary manipulation. The housing boom was caused by the Federal Reserve's policy resulting in artificially low interest rates.

~ Congressman Ron Paul, Statement before the Financial Services Committee, September 20, 2007

(This quote appeared in "What the Fed Has Done To Us," LewRockwell.com, September 28, 2007.)

Lew Rockwell on the housing bust

The ideological basis of the meltdown began during the New Deal, when the government decided that the American Dream could only be achieved through housing ownership – not renting but owning. As time went on, every conceivable mechanism was pulled into order to realize this dream.

What if borrowing rates are too high for people to afford? We'll beat them down with the sledgehammer of government policy. What if the financial risk is still too high? Who cares, we'll subsidize it. What if there is no credit history or savings on which to justify taking the risk? We'll guarantee it. With what? With newly created money. What if mortgage lenders still aren't convinced that they will get paid? We'll make them lend money no matter what, and even threaten them with lawsuits if they don't.

So on it went for seventy years, until one day the entire hoax was exposed by the ultimate reality test: the market economy. Bad credit risks didn't pan out. Those who lent without regard for underlying fundamentals are suddenly seeing red all over the place. Bankruptcy ensues. Those who purchased repackaged mortgages on the open market find themselves with a hot potato and no one to toss it to.

So what does the government do then? It runs to the basement and turns on the printing presses. It creates $37 billion on the spot and buys up the bad loans and calls them assets. The government says that this is to create confidence. But confidence can't be created by making up reality. That path only leads to more illusion and error.

~ Lew Rockwell, "Reality vs. the State," LewRockwell.com, August 14, 2007

Mark Zandi on a proposed housing bailout

The total cost of the plan would ultimately be very modest. At the extreme, the upfront cost would be approximately $250 billion, assuming the federal government purchased all 2 million loans that are expected to end up in foreclosure through the end of the decade at a 30% discount to their original value. According to the FDIC, this is just about the ultimate cost to taxpayers (in today’s dollars) of the early 1990s savings and loan crisis via the Resolution Trust Corporation. Of course, the government would not lose all $250 billion, as many of these homeowners would be able to remain current on their new lower mortgage amount. Even if only half of homeowners were to be good payers, which seems pessimistic, then the ultimate cost to taxpayers will certainly be no more than that of the recently-enacted fiscal stimulus plan.

~ Mark Zandi, chief economist, Moody's Economy.com, "Zandi: A Mortgage Bailout Would Cost up to $250 Billion," WSJ Economics blog, February 27, 2008

Prof. Karl E. Case on the housing slump: "It's bottom-fishing time"

It is really remarkable how much where we are today looks like the bottom we've had in the last three cycles. Every time we've gone below a million starts, the market has cleared at that moment.

It's bottom-fishing time, I think. There's got to be bargains in Florida, Arizona and Nevada.

~ Prof. Karl E. Case, Wellesley College, "Is Housing Slump at a Bottom?," The Wall Street Journal, May 6, 2008, by Brett Arends

Cyril Moulle-Berteaux: "The housing crisis is over"

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

~ Cyril Moulle-Berteaux, managing partner of Traxis Partners LP, a hedge fund firm based in New York, "The Housing Crisis Is Over," The Wall Street Journal, May 6, 2008

IBD: 77% of homes bought a year ago are underwater in Stockton, CA

In Stockton, Calif., a "staggering" 77% of homes bought a year ago are "underwater" with negative equity, says Stan Humphries, vice president of data and analytics at real estate Web site Zillow.com. The percentage is nearly 60% in Las Vegas, above 40% in Miami and nearly 40% in Los Angeles.

~ IBD, "As Home Values Undercut Loans, More People Simply Walk Away," March 7, by Donna Howell