Wednesday, Aug 27, 2008
America's housing market is sinking fast
FT: How to shore up America’s crumbling housing market
The current decline of house prices in the US is the natural result of the bubble that by 2006 had raised house prices to 60 per cent above their long-term trend. The sharp decline since then means that today’s prices are about 15 per cent above the trend level. But while a further 15 per cent decline may be inevitable, there is nothing to stop prices declining even further. House prices that could overshoot by 60 per cent on the way up could also overshoot substantially on the way down. During the past 12 months, house prices across the states fell by an average of 16 per cent. The large overhang of unsold homes continues to create pressure for further price declines. The record level of defaults and foreclosures continues to add to the stock of unsold homes.
8 Comments
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1. mountain goat said...
somewhere in the html there is "false". Changing it to "true" lets you read the full article.
2. James said...
Read that this morning - made me choke on my branflakes. He misses the WHY part of the question entirely... yes, I'm sure his plan might prevent paper housing losses, but WHY would you want to do that? It doesn't create wealth, it doesn't create jobs, it doesn't do a damn thing apart from keep housing unaffordable. Oh, and bank profits a bit higher.
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4. drewster said...
Also view it for free by entering via Google search
It's a long article but well worth reading. There's an excellent paragraph about negative equity:
The author proposes one solution, which is only relevant to the US since only they have "no-recourse" loans. His proposals wouldn't have much effect in the UK, or indeed many of the other countries (Spain, Ireland, Denmark, ....) which are also suffering from HPC.
5. tick tock said...
So more tax payers money to be thrown on the securities bonfire in order to shore up confidence in a system that deserves none?
Of course prices will 'overshoot' on the way down, thats one of the reasons that smart people didn't play with this fire in the first place, and why the fools that did are now finding their fingers increasingly hot.
If the market 'wants' to correct more than another 15% ,it will probably be because people still can't afford to buy, even at the reduced price. Doesn't the market already have a solution for this situation? Shouldn't prices continue fall until they once again become affordable to those who wish to live in them ??
The protection of the over valuation in mortgage bank collateral is the only concern these people have, and given that this over valuation is a direct concequence of those same mortgage banks own recklessness & greed, one would hope that taxpayers will not be duped further into funding the losses of gamblers.
Imagine if the billions spent on Northern rock had simply been spent building affordable housing? What a crazy idea that would be!
6. richc said...
Feldstein is full of BS. He was all in favor of free markets as the Federal Reserve inflated the housing bubble, but now that it's popped, he's arguing for state intervention. This would have minimal impact for homeowners, but it would be a huge government give-away bonanza to bondholders and investment banks (i.e. the investment banks that have made Feldstein quite wealthy through consulting fees and speaking engagements).
7. drewster said...
tick tock,
"Imagine if the billions spent on Northern rock had simply been spent building affordable housing?"
Millions of savers would have seen their savings get a haircut. Judging by the queues outside the banks, many of them were elderly and thus highly likely to vote. It would have been politically untenable.
8. mark wadsworth said...
There's no need to spend billions on affordable housing - all local councils have to do is be more generous with planning permission so that price of a plot of land with planning permission falls from £100,000 to more like a few thousand (sure, somebody has to pay for drains and road and so on to be extended).