Ritholtz: Why Housing isn't yet bottoming

[edhopper]

http://www.ritholtz.com/blog/2009/07/why-housing-isnt-yet-bottoming/#comments

I can see no counter argument in terms of the economics. The NAR not withstanding.

[RBInMaine]

1. I do not believe it's that bleak. Unemployment won't continue for 2 more years. Prices will

continue to correct in many areas. Credit will again become available. The recession will top out later this year, and slowly begin to come around early next year. We'd be in even rougher shape but for the stimulus, most of which hasn't gone out yet.

[robinlynne]

2. Why do you think it is getting better. I see it getting progressively worse.

[RBInMaine]

6. I think the main thing we're waiting for is credit to loosen up again now that the banks are, for

the most part, solvent, and many of the large financial firms are back in the black. Many lenders are playing a wait and see game right now as well as new regulations hit the books. All corrections take time. So there is some good news in that the banking system seems to be stabilizing. Also, many out of control prices, especially in real estate, are correcting as they should. Most of the stimulus money hasn't gone out yet. Remember that. Much more is going out the door this summer and fall. The auto industry is restructuring. Many others are as well. As much as it hurts, this country went on a massive buying and lending binge during the 90's and 2000's. Now it is coming back to haunt us. The guilty parties were the deregulators in the government, way over lending sub primes, bad secondary market instruments, too much very cheap money for too long, and many very bad personal financial choices among the populace. Sin to go ALL around. This economy needs time to correct. Obama is on the right track. If we can get energy and healthcare under control and wind out of Iraq an Afghanistan, we'll be in much better shape in the longer term.

[4dsc]

5. I believe unemployment will continue to rise

because there's no sector in the country that's going to lead us out of this recession.. Where are the jobs going to come from?? Housing? Manufacturing?? Financial?? It seem people are just expecting something to happen but cannot explain where it going to happen..

[Warpy]

3. The "good" news is that most of the worst paper

written in 2006, the fraudulent stuff meant to keep houses off the books and the hyperinflated prices pumped, has already gone into foreclosure. The "second shoe" of all the Alt-A and other funny paper that is due to reset well into next year has already started to drop.

However, until and unless our fine overfed boys in Washington realize that the economy runs from the bottom up and not the top down, housing will not begin to recover and probably has not yet reached its nadir in pricing.

People who don't think their jobs are going to last 6 months, let alone the 30 year term of the average fixed rate mortgage, are simply not going to be buying. It's not just houses, it's washing machines, refrigerators, furniture, carpets, curtains, and all the other things they put into those houses, plus the cars to sit in the driveway. The focus at least in the short term will be to pay down the consumer debt and student loans, not add to them in any way.

Banks can help the situation in the meantime by offering foreclosed properties as rentals, something that will help them get into the black while keeping the properties up. They did this during the Great Depression. A growth industry will be the rental management company to oversee the properties and collect the rents. However, the bankers seem to be just as dim as Congress is and still reliant on the free market fairy to set everything right as long as their own cash flow is barely positive.

This is what keeps me pessimistic, this inability at the top to see what the real problems are, jobs and wages, and how these problems will prevent any recovery from happening while people remain completely averse to taking on long term debt.

So no, the bottom hasn't been reached yet.

[prairierose]

4. Warpy, I think that you...

hit the nail on the head. It seems crazy to me that banks are not trying to stabilize the properties that they now own. Yet, we are not seeing that. I keep wondering how so many people have become so divorced from reality that they do not know that any economy runs from the bottom up. Goldman Sachs makes record profits but how does that help the average person pay their bills?