Lower Home Prices Can Fix What Government Can’t: Caroline Baum

[Arraya]

http://www.bloomberg.com/apps/news?pid=20601039&sid=a7Z8mzKdoEZA
March 26 (Bloomberg) — Thud! Four years after the peak of the housing bubble, home sales are slumping… again.

New home sales, which lead the complex of housing indicators, fell to an all-time low of 308,000 in February, the fourth consecutive monthly decline. For existing home sales, it was the third consecutive drop after last year’s tax-credit- driven bounce.

Homebuilder sentiment has rolled over. Housing starts are bumping along the bottom, with new construction too low to accommodate normal growth in households, according to Michael Carliner, a Potomac, Maryland, economic consultant specializing in housing.

Alas, all the Fed’s purchases and all the government’s men can’t put the residential real estate market together again.

Between them, the federal government and central bank can lower mortgage rates, modify mortgages, use their power to get private lenders to modify mortgages, and create incentives to move inventory, such as the first-time homebuyer’s tax credit.

What they can’t do is manufacture enough artificial demand for an asset that was artificially inflated to begin with. Prices will have to fall, which is how supply is allocated in a market economy. (An occasional reminder is in order given the current spend-money-to-save-money mindset.)

The Federal Reserve will complete its purchase of $1.25 trillion agency mortgage-backed securities at the end of this month. Its efforts on our behalf have driven 30-year fixed-rate mortgage rates to half-century lows of sub-5 percent, “which should have been more stimulative than it was,” Carliner says.

Flawed Model

[EconProf]

The government is in a quandry: they need construction to build more residential and commercial buildings in order for the economy to revive. Yet the solution to the real estate glut of all categories is to NOT build for several years, allowing demand to sop up the accumulated surplus.
We are in the morning after/hangover stage, which must last a while longer.

[EconProf]

The government is in a quandry: they need construction to build more residential and commercial buildings in order for the economy to revive. Yet the solution to the real estate glut of all categories is to NOT build for several years, allowing demand to sop up the accumulated surplus.
We are in the morning after/hangover stage, which must last a while longer.

[EconProf]

The government is in a quandry: they need construction to build more residential and commercial buildings in order for the economy to revive. Yet the solution to the real estate glut of all categories is to NOT build for several years, allowing demand to sop up the accumulated surplus.
We are in the morning after/hangover stage, which must last a while longer.

[EconProf]

The government is in a quandry: they need construction to build more residential and commercial buildings in order for the economy to revive. Yet the solution to the real estate glut of all categories is to NOT build for several years, allowing demand to sop up the accumulated surplus.
We are in the morning after/hangover stage, which must last a while longer.

[EconProf]

The government is in a quandry: they need construction to build more residential and commercial buildings in order for the economy to revive. Yet the solution to the real estate glut of all categories is to NOT build for several years, allowing demand to sop up the accumulated surplus.
We are in the morning after/hangover stage, which must last a while longer.

[Arraya]

I agree, we should not be building. It’s huge gamble.

Especially, now that it looks like we depleted demand again. Also:

– delinquencies rose again to 14%(shadow increase)
– sales slump
– strategic default increase(principle reductions right on time to nip this in the bud)

I think we are in the “drink to function” stage of a multi-decade bender on our last bottle before detox.

[Arraya]

I agree, we should not be building. It’s huge gamble.

Especially, now that it looks like we depleted demand again. Also:

– delinquencies rose again to 14%(shadow increase)
– sales slump
– strategic default increase(principle reductions right on time to nip this in the bud)

I think we are in the “drink to function” stage of a multi-decade bender on our last bottle before detox.

[Arraya]

I agree, we should not be building. It’s huge gamble.

Especially, now that it looks like we depleted demand again. Also:

– delinquencies rose again to 14%(shadow increase)
– sales slump
– strategic default increase(principle reductions right on time to nip this in the bud)

I think we are in the “drink to function” stage of a multi-decade bender on our last bottle before detox.

[Arraya]

I agree, we should not be building. It’s huge gamble.

Especially, now that it looks like we depleted demand again. Also:

– delinquencies rose again to 14%(shadow increase)
– sales slump
– strategic default increase(principle reductions right on time to nip this in the bud)

I think we are in the “drink to function” stage of a multi-decade bender on our last bottle before detox.

[Arraya]

I agree, we should not be building. It’s huge gamble.

Especially, now that it looks like we depleted demand again. Also:

– delinquencies rose again to 14%(shadow increase)
– sales slump
– strategic default increase(principle reductions right on time to nip this in the bud)

I think we are in the “drink to function” stage of a multi-decade bender on our last bottle before detox.

[jpinpb]

[quote=EconProf]We are in the morning after/hangover stage, which must last a while longer.[/quote]

How to avoid a hangover? Keep drinking.

I’d say they are doing everything possible to not feel the pain and spending (drinking).

[jpinpb]

[quote=EconProf]We are in the morning after/hangover stage, which must last a while longer.[/quote]

How to avoid a hangover? Keep drinking.

I’d say they are doing everything possible to not feel the pain and spending (drinking).

[jpinpb]

[quote=EconProf]We are in the morning after/hangover stage, which must last a while longer.[/quote]

How to avoid a hangover? Keep drinking.

I’d say they are doing everything possible to not feel the pain and spending (drinking).

[jpinpb]

[quote=EconProf]We are in the morning after/hangover stage, which must last a while longer.[/quote]

How to avoid a hangover? Keep drinking.

I’d say they are doing everything possible to not feel the pain and spending (drinking).

[Author]

Posts