Posted on 07/06/2010 1:34:14 PM PDT by SeekAndFind
Ask any housing expert worth their salt why home prices are falling again and you’ll likely hear a litany of reasons, all of which sound completely plausible: tax credit expiration, weak job market, high inventory levels, shadow supply, strategic defaults, negative equity, and a tight lending environment.
This sort of analysis isn’t wrong, per se, but all too often discussions about home prices and the real estate market ignore the most fundamental of all economic indicators: confidence.
Shifts in confidence are closely tied to movements in the stock market. And, as I've written previously, the stock market is the most widely used barometer for the country’s economic health. It stands to reason then that the relationship between stocks and home prices could be similarly close. (See also, Will Housing Slide Again?)
In fact, they are. Below is an updated graph where you can see how home prices and stocks tumbled in tandem throughout 2008, only to both find support at almost exactly the same time last spring.
Similarly, as stocks have swooned in recent months, so too have home prices begun to slip. And while it’s easy to point to the above factor as reasons for the fall, it only tells part of the story. At its core, buying a home remains a highly emotionally decision. For as much as we at Cirios preach that our clients should focus on making a sound economic decision, it’s impossible to leave emotions out of the picture.
When people read headlines about crushing debt loads in Europe, rising unemployment, bankrupt states, and the Gulf filling up with oil, it naturally affects the way they make economic decisions. Interestingly, however, this relationship may not be as straightforward as we may think.
Conventional wisdom favors the idea that events drive social mood -- that is, we react to what’s around us. Logical enough, but there's another school of thought: socionomics, which counters that social mood drives events, and specifically our reactions to those events.
In other words, just because there's an oil spill or because California is broke, people won’t necessarily get skittish and stop taking risk. Instead, prevailing social mood provides a context in which decisions are made. And depending on that mood, the whims of millions of unique minds, reactions to similar events will vary over time.
The theory isn’t yet mainstream, but as new media increasingly captures humanities real-time pulse, this isn’t the last time you’ll hear socionomics and social mood uttered in the same breath.
Let me count the reasons. FDR. LBJ. Carter. Clinton. Dodd. Frank. Obama. Even Bush.
Government is the problem - RR
Because conservatives are out of money, and liberals are waiting for the availability of the first iHomes (tm) before they spend their hard-earned welfare money.
Keep in mind the red curve is a national moving average and is not applicable to much of the country.
The blighted cities and places like Michigan and Ohio are badly skewing the averages
The older a residential property becomes the more it costs to maintain it (including rehab as a cost of maintenance).
Absent that rehabilitation the sale price must be discounted appropriately.
If you don't build any new houses for a couple of years, you should begin to notice the impact of wear and tear on the aggregate housing market price structure.
People are afraid to buy a home because Obama wants us to be like Venezuela and Cuba.
- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6%
...don’t forget dividend taxes will go from 15% - 39%! Death taxes are going up as well.
It is call over supply, some of you forget that, we have about 14 +/- millions homes people do not want and cannot afford. Not to mention the pending glut of foreclosures to come.
Looking at prices in the past, after a bubble, prices usually drop below the trend line before recovering. We still have a little way to go before that happens. I think it is natural for prices to continue to drop, and the government should stop meddling and trying to control the market.
That’s it in a nutshell. There’s far too many houses for the population of people who can afford them. There’s far too many cars registered for the number of drivers we have to drive them.
This is just the same sort of thing as the ag over-supply that helped lead us into the Depression. They were heaping wheat up into huge piles and it was rotting. The elevators were telling farmers to no longer bring in their wheat, etc.
We have over-supply in a lot of economic sectors, but housing is the worst, and housing being over-supplied impacts a lot of other sectors, including appliances and durable goods.
If you don’t have a job you don’t think of buying a house.
FWIW the home construction market has been collapsed for some time now and real estate is the worst its been in my lifetime.
Even if Republicans gain a majority, they will be nowhere close to overriding an Obama veto...you can expect the minority Dems to vote as a bloc with Obama on everything.
We should never have allowed the marxist Democrats to gain control. Now we have to live with the consequences. Porkulus, the GM/Chrysler buyout, health care reform, 1.5 trillion budget deficits two years in a row would not have happened if the exact same Repubs we had in the house and senate in 2006 were there today.
Republicans with a backbone? How about just getting rid of the marxists that are actively destroying our nation in front of our eyes?!
Prices are falling because of short sales and foreclosures. They’re priced 20-30% less than a traditional home on average. If you’re trying to sell a $400,000 house and 2+ foreclosures come along in the same neighborhood, you’re doomed.
But the short sales and foreclosures are due directly to the failed insane government policies implemented and supported by the aforementioned useful idiots.
A number of items have been posted but the resumption of essentially the “Full Doc” standards for full documentation of income and credit worthyness over the last year is a bit daunting to many of todays buyers.
For the mortgage lenders that bought up such cows as Countrywide and others to survive examination by the feds and their own finacial reviews, they have had to go back to standards that haven’t been applied for twenty years.
Even with stellar credit and purchases at half of what any standard say is someone’s limit, the documenation and baby-kissing that has to occur today is the worst I have seen as a buyer in twenty years.
Many prospective buyers have their contracts fall apart as they don’t survive the guantlet.
Not to worry. The government is here to help you. Go ahead and buy that home on a federally guaranteed loan. No money down. No documentation required.
You probably don’t qualify for federal assistance seeing as how you actually have an income and a stellar credit rating. You’re also kissing the wrong babies.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.