The proposition that housing drives the economy is a pretty old and well-articulated theory. Housing values underlie the value of many of the mortgage-related paper held by financial firms. Falling home values have undermined consumer access to credit and people have been pushed out on the streets due to foreclosures.
Some economists say that there are hopeful signs housing will start to recover. The extra liquidity that the Treasury is putting into banks will improve mortgage lending. That theory is actually deeply flawed. Paulson can give the banks money, but he cannot force them to lend it. Big financial firms are just as likely, if not more likely, to keep the cash to use against future losses. Those losses may come due to mortgage problems. It is a perverse circle which may not be broken soon.
Of course, the strongest reason for home values to recover is that houses have gotten so cheap that buying them is becoming irresistible. Even if that is to some extent true, many consumers do not want to be the first ones back into the home market just to watch it drop another 10%.
For the short term, housing is slated to get much worse. That means, of course, that if it outperforms expectations, it could cause a real market rally.
According to The Wall Street Journal, "September housing starts are expected to slip to an 880,000-unit annual rate from 895,000 in August." That is not a massive drop. It is actually reasonable in light of how bad things have been. There will be dancing in the street if the figures are better.
Housing may be about to make a bottom.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
10-17-2008 @ 10:44AM
beachpaul said...
We are trying to buy and finance a property right now. The mortgage company wants me to pay $500 to pull the rate back a half a percent, We are putting down over 40%. We are financing a barely over six figure loan. They want outrageous interest for under six figure loans. They should be paying me for even considering borrowing. That is what is wrong with the housing market. Their greed never sleeps and that is why so many people were against the bailout.
10-17-2008 @ 11:58AM
vic said...
truer words have not been spoken about this economy for over 3 YEARS!!!... say what they might, people didn't really believe that everything in the economy is tied, directly or indirectly, to the health of the housing markets... my complaint is that when the real estate economy literally stopped dead in its tracks in october, 2005, no one in washington cared to even glance our way (i'm a realtor), but come august, 2008, and fannie and freddie and banks and insurers get a, by comparison, slight arrythmia, they come running with boatloads of OUR money to bail them out of their ILLEGAL misrepresentations and mismanagement!!!... and do you see a DIME going to help the people who actually own these crappy mortgages?... NO!... it all goes to the banks and insurers, who then squeeze in a week in cali or a week hunting pheasant in england, again on OUR dime!... A-FREAKING-MAZING... then, if we have to sell short, these same banks will issue us a 1099 for the shortfall that we suffer because of THEIR theft and greed... WTF!
10-17-2008 @ 1:10PM
larry said...
There will be a bottom. and I think sooner than most people predict.
Fueled by cheap housing....Really cheap housing..
When the interest rates come down into the mid 5% , the rush will begin..It will be a feeding frenzy as new buyers jump on the housing market..Young people will get down payments from family or savings and roll the dice..Housing is now cheaper than renting and that will trigger the rush.
I and many others are waiting to put my kids into an affordable home.
I hate renting as do many others and see this time as a real opportunity
It will be our best chance for a piece if the pie.
Lower mortgage rates will be the key, so the banks need to start bringing down the rates instread of keeping them high for whatever reason..The first one to drop interest rates will be the champion of this recession
10-17-2008 @ 1:10PM
larry the Father said...
I will buy a home for my children within a year or two...I just want cheaper interest rates...I have great credit as do the majority of the public and we are just ready as hell to buy.
What bank will take the plunge?
10-17-2008 @ 1:04PM
Iridium said...
People have to be able to afford a house to buy a house. That is why we are in this mess and that is why we won't be able to get out of this mess.
Has anyone stopped to think about the fact that the only way we were able to grow the housing market was to give mortages to people who couldn't afford them. What does that say about the core fundamentals of the housing market?
What that says is that the people who need to buy houses can't afford them. Houses can't go up in value because any increase in value means that less people can afford them. Meanwhile lending standards will become so tight that almost none will quallify and mortage rates will stay in the 6-7% range. Housing will become a reality for the rich and a dream for the middle class.
Mortage rates are too high and property taxes are insane. People are just going to turn to renting, but then there will be nobody left to own the property to rent.
Mortage rates need to be slashed to 2% and property taxes halved. As a memo to the bank, paying $220,000 in interest on top of $200,000 principal is extortion. How about we get a fixed lending rate. 20% of total principal goes to the bank over the period of a 25 year loan instead of 120%.
If I asked someone to pay me back $200 for loaning them $100 they would probably call the police. For some reason banks are allowed to do that every day.
10-17-2008 @ 1:16PM
eric said...
With websites like www.fakepaycheckstubs.com providing fake documentation and "hungery and soon to be homeless" real estate pro's wanting to make the standard 6% on EVERY real estate deal.....Is there any wonder why bank stocks are declining?