I hear many politicians and financial practitioners calling for a stabilization in housing prices to protect the homeowners and financial system of this great country. I say to them, "be careful what you ask for, you just might get it". I want all to heed my words, the past 8 years has seen the largest jump in US home prices in the history of home price record keeping by virtually every metric available. Home prices are too high in real terms, nominal terms, in terms of affordability, and in terms of yields of from implied and actual rents. If you stabilize prices before they fully correct, you will simply be setting the country, the financial system and existing/prospective homeowners to another bust/crash as supply and demand seek to reach equilibrium and home prices push towards affordability and historical mean values. As I stated in an earlier post, wishing for stabilization a year or two after a historical 7 year run is the same as throwign a ball 20 feet in the air and expecting it to stop falling 10 feet from the ground. This brings me to the latest articles on housing..
From CNBC: Home Foreclosures Jump for 7th Straight Quarter - U.S. home foreclosure filings jumped 23
percent in the first quarter from the prior quarter, and more than
doubled from a year earlier, as more overextended borrowers failed to
make timely payments, real estate data firm RealtyTrac said Tuesday.
One
of every 194 households received a notice of default, auction sale or
bank repossession between January and March, for the seventh straight
quarter of rising foreclosure activity, RealtyTrac said.
Foreclosure
filings were far-reaching, rising on an annual basis in 46 states and
in 90 of the 100 largest metropolitan areas, to a total of 649,917
properties. The first quarter filings surged 112 percent from the same
period last year.
and Home Prices Actually Even Lower than they Seem? - The man credited with developing the financing
of the modern U.S. mortgage industry says home values have fallen more
than their listed prices suggest but they could hold steady with the
help of a bill in Congress.
"I
think the actual price declines are bigger than the indexes are
showing, since so little is being sold," Lewis Ranieri, CEO of Ranieri
& Co., said in an interview on the sidelines of the Milken
Institute Global Conference.
Credited
as the 'father' of the market for bundling mortgages and selling them
on Wall Street as debt investments, Ranieri backs a bill by U.S.
Representative Barney Frank, a Democrat from Massachusetts, that would
make lenders accept losses on teetering home loans in exchange for
government guarantees.
"What he is trying to do is part of what
really needs to be done," he added. Frank's bill would allow the
Federal Housing Authority to insure $300 billion of home loans. Lenders
would erase some of the original loan amount and could even loosen loan
terms in order to win the government backstop.
"At
this point in the crisis, those of us who are practitioners would take
what we can get. I wouldn't turn down less! Because we need a
re-performing program, which is what in effect the Frank bill is."
Ranieri
said the key to success for lenders was keeping people in their homes
and his main concern was to make sure that the relief targeted lower-
and middle-income families buying homes to live in rather than helped
investors.
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