Tuesday, September 20, 2011

Housing Report Card

"The market is really dead in the water, but it's not going down or up.  It's just plodding along."   So says Carl Case, the co-founder of the Case-Shiller Index.   In the wake of a report out today that claims housing starts were down 5% in August, it seems like an appropriate time to stop and report on the state of the housing market in this country.

Let's get right to it, why don't we!   Our grade for the Obama administration's handling of the housing market is a big, fat, bold F!!  This is one of the easiest grades we have ever given, and it comes without any lost sleep.

Here are the reasons for our grade:
* Nothing kills an economy more than slowly falling housing prices.   A home represents the largest single investment for most Americans.  Even in a good market the return on a home is questionable in the short term, and slim over the long term, when adjusted for inflation.  If your single largest investment is declining in value, or you perceive that it will decline in value in the near term, your overall spending and confidence will decline dramatically.   The last thing we want is a prolonged period of slowly declining or weak housing prices.  Unfortunately, that is exactly where we find ourselves.
* Everything that Obama has done to this point has been to slow the decline of housing prices.   The home buyer tax credit and foreclosure modification plans were put in place just for that purpose.  They are nothing more than political gimmicks put in place to create the appearance that he is trying to "ease our pain".  They only serve to prolong the decline and the pain for everyone, including those that pay their mortgage on time and handle their finances properly.
* The solution is to let the housing market self-adjust, find a real bottom in prices, and then begin to increase slowly.  Nothing should be done by the government to slow this process.  Remember, there are two sides to every sales transaction, a buyer and a seller.  Yes, taking a loss on your home is very difficult in the short term.  It can mean relocation, bankruptcy, and starting over from scratch.  The emotional toll can be significant.   However, by allowing the market to self-adjust, those losses are taken once, and duration of suffering is far shorter.  Buyers will immediately stabilize the market at the new equilibrium and stop the decline, which in turn increases confidence for all Americans.

Below are two videos that provide some additional insight into the housing situation.  We also provided a map that illustrates the change in home prices in the top markets across the country.  Unfortunately the outlook remains the same as it did earlier this year.  Home prices should continue to slowly decline overall, with some small bumps along the way.  As long as Obama continues to try and "help" and does not make us take our medicine, we will remain sick for a long time to come.

Housing Outlook 2012, Housing Prices, Housing Depression, Obama Policies, Housing Solution

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