Housing: The Little Engine That Can't

By
Real Estate Services with TheHousingGuru.com

Housing, the force that has lifted the economy from almost all previous recessions, now appears to have become the little engine that can’t, as the nation seeks to find another means of raising the U.S. from economic stagnation. One only has to look at the graphs (courtesy of Calculated Risk Blog) to see just how far housing has to go in order to stimulate the economy as it has done following previous recessions. And a look at the unemployment situation shows that “full employment” is still years away.

Housing Starts and Recovery 

Instead of seeking ways to artificially stimulate housing—efforts to date have been dismal and expensive failures—perhaps it’s time to accept the status quo and move on. One of the latest brainstorms from government is to sell huge segments of government owned foreclosures to investment groups who are expected to rehab and rent the homes to the growing number of renters. On the surface such a proposal appears to have merit; however, if it is price stabilization the government desires, it’s unlikely to be found in such a rental program.

 

Investors buying homes in bulk will receive sizable discounts, not only below market, but below the prevailing rate for foreclosures. Incentives and concessions will have to be offered in order to attract the number of investors desired. And such incentives will likely maintain downward pressure on prices in those areas where rentals are concentrated. It seems unlikely that neighborhoods filled with a large percentage of rental homes would see any appreciation in the near term; declines and stagnation would be the more likely scenario.

 

And if it’s “fairness” sought by DC, such a program is inherently unfair. While I’ve generally opposed government attempts at achieving fairness—true fairness is neither desirable nor possible—the  beneficiaries will be the big banks and Wall Street firms that participate in the program. Such a program would favor billion dollar hedge funds—some of which participated in creating the housing crisis—over small, local investors who have a vested interest in rehabilitating the individual neighborhoods in which they purchase. The difficulties of managing hundreds of single family residences scattered about a city is far different from managing a single location, multifamily project; and I suspect we’ll discover some unintended consequences as the plan unfolds. 

 

Another program currently being touted by the Administration—actually an expansion of one already in existence—would be to make refinancing available to a far greater number of struggling homeowners, especially those who owe more than their home is worth. And while the President offered a plan “that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage,” millions of responsible homeowners will be locked out, unable qualify. The devil will certainly be in the details—the Administration promises more in the coming weeks—but some experts, including the FED, have estimated the benefit to be limited to only a small percentage of homeowners.

 

With 10 million or more homes expected to face foreclosure or short sale in the next few years, it seems unlikely that housing will continue to be the little engine that can’t. It can’t drive the economy into recovery and it can’t return the trillions lost when the bubble burst; only time, and lots of it, can do that. Political rhetoric may play well to those whose hopes have been dashed, but it does nothing to create actual change.  


graph of unemployment  

 

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The Little Engine That Can’t - Originally posted at: www.TheHousingGuruBlog.com    

 

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Re-Bloggged 4 times:

Re-Blogged By Re-Blogged At
  1. Joe Jackson 01/28/2012 06:44 PM
  2. Gene Riemenschneider 01/29/2012 09:22 PM
  3. Gabe Sanders 01/30/2012 06:29 AM
  4. Esko Kiuru 05/03/2012 04:13 PM
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Topic:
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Tags:
unemployment and housing
government interference in business
foreclosures
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Rainer
40,162
Jimmy Phan
Phan real estate group in hickory
KELLER WILLIAMS REALTY IN MOORESVILLES, NC

Oh John

pls tell me what i am looking at ?

very depressing but how true it is

jimmy phan

January 30, 2012 11:24 PM
Rainmaker
613,422
Bob Miller
The Ruiz/Miller Team - Ocala's Dream Team
Keller Williams Cornerstone Realty

Hi John, Wow!  Those graphs really point out how bad the problem is and haw far we have to go to recover!

February 01, 2012 06:11 AM
Rainmaker
453,501
John Mulkey
Housing Guru
TheHousingGuru.com

Jimmy - It's depressing for those anticipating a recovery to the boom times or to regain lost equity.

Bob - Many of those who predict housing's recovery just aren't looking at the numbers.

February 01, 2012 05:19 PM
Rainer
170,695
Jark Krysinski
TeamYVR Team Leader, BA,ABR,IRES,IMSD,LLB
REMAX CREST REALTY WESTSIDE

Hi John, I can tell the problem is not easy to recover from the picture. The price is high not the only problem, if people don't have a job or the income is low, they still can't afford. Thanks for posting, from your great post, I know the situation is a little bit complecated. 

Thanks again for sharing!

Have a good day!

February 08, 2012 04:54 PM
Rainmaker
453,501
John Mulkey
Housing Guru
TheHousingGuru.com

Jark - Yes, it's complicated and will take a long time to repair.

February 11, 2012 01:27 PM
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