Why Obama doesn’t know the economy is bad…
Bottom line, he lives in a cave.
Now I’ll be the first to admit that it’s a very nice cave, but it’s a cave nonetheless.
One of the indicators of just how tough things are out in the real world is the real estate market. It’s in the tank, but I didn’t have to tell you that, we don’t have readers from DC. Not only is it in the tank, it’s not turning around anytime soon, and in the opinion of your humble correspondent, there’s probably another 25% downside in major real estate markets and nothing good will happen for at least five years AFTER the feds quit trying to manipulate the market. Let me quickly cite some reasons for my opinion.
- In major markets around the country the inventory of homes for sale on MLS is about 16 months. That’s homes currently listed for sale. A stable inventory, historically, is about 5 months.
- In those same markets, servicing banks are holding inventories of “real estate owned” (REO) on their books that are NOT listed on MLS in numbers that range from about 50% to 100% of the MLS listings. Those properties are called “shadow inventory”.
- If you are unable to make your mortgage payments and your home goes into default, in “normal” times the foreclosure process – which varies somewhat by state – takes about seven months from the time you miss your first payment until the “trustee sale” of the property and eviction. Right now, it’s not at all unusual for people to live in a house for two years or more without making a payment. Bottom line, banks don’t want more inventory but those loans will not “cure”, eventually they will go through the process and should be considered part of the “shadow inventory”. I’m guessing, but those numbers are probably about equal to the lenders’ current REO.
- Based on current lending rules, people with a foreclosure or bankruptcy are off the market in terms of being able to get a new mortgage for about five years.
- At least 25% of current homeowners are upside-down on their homes, they owe more than the home is worth. That means those homes are non-salable and those homeowners are off the market – probably indefinitely – in terms of being able to either “move up” or “downsize”. They are also handcuffed if they are thinking about a career move that would require relocation.
- Potential buyers who are unable to document their income via a W2 or their 1040s are now off the market without regard to their credit score.
- If you haven’t had a job for a while – like maybe 99 weeks – even if you manage to find one, you’re not likely to get a mortgage any time soon for a whole raft of reasons.
Bottom line to all of this is the real inventory of available housing is probably two-and-one-half to three times the apparent inventory and the pool of qualified buyers is shrinking.
So, what does that have to do with Obama’s understanding of the economy? Well, yesterday’s Washington Post had this interesting little snippet…
By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, December 29, 2010; 12:56 AM
The Washington region posted the highest year-over-year home price gains in the nation this fall, as real estate values slumped in nearly every other metropolitan area, a key housing report said Tuesday.
A healthy job market, particularly for high-salaried workers, buoyed demand and prices for housing in the D.C. area, local economists said. Home values climbed 3.7 percent in Washington in October from a year earlier, making it one of only four regions nationally to avoid a dip in prices, the Standard & Poor’s Case-Shiller home-price index said.
But hopefully that’s likely to change. (See how cleverly I put in the “hope & change” reference?)
It is unclear how long the region will be able to buck the national trend. One of the anchors of the local job market – private government contractors – may face significant cutbacks over the next several years as the Obama administration has vowed to rein in defense spending. But many economists expect that the local housing market is strong enough to weather layoffs now that prices appear to have stabilized.
“Economists expect…” Heh. Given that every report issued by the government’s economists for the last two years have contained the word “unexpected” I’m not putting money down on this guess. Hey Barack. Welcome to the real world.
- Housing market’s bumpy ride isn’t over (seattletimes.nwsource.com)
- Price drops eyed for pricier homes in ’11 (lansner.ocregister.com)
- Pending Home Sales Slump Further In September (realestateradiousa.com)
- ‘Shadow inventory’ of homes tops 2 million, says data aggregator (seattletimes.nwsource.com)
- O.C. home sales taking 58% longer (lansner.ocregister.com)