Posts Tagged ‘Housing’

Whatever happened to the housing crisis? … Hint: It’s still there.

August 27, 2012

Remember the hysteria around dropping home values, slow real estate sales, and frenetic foreclosure rates?  All legit concerns.

May be my selective attention, but I don’t hear much about the housing crisis these days.

Maybe because deeply depressed prices have stopped sliding.

Maybe because all of the government’s silver-bullet programs have failed to move the needle.

Hmmm.

Reality: still a big overhang from the housing bubble needs to be absorbed.

Here’s a rough calibration of the problem, based on the below Fed chart.

Before the bubble. people were putting about $450 billion per quarter into Private Residential Fixed Investment, i.e. houses.

Eyeballing the chart, during the period 2001 and 3009, PRFI averaged about $650 billion per quarter… about $200 billion per quarter over “normal”.

$200 billion times 36 quarters = $7.2 Trillion in excess … or “overhang”.

In the past 3 years, we’ve been running about $100 billion below the pre-bubble “normal” … in effect, absorbing about $1.2 trillion of the overhang (12 quarters times $100 billion).

Bottom line: still have over 80% of the bubble to absorb.

Ouch

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When the subject comes up again — and it will — remember to revisit my longstanding idea for unleashing private capital to buoy the housing market. It doesn’t cure the overhang problem, but provides some price relief and liquidity to the market.

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The good news: housing is more affordable now … if you have a job, that is.

October 28, 2011

According to the WSJ ;

“While the fall in home prices has been painful for current owners, it has also made housing far more affordable for new buyers.”

In fact, the ratio of homes prices to annual income is at its lowest point in 30 years.

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Tidbits

Five years into the housing bust, the U.S. still has 10.9 million “underwater” borrowers, whose homes are worth less than the original purchase price.

* * * * *

If Pres. Obama’s  homeowners refinance gets traction, investors who hold mortgage-backed securities will take a hit when those securities fall in value as borrowers prepay their old loans.  In fact, the MBS market fell out of bed after the White House announcement on Monday.

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The Congressional Budget Office tested an economic model of the President’s refinancing plan and estimated that:

  • Government enterprises like Fannie and Freddie would save $3.9 billion from refinancing, but they’d also lose $4.5 billion from the reduced value of their mortgage-backed securities.
  • Pension funds, banks and others would lose as much as $15 billion.

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A couple of years late, Orzag jumps on the HomaFiles idea re: housing.

October 6, 2011

For a couple of years, I’ve been saying that private capital should be unleashed to stabilize the housing market.

How? Accelerated depreciation for residential  rental property with unabsorbed passive losses used to reduce ordinary income … and no capital gains on the property when sold – after a couple of years minimum holding period.

Well, well, well.

In a Bloomberg article “U.S. Can Rent Its Way Toward a Housing Recovery”,  Peter Orszag – Obama’s former budget guy – now proposes roughly the same idea.

Just a couple of years late.

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