Posts Tagged ‘residential real estate’

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.


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.



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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Private capital being unleashed on the residential housing market …. finally!

April 25, 2012

Way back in November 2008 —  in a post titled:  “Big Idea: Rallying private capital to stabilize housing prices.”  — I proposed a plan to resuscitate the residential housing market.

The essence of the plan (in 2008) was to:

  1. Eliminate ALL of the capital gains taxes on residential property that is bought from now until, say, December 31, 2010 and held for at least 18 months,
  2. Allow these “qualified residential properties”, if they are rented, to be depreciated for tax purposes at an aggressively accelerated rate (say, over 5 or 10 years) to generate high non-cash tax losses, and
  3. Allow ALL tax losses generated by these “qualified residential rental properties” to offset owners’ taxable ordinary income with no “passive loss’ limitations, thereby reducing their federal income tax liability.

At the time, I said “the positive results are practically guaranteed”.

Well, almost 4 years later, look what’s happening — even without the bold strokes that I suggested.

The NY Times reports that “Investors Are Looking to Buy Homes by the Thousands”.

Some deep-pocketed investors are betting that the residential real estate market is poised to explode.

With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants.

There are close to 650,000 foreclosed properties sitting on the books of lenders.

An additional 710,000 are in the foreclosure process, and about 3.25 million borrowers are delinquent on their loans and in danger of losing their homes.

With so many families displaced from their homes by foreclosure, rental demand is rising. Others who might previously have bought are now unable to qualify for loans.

Investors believe the rental income can deliver returns well above those offered by Treasury securities or stock dividends.

At the same time, economists say, they could help areas hardest hit by the housing crash reach a bottom of the market.

Imagine if the movement had started 4 years ago.

And, imagine if the movement was boosted with the tax incentives,

It’s late, but not too late.

As I said before; “the positive results are practically guaranteed”.

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