And on Wednesday, the government said housing prices had risen 11.7 percent in March alone, the fastest rise ever recorded.
Today, we need to worry about strong headwinds, as the government begins to withdraw its support of a still-troubled lending industry and as foreclosures are dumping millions of homes onto the market.It seems, perhaps, that the people inclined to be seduced by the first-time home buyer tax credit (yeah, I'm talking about you David) took advantage of it early, causing a temporary blip in a longer downtrend.
Consider some leading indicators. The National Association of Home Builders index of traffic of prospective home buyers measures the number of people who are just starting to think about buying. In the past, it has predicted market turning points: the index peaked in June 2005, 10 months before the 2006 peak in home prices, and bottomed in November 2008, six months before the 2009 bottom in prices.
The index’s current signals are negative. After peaking again in September 2009, it has been falling steadily, suggesting that home prices may have reached another downward turning point.
We've been dipping our toes into the DC housing market recently, but after this weekend, I think I'm just about ready to give up. Anything that comes on the market at a decent price is snapped up almost immediately—by my count, mean time from listing to contract is under seven days.From a supply and demand perspective, if a house is selling in seven days, it means the price is too low. It may be too high from a long-term discounted cash flow perspective, which means potential home buyers should rent instead, but on a short-term supply and demand perspective the price is too low and the sellers should raise their prices.
The only things that stay on the market long enough to look at fall into one of two categories:I get the sense that Megan is being unrealistic about what the market will bear. How long are these supposedly overvalued houses staying on the market? Months or years? The $100,000 figure seems dubious because, according to Zillow.com, the median value of a house in DC has fallen by only about $65,000 since the market peak. High-end homes have generally been more resistant to price declines than low-end ones.
1. The owner bought the house between 2004 and 2007, and wants to get their money back out, hopefully with a little profit . . . and has therefore priced their home at least $100,000 above what the market will bear.
2. The house has been rented, and the tenants, familiar with their copious rights under DC housing law, are essentially refusing to allow the house to be shown. ...
Why can't we find anything?I don't see how this is bad, unless you're a house buyer who wants to kick someone else out of their home just so you can have it. If a bank has foreclosed on a home that is occupied by a responsible renter, why should the bank rush to sell? Isn't the bank earning rent on the home in the meantime? Renters who adhere to the conditions of their lease should be protected by the law. Besides, most leases only last for 12 months anyhow.
In part, because that shadow inventory isn't coming on the market. There are two components to this, one DC-specific, one not. The specific part is the aforementioned tenant laws, ... The only way to break a lease is to be a single-family owner who wants to take occupancy. The bank has to let the tenant's lease run before they are evicted, as well as give them ninety days notice of the intent to vacate the property....
One rich repository of predictive data is Web searches, said Hal Varian, Google Inc.'s chief economist. Jumps in such queries as "unemployment office" and "jobs" can help predict increases in initial jobless claims, he said. Other search terms, he added, can anticipate traditional data on travel behavior and sales of cars and homes.Using Google Trends, I decided to try it out for some key terms. Click on any image to see a larger version.
As the Fed chairman in February 2000, Greenspan appeared before a Senate committee and explained why he was raising interest rates. Inflation had yet to pick up, but the powerful advance of technology stocks had fueled such strong growth that price pressure seemed likely. Of course, Greenspan could not know that he was right. ... Greenspan was greeted with a torrent of abuse. Then-Sen. Paul Sarbanes, Democrat of Maryland, charged that the Fed's preoccupation with runaway tech stocks harmed the job prospects of inner-city youths. Sen. Jim Bunning, Republican of Kentucky, railed that higher interest rates threatened the economy more than inflation. "I think people hear what you are saying and conclude that you believe that equities are overvalued," said then-Sen. Phil Gramm, the committee chairman. "I would bet that equity values, given what's going on, are not only not overvalued, but may still be undervalued."While I dispute some of Mallaby's finer points, such as the housing bubble being less obvious than the tech bubble, it does demonstrate the social incentive to look the other way. As I've said before, when everybody's getting rich, nobody wants to step in and stop the party.
Remember, this exchange took place in February 2000 — one month before the tech bubble spectacularly imploded. If Greenspan was assailed for raising interest rates then, imagine the reaction if he had increased rates really aggressively around 2005, when the real estate bubble was a good deal less obvious than the tech bubble had been. Or imagine the reaction if Greenspan had unleashed a regulatory clampdown on home lending in the teeth of the consensus that rising homeownership was wonderful. Regulators cannot anticipate bubbles with certainty, as Greenspan rightly says. And they may not act even when bubbles seem probable, as Krugman contends, because the lack of certainty makes it difficult to face down angry members of Congress.
Federal Reserve officials at their March meeting stressed the need to make sure record-low interest rates don't feed new speculative bubbles in stocks or other assets. ...I do worry, however, that many people at the Fed still incorrectly believe that bubbles are impossible to detect until after they burst.
To aid the recovery, the Fed held the target range for its bank lending rate at zero to 0.25 percent. It's stood at that level since December 2008. And it maintained a pledge — in place for a year — to keep rates at rock-bottom levels. ...
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, for a second straight meeting was the sole member to oppose keeping that pledge. Analysts saw Hoenig as concerned that holding rates too low for too long could feed some new speculative bubble in assets such as stocks or commodities.
Fed members noted the importance of closely monitoring financial markets and institutions to help detect risks at an early stage. They cited, in particular, the need to monitor asset prices and loan levels.
Information collected by Fed staff hasn't revealed significant threats in the financial markets or widespread high-risk-taking, the minutes concluded. Still, Fed officials said they would be on the watch for any such threats.
The Fed, though, has been attacked on Capitol Hill and elsewhere for failing to detect risks leading up to the financial crisis. ...
Some also blame for the Fed for feeding the housing bubble that eventually burst and plunged the country into the worst recession since the 1930s. Critics contend the Fed did so by holding rates too low for too long after the 2001 recession.
Yet again, Team Obama is rewarding reckless behavior, punishing the 90 percent of responsible homeowners who are making good on their mortgages, and setting up a greater moral hazard that will surely lead to an expansion of bailout nation.But Larry, don't we need to keep housing as expensive as possible?
I’m talking about an add-on to HAMP, the $75 billion Home Affordable Modification Program, which has been a dismal failure. In fact, the entire foreclosure-prevention effort — including forgiveness of mortgage-loan principal — has been a failure.
The Office of the Comptroller of the Currency reports that nearly 60 percent of modified mortgages re-default within a year. And now comes a new, brilliant idea that if you live in your main residence, have a mortgage balance of less than $729,750, owe monthly mortgage payments that are not affordable (meaning greater than 31 percent of income), and you demonstrate a financial hardship, the government will subsidize you by offering TARP money to banks and other lenders to reduce your outstanding mortgage balance.
Former Bush economist Keith Hennessey highlights the outrage that Team Obama would actually subsidize people making up to $186,000 a year who have a mortgage balance of over $700,000. This isn’t even a middle-class entitlement. It’s an upper-middle-class entitlement. Actually, at $186,000, it’s virtually a top-earner entitlement, according to Team Obama’s definition of rich people eligible for tax hikes.
Bloomberg financial columnist Caroline Baum argues that lower home prices are the key to solving the housing problem. Popular blogger Barry Ritholtz says we need more foreclosures, not fewer, to solve housing. Both are correct.
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