Better an end to the housing crises with horror, than a housing crises horror without an end.
September 9, 2010: It seems increasingly clear that we must let housing prices fall. For how long can the government prop them up? Are we never to have a private market in mortgages again? When prices are lower, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.
In Las Vegas the 2,819 home sales in August was 4.4 percent fewer than July and 12.7 fewer than August 2009. The $8,000 credit for first-time buyers and $6,500 credit for other buyers effectively ended in April and home sales have slowed over the summer. The Las Vegas average house price rose 3.7 percent between July and August to $140,000.
Of all the uncertainties in our halting economic recovery, the housing market may be the most confusing of all. Right now, what is killing the market by inches is this lingering slow death, as underwater owners struggle to find a way to modify their loans, and the government keeps obliging them with ineffective programs to do so. This whole crisis would have been over 2 years ago if everyone would have let go of their houses. The market would have had a flood of foreclosures at the front end of the crisis, but by now that inventory would have cleared, and fair market prices would have stabilized, unfettered by any lingering uncertainty.
On one hand, the worst is over and that buying a house now can make a lot of sense. But if you can imagine staying much longer than a few years, you should take some comfort in the fact that the bubble seems mostly deflated. Sometime soon, prices should begin rising again. They may not quite keep up with incomes, but they will probably outpace the price of food and clothing.
On the other hand, there are currently nearly 15 million borrowers underwater on their loans, and over 9 million are more than 20% underwater—which means that a return to positive equity is unlikely within the next few years (and possibly more). These households are big default risks. And so in many markets, there is a substantial shadow inventory of homes that might go through the foreclosure process and enter the housing supply at low, low rates.
Let prices go where they will go; the problem is in the huge pile of mortgage debt that is no longer supported by home values.