Thursday, May 12, 2011
I don't know about your neighborhood, but in my town "for sale" signs are sprouting up in front of houses faster than the dandelions are appearing.
Spring, of course, is historically the best time to sell a house, since families want to be able to be able to move into a new home prior to the start of school next fall.
Problem is, housing sales are tepid at best, and with so much inventory on the market is hard to see how house prices will be increasing any time soon.
Buyers are reluctant to buy when there is so much downward pressure on house prices, and are instead renting.
As I have written on numerous occasions, borrowing to buy real estate is the largest part of credit demand. If housing and commercial real estate sales are sputtering, demand for credit will also remain weak, and interest rates will stay at historically low levels.
Yesterday's Financial Times wrote that the home price tracking company Zillow reported that:
...house prices dropped -3% in the first quarter and more than -8% year on year - their steepest rate of decline since the months after Lehman Brothers collapsed.
Oh, and in other good news, Zillow estimates that 28% of US homeowner have mortgages that are higher than the value of their homes, i.e "negative equity".
As the FT noted:
For perspective, in the UK during the mid-1990's, a period often remembered as the slump of housing slumps, 11 per cent of mortgages were in negative equity.
So its not surprising that anyone connected with the housing market is reporting very slow business.
Yesterday the New York Times carried an article discussing the reduction in support that the federal government is planning for higher end houses:
For the last three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans... But now Democrats and Republicans agree that the taxpayer should no longer be responsible for homes valued well above the national average, and are about to turn a top slice of the housing market into a testing ground for whether the private mortgage market can once again go it alone. The result, analysts say, will be higher-cost loans and fewer potential buyers for more expensive homes.
Fed Retreat on Big Mortgages May Hurt Upscale Housing - NYTimes.com
If you live in the most parts of the country, the government's move seems logical - why help out houses priced far above what most houses in their region sell for?
But on the coasts the reduction in government support for housing seems premature.