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Monday, November 7, 2011

Entering the slow season off a lull...

Recently, the NAR chief economist, Lawrence Yun, said the housing market is being excessively constrained. “A combination of weak consumer confidence and continuing tight lending criteria held back home buyers…” Yun was commenting on the reports that pending homes sale declined in September, down 4.6 percent from the month prior, even though they are up year-over-year as compared to September of 2010.

The report indicated that the largest decline was seen in the Midwest, which fell 6.2 percent for the month. The South and Northeast were a close second and third, falling 5.5 and 4.7, respectively. The West held up the best in pending sales for September, declining only 2.1 percent.

Yun cited the usual suspects – tight lending practices and buyer fears about the economy – as well as the confusing U.S. monetary policies and Fed actions that have actually served to hurt the market by lowering the lending limits before jumbo rates are imposed.

Finally, and certainly no surprise, he cited uncertainty about employment and the stubbornly high unemployment rate as another factor. The old “no job, no problem” lending days are long gone, seemingly replaced by the new attitude of lenders – “good job, so what – show me the money.” Lenders are demanding higher down payments and certainly much more documentation about a buyer’s wherewithal.

One thing that he didn’t cite is that the seller side is contributing to the problem, too. So many homeowners are underwater that the normal flow of homes into the inventory pool from people who want to move has just about dried up (at least in this area). These are people who would normally be selling to downsize in retirement or perhaps selling to take a new job or maybe even selling to move up the housing ladder. They are all stuck right now; so, they are selling or buying. The lack of good, move-in-ready inventory from those types of sellers is also restricting the market by giving would-be buyers much less to choose from.

The Fed seems to be casting about looking for ways to help get the housing market re-energized, but to little avail so far. A part of the reason is that they are also trying to keep their buddies in the banking industry whole. Remember that these are the clowns who created the free-lending environment and the monetized pools of mortgages that helped precipitate the housing bubble and subsequent crash. Just about everything from raw bail outs to new lending programs are still designed to protect those same bankers/investors. After all, they make the big campaign contributions and as John Arbuckle used to say, “You get what you pay for.”

One simple way to kick start the housing market, and likely help the economy overall in the long run, would be to force the banks/investors to write down the lost value of the loans that they are holding and refinance at the current value. Right now they are holding those loans on their books as assets at the old value of the loan. That equity value is gone for them and the homeowners involved.

Currently it’s a standoff between the homeowners and the banks to see who blinks first. Most of the time it’s the homeowner who blinks, because he either has to sell or can’t afford to service the loan at the old value. Only then does the bank “recognize the loss”, which is has known about all along. There are avenues available through regulations or changes in accounting practices that could force the banks to recognize those losses now and let everyone get on with life. Would that be painful? Yes. Does it have to be catastrophic? No. There are ways through bank capital requirements policy and federal tax policy that those losses could be softened for the banks. Yes, they would still be losses and the banks are fighting to avoid that with all of their lobbying money.

So, as we enter the Holiday season, which generally signals a slowdown in real estate business, we are faced with another season where a lump of coal is al lthat is slated to show up in our stockings. It doesn’t have to be that way, but first we’ve got to get mean old Mr. Scrooge (the banks) turned around somehow. Anybody know any good ghosts?

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