[...] will still not to be. Nothing slows progress more than government intervention, and by Jan 2010, it was obvious that Obama, Bernanke and Geithner were engaged in attempts to reinflate a housing bu… that was supposedly entering into “recovery [...]

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The Government already had a form of “intervention” by mandating loaning groups to make it easier for people with lower income or no income to get mortages (Freddie, Fannie, etc). This was only gasoline to the fire that was slowly smoldering under corrupt book keeping from many mortage companies who still are backed and defended by a Democraticly dominated Congress (Freddie.)

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[...] Texas cannot escape the same problems and future with toxic, overpriced real estate we all face, their employment situation fares far better than most other states. As the the [...]

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I think it just needs a little more patience to see the actual effect of the government’s intervention on the failing housing market.

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@John Cooper you are correct that housing cannot stabilize unless people have income to pay mortgages. It’s a vicious circle, and I’m not seeing much that inspires businesses to expand their payrolls in light of the planned additional excise, payroll and health care taxes and penalties. The less employees they are mandated to cover, the better their bottom line. They can get by with less employees working overtime, and adding part timers as needed.

I do understand the inflation of houses was bad juju. I don’t know if you read my “Perfect storm of housing and lending events analysis written some time ago. But housing prices becoming toxic… ie leverage for more than their value… was the primary culprit in the housing crash. Foreclosures aren’t new…. and had buyers defaulted on a $300K mortgage for a home worth $300K, the defaulting buyer would have been foreclosed upon, and a new qualified buyer installed. The problem was the $300K funding by the lenders was for a home that was worth more like $225K.

The drive up in prices was simple market action…. supply v demand. The influx of EZ money buyers with the existing inventory, combined with the building frenzy to meet the demand, resulted in bidding wars driving homes up over their values. Appraisers work on the market approach, not cost approach, as primary value. And if the history of sales proves ready and willing buyers are paying more than the cost approach, that’s the established new value.

Our problem is that what was toxic remains toxic today. You can modify loans all day long to make a payment more friendly monthly. However that doesn’t change the fact the home is still over valued and cannot be sold for what is owed. Combine that with high unemployment and unstable future growth and it’s only a matter of time before buyers default on their payments. Even with the modified loans, they are stuck there… unable to move and sell without it being a short sale. And since their credit is shot, they can’t purchase either.

The loans this year, driven up by the $8K buyers, resulted in again driving prices up. Once more we had bidding wars with first time homebuyers, trying to get their homes closed before the original November deadline. REO’s quickly figured out the trick. During the short sale period, banks refused approvals, foreclosed, and dumped a few of them (still have a shadow inventory waiting to go….) for a low price. Then they sat back and watched buyers drive the price right back up.

Now according to the latest sales history in the local markets, they are appraising for the prices. But with 3.5% down (actually less since buyers put 3.5% down on the home, but then finance in 1% upfront one time mortgage insurance payment for FHA making it really more like slightly less than 2% in the home), any slight decline in the home’s values turns today’s sales into tomorrow’s toxic mortgages on the books. If you add the cost of sale to sellers of about 4-5% of the homes sale value, the new buyers are simply stuck in limbo… unable to sell until the market stablizes, then again begins to rise. I can’t see this happening for 4-7 years at best. First more decline, more foreclosures and short sales. Then, if employment begins to grow, stabilization, and then a more reasonable 3-4% annual appreciation.

Needless to say, it’s going to take a while… as long as we don’t shrink the amount of disposable income with the proposed health care and cap and trade regulations planned.

Even if both those measures were postponed, there’s a lot of digging out and “cleansing” to be borne by the consumer for our past. If the measures do pass, then it’s a question as to whether that digging out can be done in any of our kids’ lifetimes… or at all.

It’s a dangerous game that Bernanke and Geithner are playing…. risking the health of the dollar, and transferring all the risk of inevitable toxic mortgages to the tax payers instead of the banks.

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American Power tracked-back with, ‘Obama’s ‘Making Home Affordable’ Program: False Hopes Among People Who Simply Cannot Afford Their Homes?’.

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[...] This post was mentioned on Twitter by Luke Wilhelm, Obama Scare. Obama Scare said: 2010: A Obama/Bernanke/Geithner housing bubble on the taxpayers’ dime http://j.mp/6O8Abv  #tcot [...]

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Mata–

You sure put together a great collection of important information there. Thanks. I just have a couple of random musings.

I’ve built two homes with my own hands, and have a pretty good idea what it really costs to build some of these million$500,000 homes. Basically, it can be done for about one-third of what a contractor charges if you’re not in a hurry. In the not-too-distant past, contractors would spend money on a house like they didn’t care – and they really didn’t because most contractors work on a cost-plus basis. The more they spend, the more they profit (which gets back to why I always built my own).

When the music stopped, a lot of people got caught with new houses that were objectively worth much less than what was spent on them. So my best guess is that that the bottom of the housing market will be reached when recently built homes are selling for 20% less (on average) than it cost to build them. (See my website for my philosophy of building houses.)

From over thirty years of watching aghast at what people would pay for a place to live, it’s my sense that there are two major pools of buyers for new homes: 1. Working folks with a bright future who are secure in their jobs and expect to be earning more in the future, and 2. Retired folks who have made a pot of money somewhere else and are moving into a new area to retire.

Obviously, my No. 1 group is pretty small right now, and the “pot of money” that the No. 2 group had saved up is now only half as big as before. I know several Floridians who, several years ago, were planning on selling their homes down there and move up to God’s Country. They’ve been unable to sell their homes for what they needed to build their new one.

I guess what I’m trying to say is that the government can use their fiscal smoke and mirrors all they want, but the housing market won’t get better until people have steady jobs. By debasing the dollar, the government is actually making the problem worse, IMHO.

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