Bailing out the real estate market

Boy, you'll get comments on this one. :-)

In the past, industries had good years and bad years. But through manipulation and government intervention and anything else you want to blame, we've nearly 14 'good' years in a row, and now have to suffer through extremely bad years to restore our balance.

But hearing all the bailout conversations and comparisons, people now treat the exceedingly good years as “the norm”, and almost expect it to return to the way it was. So for the real estate blog, look at housing sales. Because sales of homes has become an investment opportunity rather than a way to shelter yourself, housing sales skyrocketed. This was unusual activity. So along come numbers comparing sales now to last year or even the year before. But those sales numbers were unusually high. So there’s no value on comparing (say) this December to last December, because last Decembers numbers were higher than (say) the 20 year average. To make a random example, if 20 years of data says you should be selling 10K houses per year. The last two years were so great you sold 50K houses. Now you’re selling 40K houses and saying sales have fallen 20%. But in this bad example, you’re technically selling 300% more you historically they should be. So which % number is “more accurate”??? How many “should be” sold? And how much should we believe an industry reporting numbers on itself, who has a vested interested in the outcome?

So when anyone starts throwing percentage numbers at us – what are they comparing them to, and what actually reflects reality??

NAR is behind the plan for taxpayers to spend money bidding down mortgage rates a full percentage point. House prices remain too high and there is a significant oversupply of inventory nationwide. Plus, oh yeah, a depression. So such schemes are a waste of money.

A better use of federal dollars is extending unemployment benefits to the self employed, like realtors. Yes, there are verification problems but some solution may be possible.

I find this so depressing, because I really, genuinely thought that everyone understood that these prices couldn't last forever. I thought people did actually give a crap about those priced out of the market.

It is insane to cry "free market" on the way up and cry "ooooh, help us" on the way down.

That said, at least the realtors really did drink their own koolaid... "prices only go up"... :)

I'm really tired of former house flippers who'd been gloating about all the money they made for a few years but are now crying because they are stuck with several houses they can't unload. Ever hear of "risk"? You couldn't take the heat, so now you know. Next time, keep your day jobs.

but Sunshine and Lollipops says the market is great, realtors don't need a bailout!

Hell no. The only solution is for housing prices to come down to rational and sustainable levels. The only kind of government intervention I would support would be one that rewards first-time or responsible savers/investors/housebuyers in a way that allows housing prices to wind down somewhat more slowly.

What do you think of this idea? Any loan-qualified first time house buyer that puts down 20% to purchase a home gets from the gov't a goodly chunk of money (for example, $50k, $75k, or $100k or whatever, depending on the price of the house). This will enable a first-timer to overpay while remaining within budget, and avoiding undue risk. This will reduce inventory, help unclog house sales, and allow prices to decline more slowly as these buyers will be able to sell later at a lower price without losing their real investment. But it should be structured so that these first-time buyers have to qualify for a loan amount based on traditional standards, without the government subsidy being factored in.

Disclosure: I've been trying to be a first time buyer for nearly 4 years :)

Geez - I hope a chunk of these real estate "professionals" didn't toss their plaid jackets. They'll need them when they go back to selling cars........

maybe not.

Vacuum cleaners.......

Stive, there's no free lunch. The problem is that home prices are still too high. The solution is for home prices to fall. Any plan that attempts to prop up prices is either doomed to fail or will only cause larger problems in the future. That's why not a single plan, bailout, etc. hatched to date has stopped the collapse in the real estate market.

I think if there is a bailout everybody should get a piece of it equally: homeowners that are under water, homeowners who pay their mortgage faithfully, renters, potential buyers, those who lost a big chunk of their 401Ks and so on. The times are hard for everybody and to single out a certain group of the population as a receipient of government help is going to devide the country even further.

That said, I am against all bail outs. I just don't understand the economic rationale for it. What's it gonna do for the economy? What? It's gonna make first time buyers suddenly flood the market with their offers?

Bailout - The Plan - there were 135 Million+ taxpayers in 2007. THE PLAN calls for every taxpayer to receive $75K - no monies to any industry. the total would be $10T (current bailout calls for $8.2T - and most Americans will NOT see a penny). 1/2 will save, the other half will spend. if you owe back taxes, amount reduced, child support, amount reduce. can not collect welfare for 5 years if you take the bailout. financial institutions would receive $5T (via 1/2 the savers) and other verticals would receive the other $5T. Giving Banks Billions of dollars to pay their executives just isn't right. OR if we are going to print money, why not print money to pay off the $1.2T deficit. saves allot on interest rather than give the money to banks and wall street to pocket it. Just a thought.

Stive, you might as well just structure it along the lines that "every buyer named Stive gets $200K towards their home purchase."

Haha, same net effect. Still, I like the effort.

Folks: Complain all you want about high home prices. Sellers (such as me) are not going to be able to lower our home prices much more. especially when many of us have lost $50,000 or more of equity in our homes.

Once the economy improves, it will be a game of who blinks first - buyers or sellers.

Home prices don't "have to" come down. They could rise slower, or not rise at all. Inflation will eventually cause the prices to be relatively lower than the are today.

I think that is one of the mistakes that people make regarding the housing bubble. There is some elasticity for people who own houses to decide
to hold on to them rather than sell them, if they feel they are not getting the price they want. Some people have to sell their houses, but others who might be thinking about it can wait.

Sellers (such as me) are not going to be able to lower our home prices much more. especially when many of us have lost $50,000 or more of equity in our homes.

What you need, want, or are able to do has no effect on the value of your home. It's going down, further. There are always people who have to sell--death, nursing home placements, divorce, foreclosures. And those prices determine your home's value.

Buyers aren't going to blink, because the prices they will pay isn't a game of chicken or a matter of preference. Prices are going to be constrained by buyers' ability to pay, and that ability is shrinking fast.

Inflation will eventually cause the prices to be relatively lower than the are today.

I used to think this, before this whole deflationary Greater Depression started.

well said hm. sellers (such as MAK2), as a collective market entity have little to no control over the price of property. while it is true that the market's exodus by the folks who don't need to sell will dry up the inventory and test the patience of the buyer market, if any entity has some market shifting influence, it's the buyers. at this point, if it comes down to a showdown at high noon between the sellers and buyers, the smart money is on the buyers.

Saturday night live had a great sketch where a couple at a press conference cries and says, "we cant sell our home for less than 10% more than we purchased it! Its tragic!".
I have to think about that when I see a ridiculous statement like, "Sellers (such as me) are not going to be able to lower our home prices much more. especially when many of us have lost $50,000 or more of equity in our homes." from MAK2
How much you lost relative to the peak is irrelevant to the fundamentals of what your home can sell for. Lacking the crazy loan policies of the past and people sobering up, the only fundamentals are multiples of earnings.
Houses will fall another 20+%. If you dont believe it read the front pages of the layoffs coming to Mass.

The idea that "housing" is an industry is risible. Condos have trebled since 2000 without so much as a coat of paint. There is a sucker born every minute.

The Real Estate industry got us into this mess, along with the banks and the appraisers...and let's not forget the mortgage brokers. You can no longer have the prices you had before—the price has to fall still further before more people can realistically begin to buy homes, once again. Otherwise, you'll have the same thing happen again that's happening right now: homeowners who can't afford their mortgages, followed by foreclosures and another round of price decreases.

Serves them right! Actually...I'd say something a lot stronger then that, were this group not moderated. There is no adjective that would be too strong for being derogatory.

Sure, tell that to people in CA, AZ, NV and FL. It is not just the matter of who blinks first. The money to purchase has to come from somewhere. Meanwhile, EMC is laying off 2400 people.

housing has AT LEAST another 30% drop to go, but all the bleating sheep at the NAR and daydreaming sellers will chase this market all the way down, saying
"buy now", or "my house is special it has blah, blah, blah".
In other words, “Yeah, I know we said the market was at bottom - and that you should buy - six months ago. It’s now clear we were wrong again. But, as luck would have it, you don’t really need to time the bottom afterall! That’s just inconvenient for everybody. Just buy.” I am also irritated by the “well I’m not going to give it away!” crap too. How about some straight talk instead. Like, “I am so angry, and delusional with greed, that I am not budging on my price and will ride it all the way down to the bottom, or my grave, whichever comes first!”

Most realtors are the scum of the earth. They are some of the most devious and unethical people around. I am so glad they are doing poorly now. Hopefully many of them will face foreclosure or bankruptcy.

Real estate sales will recover when unemployment comes down and sellers become more reasonable. MAK2 - home equity that people 'lost' was equity they never had because the booming economy was a sham. The only people who really lost money were first time home buyers who bought at the height of the market and had no equity from a prior purchase and investors who thought they could quickly flip a house. That's why we also shouldn't feel too sorry for many of the Madoff investors. The long term ones surely made back their original investment many times over, it was the later investors who got stiffed.

MAK2 - FYI - You don't lose equity until you sell at a loss.
The buyers will have all the cards for a long time so be careful about blinking as the next buyer may ask for more .

Mak2, what you are failing to realize is, you can sell now and lose 50k in equity, or sell next year and lose 150k. If you don't need to sell, then great, but sellers must also realize this is just the beginning. If they don't sell now, they can expect 10 years of hoping they can do better.

When will everyone realize: the money for the bailouts is coming from us - the people! If you're a homeowner and need extra money to pay the mortgage from the government, it isn't a gift - that money will come out of your pocket through higher taxes in the future or a devalued dollar through inflation (aka, the stealth tax).

If you're a homebuyer wanting government assistance, that money will have to be paid back. You won't be told that and it won't be a line item, but just like credit card debt but worse as it cannot be erased. WE THE PEOPLE of the United States have to pay back all this money we're borrowing from the world.

If we borrow $1,000,000,000,000 (one trillion dollars) from the world and just hand it to citizens of the country, each citizen of the US will get $3300. BUT - each citzen would take on a debt load of $3300 - and owe interest on that money.

Every single bailout plan is funded by debt. We got to the situation we are in now through debt. Obviously, the way out of trouble caused by massive debt is not more debt!

MAK2 and hm - it'll be much harder for the seller who needs to sell not to blink first. Potential home buyers will seek out those who *have to* sell, and will avoid those who can't sell below a certain price level, they don't care a bit how much of your equity has evaporated. I do agree that ultimately inflation will eat away at prices even if they don't look like they've declined much.

The people that need a Bail Out are the American home owners. Real Estate Agents, Banks, Surveyors, Home Appraisers, etc all made fortunes in the go-go years. The home buyers got screwed. Force Banks (already got their Bail Out after screwing up) to lower rates to 4% and they will open the well for buyers and refinancers and the Economy will change. More Bail Outs for Real Estate workers woud not be needed, but they should lower their commissions.

How does the Auto Industry deserve bailout but the Real Estate doesn't? Don't we understand that real estate affects all of us including the people that are renting because your rents will rise as more people come out of the ownership market into the renting market due to foreclosure. It is simple supply and demand. Auto's aren't going to help any of us they are going to continue to fail and taxpayer dollars will be lost. It helps the auto workers not the entire population at least put the money where it will help the taxpayer population not union workers.

Inflation will only preserve nominal house prices if there's generalized wage inflation, otherwise buyers will still find prices unaffordable, along with everything else. Yes, buyers who can afford to keep their houses and don't need to move can decide not to sell, theoretically lowering supply. These two factors could combine to create a very stagnant market, where it is difficult to either buy or sell. Which will make the NAR unhappy, but the last people in the world I feel sorry for is realtors. They helped make this mess, so if they didn't save for the lean years, let them find honest work. Realtors are pretty close to the bottom of the list of folks deserving a bailout, but since the folks actually at the bottom of the list are getting one, I guess that doesn't mean much. The NAR is a wretched hive of scum and villainy, but a politically connected one, so they might get what they want.

MAK2 - You need to understand that the $50,000 you lost in equity was just paper money and something you never really had, or earned, in the first place. Even the current median prices cannot be supported by the average state incomen. NYC is going down hard, 20-25% forecast, San Fran & DC is in trouble as well, you are telling me that Boston is the one major city that will only realize 5-10% losses.

You better start blinking...

MAK2;
Maybe you are not willing to lower your price. But your neighbor will. After all, your neighbor bought in 1995 and 60% of 2005 prices still means he makes 80K. Your other neighbor was forclosed upon because he would not lower his price and I will buy that house for 50% of what you paid and spend 20K fixing it up.
I will take vacations while you stay home in February because your wife just had to buy that big house in 2005. And you will be stuck until 2020 paying for the same house that I bought for 60%. People are losing their jobs so no one has the money or desire to let you recoup your 50K
So when you are sad about your standard of living falling just remember that you fell for the realtor's phony baloney about real estate only going up.
And don't complain about it.

JG, the point is neither the auto industry nor the real estate market is entitled to a bailout. Stupidly, the govt is not letting the free market do its thing and correct itself, just like back in the Great Depression. and just like back in the Great Depression, everything the govt did prolonged it...it did not resolve it in anyway. "the more people refuse to acknowledge the past, the more they are condemned to repeat it".

the govt (specifically the likes of Barney Frank and Chris Dodd) went a long way in creating the current economic mess, especially regards the housing market. to expect them now to resolve the problem is pretty foolish, isn't it?

I find the comments - "just hold on" to be useless. What if you are like myself. I have a place on the market in mint condition - $60 k below what is was worth last year. It belonged to my uncle whom is in a nursing home. He never will go home again. His entire income goes to this white elephant. I am at the limits of what I can sell it for and pay off his mortgage. It is a great deal - buyer can get a 2 bedroom condo in mint for $900 a month including heat & hot water & insurance. In 3 months 3 people looked at it. 3. All 3 bought forclosures for $85,000. This market in impossable.

I would wait for the creation of another "Bailout Agency" like RTC Redux if I was a buyer or investor, and even then I would give it another year or so. The RTC inventory of the late eighties, early nineties truly represented once in a lifetime opportunites. I know of a gentleman who bought a small office building in downtown Dallas for $25,000, the building is worth in the neighborhood of $4-5mm now. If you can afford to wait, do so. The bottom will be with us for quite some time, there won't be any v-shaped recovery.

I suspect that part of the reason the NAR wants a bailout is unrelated to the drop in # of homes sold, but related to the fact that a smaller %age of home sold are sold by NAR members. Even before the market softened, a growing group of home sellers were moving away from professional firms and selling homes on their own (and pocketing the 6%).

It appears that the change to the Bankruptcy Code allowing modification of mortgages on single family homes is gaining traction in Congress. Any thoughts on its possible effect on the market?

Distressed properties could be purchased at a bargain price, but homes being sold by home-owners are still way too high!! Been looking at small ranches in Natick and they are priced as though the real estate market is still in fine shape!!

It belonged to my uncle whom is in a nursing home. He never will go home again. His entire income goes to this white elephant.

Cut the price. It's all you can do. The nursing home is going to suck up all of his assets anyway; why try to get a better deal for them? And you don't need the stress of trying to sell and maintain a property that isn't even yours. Trust me, I know.

"Most realtors are the scum of the earth. They are some of the most devious and unethical people around. I am so glad they are doing poorly now. Hopefully many of them will face foreclosure or bankruptcy."

Wow! Chris that is really a nasty thing to say. As a hard working, honest Realtor I would like to say don't let a few bad apples spoil the bunch for you. The majority of Realtors I have worked with and I like to think myself as well are honest and ethical people. I'm sorry to see that you've had bad dealings with people in my profession in the past, but that's no reason to throw us all under the bus.

"I suspect that part of the reason the NAR wants a bailout is unrelated to the drop in # of homes sold, but related to the fact that a smaller %age of home sold are sold by NAR members. Even before the market softened, a growing group of home sellers were moving away from professional firms and selling homes on their own (and pocketing the 6%)."

I don't know where you live Ricky, but I haven't seen a home listed with a 6% commission in a long time.

I concur with Chris, just about every realtor I have dealt with has been a dirtbag as well. They have NEVER provided any value to me.

What in heavens name are you talking about, Scott? The Realtors aren't looking for a bailout. They are lobbying to keep people in their homes and stop the freefall loss of equity. Here's what Realtors are lobbying for with my comments in parents:

1. Remove the requirement in the current law that first-time homebuyers repay the $7,500 tax credit, and expand the tax credit to apply not only to first-time buyers but also to all buyers of a primary residence. (The tax credit isn't working because it isn't a credit - its a loan. Even though the terms are great, the perception keeps a chill on its use)

2. Revise the FHA, Fannie Mae and Freddie Mac 2008 stimulus loan limit increases to make them permanent. The Economic Stabilization Act, enacted in February, made loan limit increases temporary, and subsequent legislation reduced the loan limits and made them permanent. This has broad implication for homebuyers in high cost areas. (Most homes around here fall into the jumbo category - they need to be indexed to reflect local markets. A high priced home in Ames Iowa is a very moderate home in Stoughton, Massachusetts.

3. Urge the government to use a portion of the allotted $700 billion that was provided to purchase mortgage-backed securities from banks to provide price stabilization for housing. The Treasury department should be required to use the newly enacted Troubled Assets Relief Program to push banks to:
• Extend credit down to Main Street, making credit more available to consumers and small businesses;
• Expedite the process for short sales;
• Expedite the resolution of banks’ real estate owned (REOs) properties.
(The banks have thumbed their noses at Congress after taking the big bucks and continue to be their own enemies! I just did a short sale with IndyMac that was a nightmare beyond description. They're better off financially selling short than foreclosing but don't seem to get that. There's literally billions of dollars in equity waiting to come into the market if the banks can get out of their own way!)

4. Make permanent the prohibition against banks entering real estate brokerage and management, further protecting consumers and the economy. (This has been a Realtor concern for years. It's not about competition, there's plenty of that out there, it's about unfair advantage. Real estate is not a financial service, its a product.. If anything has shown that banks don't belong in this business - except via separate companies like GMAC - this financial meltdown proves the point.)

So, where's the bailout for Realtors? There isn't one. Taking Lawrence Yun's comment out of context to prove a point doesn't make it so.

DA

The stuff in #40 sure sounds like a transfer of wealth from those who don't own real estate (generally poor) to those who do (generally better off). Nice. #40 sure sounds like a bailout for the real estate industry.

And whats wrong with Banks as real estate agents? Real estate is most definitely a financial service. And in general I don't see how banks could do a worse job, so might as well allow the competition.

What about the meltdown has shown ANYTHING about banks as real estate agents? Granted its shown a lot of areas aof bank stupidity, but I 've not seen that one yet.

Charles,

If you don't see how banks could do a worse job, then you have not yet had the pleasure of buying an REO recently. Talk about fun!