Housing: The Little Engine That Can't

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Housing, the force that has lifted the economy from almost all previous recessions, now appears to have become the little engine that can’t, as the nation seeks to find another means of raising the U.S. from economic stagnation. One only has to look at the graphs (courtesy of Calculated Risk Blog) to see just how far housing has to go in order to stimulate the economy as it has done following previous recessions. And a look at the unemployment situation shows that “full employment” is still years away.

Housing Starts and Recovery 

Instead of seeking ways to artificially stimulate housing—efforts to date have been dismal and expensive failures—perhaps it’s time to accept the status quo and move on. One of the latest brainstorms from government is to sell huge segments of government owned foreclosures to investment groups who are expected to rehab and rent the homes to the growing number of renters. On the surface such a proposal appears to have merit; however, if it is price stabilization the government desires, it’s unlikely to be found in such a rental program.


Investors buying homes in bulk will receive sizable discounts, not only below market, but below the prevailing rate for foreclosures. Incentives and concessions will have to be offered in order to attract the number of investors desired. And such incentives will likely maintain downward pressure on prices in those areas where rentals are concentrated. It seems unlikely that neighborhoods filled with a large percentage of rental homes would see any appreciation in the near term; declines and stagnation would be the more likely scenario.


And if it’s “fairness” sought by DC, such a program is inherently unfair. While I’ve generally opposed government attempts at achieving fairness—true fairness is neither desirable nor possible—the  beneficiaries will be the big banks and Wall Street firms that participate in the program. Such a program would favor billion dollar hedge funds—some of which participated in creating the housing crisis—over small, local investors who have a vested interest in rehabilitating the individual neighborhoods in which they purchase. The difficulties of managing hundreds of single family residences scattered about a city is far different from managing a single location, multifamily project; and I suspect we’ll discover some unintended consequences as the plan unfolds. 


Another program currently being touted by the Administration—actually an expansion of one already in existence—would be to make refinancing available to a far greater number of struggling homeowners, especially those who owe more than their home is worth. And while the President offered a plan “that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage,” millions of responsible homeowners will be locked out, unable qualify. The devil will certainly be in the details—the Administration promises more in the coming weeks—but some experts, including the FED, have estimated the benefit to be limited to only a small percentage of homeowners.


With 10 million or more homes expected to face foreclosure or short sale in the next few years, it seems unlikely that housing will continue to be the little engine that can’t. It can’t drive the economy into recovery and it can’t return the trillions lost when the bubble burst; only time, and lots of it, can do that. Political rhetoric may play well to those whose hopes have been dashed, but it does nothing to create actual change.  

graph of unemployment  


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The Little Engine That Can’t - Originally posted at: www.TheHousingGuruBlog.com    



Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. Joe Jackson 01/28/2012 10:44 AM
  2. Gene Riemenschneider 01/29/2012 01:22 PM
  3. Gabe Sanders 01/29/2012 10:29 PM
  4. Esko Kiuru 05/03/2012 09:13 AM
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John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Richie - Yes, recovery will take time. There is no easy fix.

Michael - And returning to that balance won't come quickly.

Judi - Thanks. For some, things are bleak, especially those who have little prospect of finding a job.

Fred - I agree, yet strangely most ignore it.

Ruthmarie - Unemployment was measured differently during the Depression, but we do have the numbers. What they show is that it spiked upwards to about 25% from 1929 - 1933 and then gradually returned to "normal" in 1941, falling to about 2% during WWII. (If unemployment was still calculated as it was during the Depression, we'd currently be around 20%.

Laurie - Thanks for your comment.

George - It's easy to ignore the pain if you're not impacted by it.

Jay - Don't count on that "change."

Gabe - Creating jobs will do the trick, but it will take years to create the number necessary for a complete recovery.

Bud & Beth - The engine may need some nuclear power.

Pamela - I agree.

Stephen - Yes, the banks continue to receive preferential treatment.

Todd - Thanks!

Bryan - Yes, it will take years.

Joe - I agree. There will be opportunities, but also pitfalls.

Michael - A leash and very short chain!

Fernando - Yes, we're seeing structural changes that will alter the business forever.

Mike - The graph provides a great visual.

Jeanne - I saw the article, a sad commentary on our ability to respond quickly.

Ian - Most knew the boom years couldn't last forever, but we allowed it to continue far too long so that the fall proved catastrophic.




Jan 29, 2012 03:32 AM #24
Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

Well put John. That graph is scary. I think we all must adjust to the new normal and learn to deal with the mess we are in. 

Jan 29, 2012 03:41 AM #25
Linda Humphrey
Humphrey Home Connections Realty, Reno, Nevada - Reno, NV
CRS, Broker/Owner HHC Realty

Very interesting post. I agree that jobs are the key to the recovery, not so much housing per se, because not many of the unemployed are out shopping for a new home. One interesting statistic I saw recently was that, even though the overall jobless rate is hovering around 10%, the rate among those with a college degree is a mere 4%. I fear that the massive overseas outsourcing of jobs traditionally done by less formally educated workers may mean that unemployment will remain elevated for a a long time. And sadly, while small businesses might have picked up the slack and provided work for some of those displaced, it is very expensive and risky to start and run a small business in this country. Might be nice to see some government support there, rather than endless bailouts for the "too big to fail".


Jan 29, 2012 03:51 AM #26
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

John - Everything continues to look fairly bleak regarding a true recovery in the near term.

As to the government programs, all of them seem to have benefited far fewer than initially expected.

Jan 29, 2012 03:59 AM #27
Linda Jamail Marshall
Linda Marshall,Houston Texas, Linda Marshall, Realtors® - Houston, TX
Broker, ABR,QSC,RECS,ACRE - Innerloop Houston, Tex

Yes John, things are not moving along as we had hoped.

I see small glimmers here in Houston, but not robust by any means.


Jan 29, 2012 04:27 AM #28
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Erica - And if we stop looking back, the future holds many opportunities.

Linda - Though the government has tried several measures, there's no easy fix.

Christine - And it appears that the banks and Wall St. firms received the greatest benefits.

Linda J - Yes, there are areas doing much better than others, but the overall picture is that of a very slow recovery.

Jan 29, 2012 04:40 AM #29
John DL Arendsen
Crest Backyard Homes designer & builder of ADU''s

Very informative and interesting post. Where might one obtain some information about these investment groups should they wish to invest in one?

Jan 29, 2012 06:02 AM #30
Ric Mills
Keller Williams Southern Az - Tucson, AZ
Integrity, Honesty, and Vast Real Estate Knowledge

The current recession has lasted way too long and is a direct result of a dis-functional Congress.  They are too busy to playing politics to get anything done.  To help recover we need the following :  1.  Allow all home owners to re-finance their homes at current rates and recalibrate the loan to what the home is worth today.  The Balance would sit in another loan at 0% interest for ten years.  At ten years the loan would adjust to the current value at that time at the original rate when refinanced and the balance goes into the 0% loan.  The again at 20 and 30 and 40 years if necessary.  This will save a lot of current home owners and they might want to stay in the homes.  2. Double the tax incentive on mortgage interest to get more people buying homes.  3.  Allow new vehicle sales to deduct interest on their income taxes.  That gives a hand to our second largest industry.  4.  Cut foreign hand outs by 25% and put that money into job creation.   Let businesses get a credit, about $2500 to their taxes, for every new employee they add that is fully employed for at least 12 months.  5.  All banks would be required to loan money out in mortgages and business loans up to their portfolio limit to keep FDIC insurance and Bank Federal Borrowing eligibility.  This will get money flowing quickly and in the hands of people that need it.  Put these in place and stand back and watch the economy blossom.

Jan 29, 2012 08:09 AM #31
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

What concerns me about these plans is it is designed to turn us all into renters and favor the few over the many.  

Jan 29, 2012 12:55 PM #32
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

John - I don't have any connections with any of those making bulk purchases, but I'd assume that locating one wouldn't be too difficult.

Keith - And as govt. keeps adding "balls in the air," the juggling gets more difficult to maintain.

Ric - I agree that Congress could have had a positive impact; they just seem unwilling to do so. You have some good suggestions and should forward them to your representatives.

Gene - And the President has stated that more focus be placed upon renting and less on homeownership.


Jan 29, 2012 01:18 PM #33
Jon Quist
Tucson's BUYERS ONLY Realtor since 1996

The real problem is unemployment, and under employment. If you don't have a job, low interest rates and cheap homes are completely irrelevant.

Jan 29, 2012 06:00 PM #34
Sylvie Stuart
Realty One Group Mountain Desert 928-600-2765 - Flagstaff, AZ
Home Buying, Home Selling and Investment - Flagsta
The housing market is definitely driven by the job market. Once we see those improve, the rest will follow. The housing market has already been changing and growing in Flagstaff
Jan 29, 2012 11:59 PM #35
Karl Hess
Keller Williams Shore Properties - Barnegat, NJ
on The Jersey Shore

John, IMHO, this is a very good blog.  In your estimation would a change in the structure of mortgages work? How about the government forces every bank to refinance 'underwater' loans to the lowest possible rate and increase the term to 40 years...the banks continue to make money since they are getting the money to lend at virtually no cost and it gives troubled homeowners some breathing room.

Jan 30, 2012 12:05 AM #36
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Area Real Estate

Well, I'm going to say that you can't put a 'national label' on the housing recovery. It is going to be by area, then region by region. Some areas are already doing good with lower supply. My area is on the mend if foreclosures stay at the current level of entering the market.  I think the more foreclosures in a particular area the more prices come crashing down. Banks don't care about the overall market, they just want to dump the house in 30 days or less.

I just don't know .......

Jan 30, 2012 07:29 AM #37
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Jon - Yes, unemployment is a much bigger factor than officials admit.

Sylvie - Some markets have seen substantial improvements.

Karl - The refinance programs as outlined won't make much of a dent in the problem; and regardless of how distasteful it is to some, principal reduction is needed in more cases than will ever happen. I think we're stuck with a sluggish market for years.

Lyn - I agree. It now seems obvious that real estate is truly local, even here in Atlanta, some areas are doing quite well while others languish with foreclosures and no sales activity. Unfortunately, the powers that be and the banks will ultimately develop a solution that provides the greatest benefit to the few, and Main Street will pick up the tab.

Jan 30, 2012 12:41 PM #38
Jimmy Phan
Phan real estate group in hickory

Oh John

pls tell me what i am looking at ?

very depressing but how true it is

jimmy phan

Jan 30, 2012 03:24 PM #40
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi John, Wow!  Those graphs really point out how bad the problem is and haw far we have to go to recover!

Jan 31, 2012 10:11 PM #41
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Jimmy - It's depressing for those anticipating a recovery to the boom times or to regain lost equity.

Bob - Many of those who predict housing's recovery just aren't looking at the numbers.

Feb 01, 2012 09:19 AM #42
Jark Krysinski *PREC (Personal Real Estate Corporation)

Hi John, I can tell the problem is not easy to recover from the picture. The price is high not the only problem, if people don't have a job or the income is low, they still can't afford. Thanks for posting, from your great post, I know the situation is a little bit complecated. 

Thanks again for sharing!

Have a good day!

Feb 08, 2012 08:54 AM #43
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Jark - Yes, it's complicated and will take a long time to repair.

Feb 11, 2012 05:27 AM #44
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