It's NOT About Credit

Real Estate Broker/Owner

For the past several months I have listened to CNBC analysts, politicians in Washington, and bank CEOs talk about the need to get credit flowing.  That once we fixed the banking system and gave the banks enough capital, or guaranteed enough of their loans, or when we removed the toxic assets (all at the cost of the tax payer of course), that the banks will start lending again, the economy will turn around, and as Clark Griswold said in Vacation, we'll all be whistlin' Zip-a-dee-do-dah outta out of our you know whats as we skipped to work each day.  And I will admit, they had me going for a while. 

But then something dawned on me, maybe it's not about credit anymore.

Maybe all of this is simply about politics and payouts.

Here are two points to consider:

1.)  Existing home sales are down, in fact they are the lowest they have been in over a decade.  But what is being overlooked is why home sales are down. 

Home sales are down because nearly half of all sales are either foreclosures or short sales.  This means that there are not as many move up buyers in the market and this means fewer aggregate home sales.  For example, according to the NAR, in 2008, an estimated 2.01 million (41%) of the 4.913 million homes sold were to first time home buyers.  In 2006, an estimated 2.33 million (36%) of the 6.478 million homes sold were to first time home buyers.  In other words, first time home buyer home sales are down only 14% from 2008 to 2006 but the total number of home sales are down nearly 25%.  This aggregate decline in existing home sales has very little to do with credit and more to do with fewer move up buyers and employment or the lack thereof.

Additionally, it is worth noting that no matter how much money we give the banks, we are not going back to the 2006 vintage of loan products, they have proven to be unprofitable in a declining housing market.  Banks are not going to make unprofitable or high risk loans regardless of the strength of their balance sheet. 

2.)  The second point being overlooked is that despite this "apparent" lack of mortgage credit, home sales in the West region have been surging.  As of the March data from the NAR, the seasonally adjusted rate of home sales for the West region are showing a 18.9% increase from last year at this same time.  Meanwhile home sales in the Northeast, Midwest, and the South are off by -22.5%, -11.1%, and -10.9% respectively.  All of these regions have the same access to mortgage credit.

The point is, Washington is spending trillions of tax payer money with TARP and PPIP trying to fix the housing market and the economy from the top down; they are trying to fix the banks first.  What Washington has failed to realize is that it is not about the banks or credit, its the housing market, stupid.  Until we can stop the erosion of property values which are causing pressure on the banks and consumers, none of these acronyms will make any difference.


Comments (9)

Lisa VonBargen
Photography7522 - Estes Park, CO
Estes Park Real Estate Photographer

Thanks for the post, great insights. Lisa

Apr 26, 2009 03:27 AM
Ted Jernigan
Ebby Halliday Real Estate - McKinney, TX

Sales are down due to the things you mention, but I wonder what percentage of our sales 3, 4 and 5 years ago involved no money down loans, seller assisted down payments and no documentation loans? We are comparing today's market where all loans are some form of "full documentation loans" to those artificially inflated numbers from past years. Many of the foreclosures that are hurting the market are due to these sloppy lending practices.

I am fortunate to be living in an area that did not have the artificial run up in prices that was seen in other parts of the country. We have some price errosion but nothing like California, Nevada and Florida have seen. Lenders here are still doing loans and the people with some down payment (3.5% FHA) and reasonable payment history are able to get them. Underwriting guidelines are tight and changing daily, but loans are still being made. I agree it is not totally about lack of credit. It is about past practices coming back to haunt us.

Apr 26, 2009 03:44 AM
Terry Chenier
Homelife Glenayre Realty - Mission, BC


You hit it right on the head; the word is politics.

Apr 26, 2009 03:46 AM
Broker Nick
South Florida Real Estate & Development, Inc. - Coconut Creek, FL
Broker Nick Relocation Broker Service

Truth is a freeing experience, hopefully our government will one day see it for what it is worth.

Apr 27, 2009 03:24 PM
Mike Frazier
Carousel Realty of Dyer County - Dyersburg, TN
Northwest Tennessee Realtor


We got into this mess because of B-paper which then caused the housing market to deteriote. I believe the market will correct after the toxic assets(b-paper mortgage paper) are taken care of.

Apr 28, 2009 02:49 AM
Alice Linahan
Voices Empower - Argyle, TX

Knowlege is Power!! Thank you for the Knowledge!!

Apr 28, 2009 09:28 AM
Kevin Robinson
Twin Falls, ID
Fractional Developer

Mark-You do have the ability to make the complex seem simple. Just the opposite of our leaders.

Apr 28, 2009 10:12 AM
Mark MacKenzie
Phoenix, AZ

Mike:  I agree with you that b-paper is what started this mess, but what we are seeing is that even prime loans foreclosures are on the rise.  The problem is no longer isolated.

Apr 28, 2009 12:16 PM
Mark MacKenzie
Phoenix, AZ

Ted:  Well said.

Terry:  Thank you.

Nicholas:  I think they already know.  What we are seeing is spin.

Alice:  Thank you.

Kevin:  Thank you for the comment and the follow. :)

Apr 29, 2009 01:14 PM