Get Rid of The Housing Market Crisis Once and for All

Real Estate Agent with Joe Manausa Real Estate 8508880888

How To Prime The Real Estate MarketIf you have ever used an old fashioned hand water pump, then you remember how much work it can take to get the water flowing. Sometimes you might crank up and down on that old cast iron arm for several minutes and not even get the first drop of water. When one of these pumps had not been recently used, you would "prime the pump" by filling it with water to get it going.

The hand water pump has been around for a long time and is very reliable once the water is flowing. Much more effort is required to get it started than keep it going, and I think it makes for a great comparison to how we should view the real housing market problem.

Most people understand that the real estate market has lost its prime, and many speculate on what it is going to take to get the housing market restarted. The real estate equivalent to pouring water down the spout of the hand water pump is a topic that is often discussed in real estate circles, seeking a solution to the real housing market problem.

The Real Housing Market Problem

Like most problems that you deal with in life, there is no one single cause for the housing market collapse, nor will there be one singular action that restores it to historical norms. But 2011 has unveiled the primary problem in the housing market, and I do not see it being addressed in many real estate forums, and certainly not from NAR or our "leaders" in Washington.

Historically, more than one-half of all homebuyers already own a home, and that means as a prerequisite to buying a home, they first have to sell a home. So, assuming this number is only 50%, we can say that 1/2 of the buyer pool has to sell a home before they buy, and 1/2 is either a first time homebuyer, an investor, or somebody who has sold a home already.

Thus, the real housing market problem is that 50% of the people who would be buying homes right now have a problem, and they do not know how to solve it. They are what is broken in the real estate pump, and they are the ones that need to be "primed."

Let's take a look at the reality being faced by 1/2 of the buyer pool.

  • The typical home ownership period is 5 to 7 years
  • The housing market peaked 6 years ago
  • The majority of those "ready to move" purchased or refinanced in the past 5-10 years.
  • Home values have declined over 30% since 2006
  • The majority of the "ready to move" market have zero or negative equity in their homes to bring to the next purchase
  • Negative equity owners are trapped because all of their options lead to "no new home purchase"
    • If they bring money to closing, they have no equity to put in the next home
    • If they do a short sale (and stay current on their mortgage), they get dinged on credit and have to wait 2 years to buy
    • If they do a short sale (and do not stay current on their mortgage), they get destroyed on credit and won't be buying for quite some time
  • These would-be buyers don't have viable options, so they are doing nothing ... they need to be "primed"

Therefore, the real housing market problem has nothing to do with "tightened lending standards," or "low appraisals" as has been sung by the National Association Of Realtors. The real problem we must fix is the mass of pent-up buyers who cannot first sell their homes.

As these homebuyers languish awaiting buyers for their homes at prices that will not be found in this market, home values continue to decline, thus adding more people to this group of frustrated homeowners.

A Solution To The Real Housing Market Problem

One potential solution to the real housing market problem is a Short Sale Amnesty Program. I would propose a simple solution, one that removes the 2-year wait for purchasing a home for people doing a short sale, combined with a public awareness program of how current short sale actions can be implemented. I would drop the credit ding (currently about 50 pts) for those who have maintained their payments on time, but I would continue the severe response for those that fall behind on their payments.

The solution does not need to reward people who made mistakes in the past, rather it needs to free those who have only been harmed by falling prices. Lenders (or more importantly, the shareholders of these large banks) need to push the leadership of their organizations to work feverishly to approve short sales. The values have already been lost, I suspect some banks are responding slowly in order to retain the decision makers who do not want to book the losses (even though they have already occurred).

While I know that a singular solution is not the answer, and I would certainly spend more time than an hour in the morning to write the solution, a short sale amnesty program would invigorate the market much faster than all the "stimulus" mistakes that have already occurred.

Simply put, there are people who cannot sell their homes because the people who want to buy them cannot sell their homes because the people who want to buy them cannot sell their homes ... ad infinitum. This is a continuous loop that needs to be severed. The pump needs to be primed!

There are millions of people who would like to move, they just do not know how to get out of their current homes without losing their right to home ownership. A short sale amnesty program would put these millions back into the buyer pool and help solve the real housing market problem.


Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Joe Jackson 12/30/2011 03:20 AM
  2. Jo Olson 12/30/2011 03:43 AM
Real Estate Market Trends
Florida Leon County Tallahassee
The Lounge at Active Rain
Almost Anything Goes
Posts to Localism
Market Reports

Spam prevention
Show All Comments
Fred Griffin, on leave of absence from ActiveRain
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker


    "Congratulations" on reaching 500,000 Points on ActiveRain


   I like your idea of a Short Sale Amnesty Program.



Dec 30, 2011 06:20 AM #13
Joy Daniels
Joy Daniels Real Estate Group, Ltd. - Harrisburg, PA

Very interesting - I read your link too.  I think it's a great idea, maybe you should run for office so you can get your info in front of the right people.

Dec 30, 2011 06:33 AM #14
Anthony Daniels
Coldwell Banker - San Francisco, CA
SF Bay Area REO Specialist

So many contributing factors to our housing/economic woes.

Will history repeat itself?  Absolutely.

Good post, thanks for sharing it.

Dec 30, 2011 06:43 AM #15
Tinker Hulsey
Century 21 Wright-Pace Real Estate - Jonesboro, AR
Century 21 Wright-Pace Real Estate

Great post, Thanks for fellow C-21 agent!!


Dec 30, 2011 06:53 AM #16
Jerry Morse
The Morse Company - Janesville, WI

You have certainly hit on one of the major problems.  I guess we all know its a little more complicated!  Thanks for a good idea!

Dec 30, 2011 07:46 AM #17
Christine Smith
Buyers Brokers Only LLC - - Canton, MA
Exclusive Buyer Agent & Attorney, Canton, MA

Very interesting idea.  What about those who may be underwater but can afford to pay but don't want to move?  

Dec 30, 2011 08:48 AM #18
Joe Manausa
Joe Manausa Real Estate - Tallahassee, FL
Tallahassee Real Estate

Christine, none of this matters if you don't want to move.

Dec 30, 2011 08:55 AM #19
Maya Swamy
Funds Available - Long Beach, CA
Ph.D. Long Beach, CA -

I think the idea of the portable debt is more likely to fly. As for the shortsale amnesia I have doubts. Someone has to eat the loss and it is unlikley the banks and their investors would do so without their backs to the wall. I like your analogy to priiming a pump (done that) but it may be the government that has to do the priming.

Dec 30, 2011 09:04 AM #20
Mike Cooper, GRI
Cornerstone Business Group Inc - Winchester, VA
Your Neighborhood Real Estate Sales Pro

Joe, the solution may well come out of creative ideas like yours, but is anyone listening.  For some bizarre reason, those who have the capacity to make change seem to be tone deaf to the problem. 

Dec 30, 2011 12:39 PM #21
Ben Blonder
Broker/Owner, Keller Williams - Fort Collins, CO
Buyers, Sellers, Investors!

I like the analogy of the hand pump for how hard you have to work. This applies to EVERY industry and particularly ours. 

Dec 30, 2011 03:05 PM #22
Kathy Clulow
RE/MAX All-Stars Realty Inc. Brokerage - Uxbridge, ON
Trusted For Experience - Respected For Results

Joe - From our home to yours ..... wishing you and yours a Very Happy New Year filled with good health and happiness.

Happy New Year to You And Yours

Dec 30, 2011 03:57 PM #23
Katerina Gasset
Get It Done For Me Virtual Services - Wellington, FL
Get It Done For Me Virtual Services

Joe- WOW! You are blessed with only 30% loss in value??? My, we here in South Florida are dealing with 50% to 60% down from 2006 peaks. Investors are not too keen on taking a 50% hit on their notes and that is why the short sale process is so tough. 

An amnesty program sounds like a great idea. I never thought that the homeowner should have to be hurt on their credit for doing a short sale anyways. But I also think the most important thing the lenders can do is to NOT require you to be late on your payment in order to do a short sale, no financials, no hardship- just the fact that you can not sell your house is a hardship, and just get the deal done. 

We are already seeing the same sellers we did short sales for back in 2007 getting to buy homes now so that is a good sign. We also have seen those who did a short sale have their credit score get better instead of worse after short sale. We also had a lot of sellers who bought other homes first, then they did a short sale on the house they lost the equity on. Katerina

Dec 30, 2011 04:05 PM #24
Janis Borgueta
Key Properties of the Hudson Valley - Newburgh, NY
LIC RE Salesperson

The banks are running the show here. THey make the decisions and have control over the government as to who what when and where. It is not time yet for the banks to set free the housing market. I don't believe that we know the whole picture, but i would venture to say that we would not like the snapshot of what is really happening. Big banks can't fail? but they certainly are controlling the rules!

Dec 30, 2011 04:18 PM #25
Kerry Lucasse
eXp Realty - Nest Atlanta Team - Atlanta, GA
Your Nest Atlanta Real Estate Consultant

Well-deserved feature!  Love the idea of the amnesty program and would also add that there should be clear guidelines for sellers about how a short sale even works.  I've found that the process is different from bank to bank, state to state and even month to month.  If the sellers are able to fully understand the pros and cons of a short sale, they may not just throw up their hands and let their homes go into foreclosure.

Dec 30, 2011 04:29 PM #26
Karl Hess
Keller Williams Shore Properties - Barnegat, NJ
on The Jersey Shore

I like this idea!  Here's another option to add to yours:  Roll the deficit of the short sale into the new mortgage at zero interest. Just to use a round number; a 50K deficit would increase the mortgage by about $135.00 a about $28.00 per month per 10K of deficit.

Dec 30, 2011 11:43 PM #27
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Joe, your plan sounds like a good one. Hopefully, someone out there is listening. Happy New Year!!

Dec 31, 2011 12:59 AM #28
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY

We've lost about 15-20% of value overall in our area, more in some precincts. I have long said that short sales are the answer, but the banks will not devote the resources to making that happen, and the political will to force them does not exist in the current leadership on either swide of the aisle. 

And that is a shame, because as you eloquently put it, it makes too much sense. 

Dec 31, 2011 01:04 AM #29
Chuck Ward Local Video Marketing
Florida Mobile Fusion Mobile, Marketing, Local SEO - Tampa, FL
SMS Marketing, Google Plus Local Pages

Joe Manausa for President 2012

Dec 31, 2011 04:30 AM #30
Bryan Robertson
Los Altos, CA

Excellent suggestion.  I'll add that the vast majority of our issues and the so called meltdown come from having accounting rules in place that make things worse than they are.  This is a nice little accounting solution that makes the problems go away.

Dec 31, 2011 09:19 AM #31
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Joe - I like the idea of a short sale amnesty program.  I also like the idea of not making short sale sellers go delinquent before completing the sale.

Dec 31, 2011 01:53 PM #32
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?


Joe Manausa

Tallahassee Real Estate
Looking for Tallahassee Real Estate?
Spam prevention

Additional Information