I have been writing for some time that if the government DOES NOTHING then home sales will rebound on their own and that we are poised for a housing recovering beginning in June of 2009. Well, I was wrong. I was off by several months.
Existing home sales rose by the SECOND BIGGEST MONTHLY GAIN - ever (well, O.K. - since they began keeping records in 1999). The jump nationwide was 6.5% led by the west (up 14.5%) and the south (7.4%). Significantly, existing home inventories fell to 9.3 months.
In my last email, I wrote that it was inevitable that low interest rates and declining prices would eventually induce home purchases by consumers (be they investors or owner-occupied). The continued availability of these conditions will promote a long term recovery. Couple this with the staggering reduction in new home starts and permits, and you can see what is getting ready to happen.
The best thing that government can do is to let foreclosures happen. Let them happen. This will not be pleasant in the short term and is a heartbreaker for families who can't afford to keep their mortgages current. However, it will create a pool of renters for residential real estate investors. These investors do not want to own these homes forever. They want to sell them at a profit. In turn, a family renting a home for several years will have an opportunity to save money for a substantial down payment. It is not a coincidence that the largest downturn in residential real estate came right on the heels of lax lending standards including the lack of a 20% down payment requirement. All available because two securitizers of mortgages (Federal National Mortgage Association and Federal Home Loan Mortgage Corporation - you know them as Fannie Mae and Freddie Mac) made money available for loans to people who truly could not afford to own a home. Oh, did I mention that both of these companies were created by - yes, the Government of the United States?*
If government really wants to do something good, it will take the approach of Habitat for Humanity and require a "silent second" mortgage on homes where the purchaser puts down less than twenty percent. Allow the use of a down payment assistance plan with that second mortgage. The second mortgage would be reduced annually 20% per year for five years. If the buyer succeeds in keeping his or her home for five years, then they have "earned" that 20%. If not, when the home is sold, then the amount of the down payment assistance principal remaining goes to the government (or private down payment assistance company - my preference). There has to be an incentive and we just can't afford to watch equity evaporate into thin air.
Back to the story already in progress - whatever the trough idlers (my term for purveyors of pork - remember "Mr. Smith goes to Washington"?) in Washington D.C. do, it will be too late and totally ineffective. Worse, it will adversely impact natural market corrections in real estate. The only goal of "doing something" is a pathetic attempt to try to be relevant in the lives of the people who are America. - All the while, the fundraising goes on unabated. If you want to hear about outrages, have you heard that the President's family is going to use the same decorator that remodeled the executive suite of Merrill Lynch. I read it on the internet - it must be true! J
•· I just have to tell you that I noticed that homeownership in California is down to 50%. Saw that on Bloomberg this morning - down from 67% - before the Community Reinvestment Act. And we want to nationalize the banks? Really? I am sure that is all just a coincidence.
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