Property Grunt

Wednesday, May 06, 2009

The Doom Generation

Recovery will be a long time coming.

Over at Bloomberg, John F. Wasik is calling bulls**t about the bottom of the market.

U.S. Home Prices May Be Lost for a Generation: John F. Wasik

Below are points of interest.

You won’t see a widespread housing rebound in an economy in which 600,000 jobs a month are lost and foreclosures ravage the most overleveraged areas. These are just the visible barriers to a recovery.

Mortgage lending has also been an unusually tightfisted process of late. Lenders are demanding a 20 percent deposit for home purchases, and want impeccable credit ratings. About 45 percent of U.S. banks surveyed by the Federal Reserve said they had “tightened their lending standards on prime mortgages.” I suspect that number is much higher.

Then there’s the reality that the market is glutted with homes. A record 19 million homes stood empty at the end of 2008

It has gotten to the point that lenders who own these homes realize it is cheaper to simply demolish these brand new homes.

I caught the above the story on NBC last night. I suspect they got it from Youtube.

And even that isn't a quick fix to this mess we are in.

The U.S. is experiencing a 40-year generational peak in consumer spending, one that will lead to “the first and last Depression of our lifetimes,” author Harry Dent predicts in his book “The Great Depression Ahead” (Free Press, 2008).

Although we may not be headed for a 1930s-style Depression, there’s plenty of evidence to suggest that boomers are dumping their four- and five-bedroom suburban homes for two- and three- bedroom condominiums.

It’s also unlikely that the “Generation X,” born between 1965 and 1976 (or more derisively called “baby busters”), will bid up home prices. They are only 44 million strong, not as wealthy and even more in debt from college loans.

The are two types of debt that is the crippling young Americans and it is credit card debt and student loans. Banks have jacked up credit card rates much to the anger of their customers, particularly those who actually pay their bills on time. Students loans are not tax deducitble and you can't get rid of it through bankruptcy. These kids can't build equity because their money is going elsewhere and chances are they may never be able to pay all of it.

Rebuilding Wealth

While building permits don’t mean that housing will be built, they are one indicator of housing-market growth.

Yet don’t confuse building with the ability to restore home equity. Simply moving to another area won’t rebuild the estimated $6 trillion that was lost during the bust.

One of the reasons the housing mania was so damaging was that median home prices rose to about three times average household incomes as opposed to double income levels in 1950.

Wages simply weren’t keeping pace with housing inflation, so homeowners overleveraged to make up the difference. The wave of deleveraging will depress home prices in most markets.

It’s time to assess your options. Your home may not be a nest egg. You may never recoup your losses from the dot-com and credit busts in the stock market.

For most homeowners, wealth building and retention may depend more on a diversified, inflation-indexed bond portfolio than on real estate. This new reality, though, may be lost on those still trying to price their homes at 2006 levels

Overleveraging, wages that are nowhere the unrealistic levels of the housing market and the destruction of home equity. Once again, will not happen in a year or two.

Another sane voice in all this green shoot madness is Noah Rosenblatt who is also calling anyone out who drinking the Kool Aid.

Broker: Hold Your Horses, Comrades

UrbanDigs broker-blogger Noah Rosenblatt takes aim at all those recent broker reports that speak of an "uptick"—whether in foot traffic or sales—and rains on the parade a little bit: "I am hearing and seeing this pickup in foot traffic myself. But for every top producer benefiting from a pickup in action, trust me, there are many more brokers out there struggling to survive. Plus, what is this pickup being compared to - a period that saw barely any deals done?"

Get off the merry go round folks. Rest up and then look around you.