The crash of the housing market might be behind us (although ‘Objects in Mirror May Be Closer Than They Appear’), but the recessionary effects abound, as does the detritus of the houses themselves. So many built on the belief that mortgages could be offered indefinitely, and paid back indefinitely as well. The momentum of the buildup meant that has credit got crunched new homes got finished and now we have a glut. Recent news reports have concentrated on that glut, and we wanted to pass some of the grim statistics to our readers.
The Detroit Free Press is reporting on a survey taken by students at the University of Michigan and The Detriot Data Collaborative. The findings are meant to give a snapshot of the city as its government and citizens consider ways to move out of the crisis. A conclusion: “A little more than 35% of the city’s 343,849 residential parcels are either vacant lots or abandoned shells of buildings – a staggering burden for a city trying to reinvent itself.”
Cities like Seattle (and as this blog reported earlier, Baltimore) have not endured quite the same degree of falloff, but the value of their homes have nevertheless lost $50-$60K, if not more. Anyone who had used the value of their home to leverage other debts has seen the tragic results. But the many others who might not have accrued so much debt have little hope of selling their homes (or enjoying the social, economic, or geographical mobility of which so many Americans are proud) are caught in a text-book definition of a depressed market: the buyer of today does not buy in part because s/he considers it a safe bet that more (foreclosed) homes will be on the market later, thus depressing prices that much more.
The White House recently announced a fund to help those in the worst markets (none was specifically stated in the official posting) in an effort to increase liquidity. The effort is clearly to get funds into the hands of struggling homeowners via state and local organizations that are well acquainted with local markets and local needs:
The $1.5 billion fund will be available for State Housing Finance Agencies and similar organizations to develop innovative programs help address the problems facing their communities. Housing markets vary considerably from state to state, and often within a single state. Housing Finance Agencies are very familiar with their local housing markets, and will take the lead role in determining what sorts of programs are most appropriate to local conditions. The types of programs that may be funded include: measures for unemployed homeowners, programs to assist borrowers owing more than their home is now worth, programs that help address challenges arising from second mortgages,; or other programs encouraging sustainable and affordable homeownership.
Whether this effort proves especially helpful remains to be seen, but the effort from the government can surely provide a sense of ‘floor’ for the housing community. Difficult to see the $1.5bn as a subsidy, but it’s a safe bet the Obama Administration will get accused of socializing ‘bad debt.’
Meanwhile, The New York Times reports that the great strides in low-income and subsidized housing made in the 1990s and early 2000s are suffering an awkward slowdown. Again, a depressed market encourages both buyers and sellers to wait (for opposing reasons, of course). The article does a fine job exploring both the lack of purchasing power of consumers and the banks’ unwillingness to relax credit, even to well-qualified borrowers.
Finally, and to end on an uptick, DQNews.com is reporting a slight rise in home prices in southern California over these last couple of months. The report is cautious more than optimistic, but as John Walsh, MDA DataQuick president, pointed out, â€œHigh-end sales arenâ€™t nearly as sluggish as a year ago, but they lost traction over the holidays, which can be seen in the January closing data,â€ he said. â€œWhether significant new patterns are emerging in the market is unclear. We try not to over-analyze one monthâ€™s data, and historically January and February havenâ€™t been the best indicators for the year ahead.â€ More work to be done, but clearly many in real estate and economic policy are feeling around for what they believe to be a firm ‘floor’ in the market from which to step forward.
Written by: Christopher Gardner, PhD