Caroline reminds us, "Lower home prices can fix what government can't":
"New home sales, which lead the complex of housing indicators, fell to an all-time low of 308,000 in February, the fourth consecutive monthly decline. For existing home sales, it was the third consecutive drop after last year’s tax-credit- driven bounce.
Homebuilder sentiment has rolled over. Housing starts are bumping along the bottom, with new construction too low to accommodate normal growth in households, according to Michael Carliner, a Potomac, Maryland, economic consultant specializing in housing.
Alas, all the Fed’s purchases and all the government’s men can’t put the residential real estate market together again.
Between them, the federal government and central bank can lower mortgage rates, modify mortgages, use their power to get private lenders to modify mortgages, and create incentives to move inventory, such as the first-time homebuyer’s tax credit.
What they can’t do is manufacture enough artificial demand for an asset that was artificially inflated to begin with. Prices will have to fall, which is how supply is allocated in a market economy. (An occasional reminder is in order given the current spend-money-to-save-money mindset.)"
Go read the whole thing, and check out Barry Ritholtz's post, "More Foreclosures Please" as well.
Time-saver for those forwarding this post on to government officials: you can't alter the basic rules of supply and demand. Or as the Stones sang, "You can't always get what you want".
3 comments:
Here's my pet issue in regards to home prices. It's also my idea for a company that has been gestating in my brain for more than a year now.
US real estate prices are artificially inflated by the closed system of the MLS and the screwed up valuation methods used by the commercial banks.
The MLS is a database only viewable by licensed real estate brokers and realtors. Even when a property market has almost no volume, ordinary buyers and sellers have no means to view market movements directly. They just have to trust the brokers. It's a little sick. I've no clue how it's done in other countries.
If the MLS can be bypassed or made transparent to the general public (as it is to some respect via sites like Zillow), I promise that housing prices would enter free-fall.
As it should! Just think about how much purchasing power would be re-introduced into the economy to be re-invested into capital goods if that were to happen.
This won't happen, unfortunately, as long as the commercial banks remain propped up. When they go down, we'll have a chance to rebuild.
Great article...In the end aren't we all better if the prices drop? Even for those that own homes that just means the demand for their house will actually start happening when the market switches. Anxious to see how things play out here. Thanks for sharing.
@JC I've heard others chafe at the closed MLS system. Real Estate brokerage is one of those businesses that are among the last to have their biz models changed by the internet. Will be interesting to see how it gets reshaped in the future.
Thanks for your comment!
@David Thanks for stopping by, and glad you liked the piece. If only people learned that excesses brought about by cheap financing and govt. intervention need to be corrected naturally so that people may actually - gasp - be able to afford housing once again!
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