Nov. 8, 2008: How the new president is going to prolong the housing bust
I'm writing this before the election, so I don't know who will have won by the time you read this. But here's something I do know: The forty-fourth president of the United States, whomever is chosen, will prolong the housing bust.
How do I know this? Because both candidates have promised to implement programs that will artificially buttress home prices above their market value. John McCain wants to refinance failing mortgages. Barack Obama wants a freeze on foreclosures. Congress and the fifty state legislatures have ideas of their own.
To make matters worse, lenders are putting a friendlier spin on the foreclosure process with elaborate workout schemes. If you qualify for a loan workout, instead of liquidating the home as a non-performing asset, some lenders will roll your existing loans into a new interest-only loan. You would make small payments for the next two or three years, and only then resume your full obligation.
What's wrong with all these ideas? They're simply delaying the inevitable. If you're not making your payment now, you probably won't make it after a refinance, after a foreclosure moratorium or after a three-year workout. Some people may find their salvation in these programs, but most of the affected homes are going to end up in the lender-owned inventory -- later rather than sooner.
And that's the problem. Our only way out of this mess is to clear the resale homes pipeline of foreclosure inventory. By delaying eventual foreclosures, we are preventing the real estate market from finding its bottom-dollar price. But we will see renewed appreciation only after the market has absorbed this glut of foreclosed homes.
The good news -- for buyers: Homes are going to be selling very near their bottom-dollar price for the next few years. The bad news -- for sellers: Homes are going to be selling very near their bottom-dollar price for the next few years.
The alternative is to let markets operate freely -- a short, sharp pain followed by a robust recovery. But nobody ever won an election by promising to bring voters pain.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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