This is my column for this week from the Arizona Republic (permanent link).
Obama’s housing rescue plan won’t rescue housing, but it will delay the eventual recovery of the real estate market
President Barrack Obama came to Mesa Wednesday to announce his new housing initiative. The location made for good political theater, given that metropolitan Phoenix is one of the hardest-hit real estate markets.
The president promises millions of refinanced or renegotiated mortgages, at a price tag of $275 billion. The putative beneficiaries are homeowners, who may be able to negotiate their monthly payments down to less than 30% of their monthly incomes. But it is the lenders who will cash in, if the Obama plan works.
How’s that? Obama is hoping to shove a floor under still-declining home prices. Lenders will take a hit on millions of reformulated mortgages, but the hope is that this will save them even more money, in the long run, by stemming the rising tide of foreclosures.
In other words, the Obama plan is a price-support scheme. The market argues right now that homes are overpriced — which in turn suggests that the available supply of homes substantially exceeds existing demand.
That’s important. Prices for premium-quality homes are very low, and interest rates are still hovering at historic lows. Mortgage money is easily available to owner-occupants, and Fannie Mae just loosened its standards for rental-home investors. Even so, the number of homes being offered for sale at current prices still exceeds the number of buyers willing to pay those prices.
In reality, prices need to continue to drop until demand matches or eclipses supply. It wouldn’t hurt to convert some housing to other uses, or simply to tear it down altogether.
But forcing an arbitrary floor under prices is unlikely to have happy consequences. Despite his rhetoric, Obama’s plan can only reward our economy’s wasteful grasshoppers, at the expense of its thrifty ants. A price-support will serve to delay recovery, since it will do nothing to solve the supply and demand problem. And, as the worst of all foreseeable consequences, a price-support plus the $8,000 tax credit from last week’s stimulus bill could fuel new building — adding even more supply to an already over-built real estate market.
Technorati Tags: arizona, arizona real estate, phoenix, phoenix real estate, real estate, real estate marketing
jay seville says:
Any specs on new rental home investors guidelines/rule changes?
February 21, 2009 — 6:18 pm
Greg Swann says:
Was max four rentals, now max ten. You still have to qualify, of course.
February 21, 2009 — 6:51 pm
Joe Royall says:
Hmmm,
Greg, deleting comments with opposing views? That’s not very nice net behavior.
February 22, 2009 — 11:19 am
Greg Swann says:
> Greg, deleting comments with opposing views? That’s not very nice net behavior.
False. I deleted spam, and I was kind enough to tell you that’s what I was doing.
> To: Joe Royall
> From: Greg Swann
> Subject: Don’t spam my comment stream
> Date: Sun, 22 Feb 2009 11:18:12 -0700
> If you want to pimp your keywords,
> the site you’re looking for is
> adwords.google.com.
If you want to repost your comment under your own name, feel free. If you post spam here again, you’re gone for good. Drawing a hard line on the comments policy is why our discussions are so intelligent.
February 22, 2009 — 11:48 am
Robert Kerr says:
Re: “won’t rescue housing,” “it’s a price-support scheme,” “prices need to continue to drop”
The stars must be very oddly aligned; I find myself agreeing with just about eveyrting written here, lately.
February 22, 2009 — 12:07 pm
Louis Cammarosano says:
Greg
You point out that obama is not just considering taking from the rich to give to the poor-nothing surprising about that stance – but also encouraging and reenforing the culture of consumption whereby the wastrel grasshopper (rich or poor)get bailed out by the thrify ants (rich or poor), thus encouraging a nation to live beyond its means.
February 22, 2009 — 12:10 pm
Greg Swann says:
> thus encouraging a nation to live beyond its means.
And encouraging the ants to become grasshoppers.
What is the sound of Atlas Shrugging? “You want fries with that?” What can an honest parent say? “Study hard so you can get a good job and be bled to death by taxes while being denounced as society’s worst enemy?” In a welfare state, bad behavior is rational behavior.
February 22, 2009 — 12:17 pm
Louis Cammarosano says:
Obama is creating a voter base by creating a middle class handout whereby they can still get (or get to keep) their 50 inch flat screen tvs, suvs (as long as they are hybrids), and mcmansions even if they can’t afford them.
Dont worry the message seems to be government will print the money to pay for these entitlement or make someone else work for it.
This may be political genius for Obama, but its a disaster for the country as a whole who seem enamored with the concept of Obama, irrespective of how vapid and empty his rhetoric and political philosphy may be.
February 22, 2009 — 12:27 pm
Louis Cammarosano says:
“In a welfare state, bad behavior is rational behavior.”
Correct, let’s say you are an “ant” and you live in a community where everyone paid about $500K for their homes and those homes are now valued at around $300K, and you are paying your mortgage but your neighbors (grasshoppers) are not -why continue to do so?
Say you paid $500K, had good credit and a 30 year mortgage and your neighbors had poorer credit and a 3 year arm.
They can’t pay now, but you can.
Your neighbors will get their mortgages restructured and pay less and when housing prices eventually recover they will get their entitlement of price appreciation on their home (and eventually be able to tap into that for a home equity loan to buy more stuff)
You, if you continue to pay your mortage, will continue to be underwater.
Indeed the reason your home value has declined is because of the high level of foreclosures in your neighborhood resulting from the bank that loaned you the money also loaned to your poor credit neighbors and your neighbors making $60K a year had no business “buying” a $500K home in the first place.
So as an “ant” why not throw in the towel and stop paying your mortgage?
In Obamanomics or Bailonomics your bank gets the bad loans taken off their books and your defaulting neighbors get to stay in their homes and pay less than you do.
This is beyond socialism. Under socialism if you can’t afford housing, the government provides standard housing at the tax payers expense.
In Obailnomics if you can’t pay for your private sector mcmansion, the government steps in and makes sure you can.
WHat people are missing in this equation, is there will be no money for the indigent, if the government spends it all supporting the middle class.
After all its more expensive to support middle class lifestyles than our subsistence level poor.
Again, its the political genius of Obama-the poor don’t vote, the middle class does and he is giving them what they want – at everyone’s expense.
February 22, 2009 — 12:42 pm
Greg Swann says:
Here’s more good news for you, Louis: The rational thing for young people to do in a welfare state is to stop having children:
This is going to be very happy news for the young people who actually are being born as they get to bear their parents and grandparents on their backs.
You’re completely correct. We’re wrong to call this socialism. The right name for our current form of government is kleptocracy.
February 22, 2009 — 2:03 pm
Louis Cammarosano says:
This is not the normal wealth redistribution of taking from the rich and giving to the poor but taking from the prudent and giving to the imprudent.
Thanks for the Chicago boys link.
“This is going to be very happy news for the young people who actually are being born as they get to bear their parents and grandparents on their backs.”
AND they’ll get to bear losses and shortcomings of the childless who fail not only to have children but to meet their inflated government encouraged expectations.
February 22, 2009 — 2:21 pm