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U.S. Senate Passes Housing Bailout Legislation

“Progress” continues to be made on the next major bailout. According to Bloomberg tonight:

The U.S. Senate passed a $300 billion plan to help thousands of Americans keep their homes and tighten regulation of Fannie Mae and Freddie Mac in an effort to ease the worst housing slump since the Great Depression.

The legislation, approved 63-5 today, would let an estimated 400,000 struggling homeowners avoid foreclosure by refinancing their subprime mortgages into fixed-rate loans backed by the government. The measure also offers tax incentives to potential homebuyers and sets aside $4 billion to help communities buy foreclosed properties.

Chicago’s Mayor Daley moonlighting as a real estate agent? Yeah, I guess I can see it…

“‘Got House?’ Oh, I’ll give you house!”

Source:

“Senate Approves $300 Billion Plan to Stem Housing Foreclosures”
Brian Faler
Bloomberg, July 11, 2008

From Jingle Mail To Buy And Bail

First, there was “jingle mail.” Now, it’s “buy and bail.” Nick Timiraos of the Wall Street Journal wrote yesterday:

Next month, Michelle Augustine plans to walk away from her four-bedroom house in a Sacramento, Calif., subdivision and let the property fall into foreclosure. But before doing so, she hopes to lock in the purchase of another home nearby.

“I can find the same exact house as what I live in right now for half the price,” says Augustine, 44, who runs a child-care service out of her home. She says she soon will be unable to afford her monthly payments, which will jump to $4,000 from $3,300 in August, and she doesn’t want to continue to own a home that is now worth $200,000 less than what she paid for it two years ago.

In markets hit hardest by falling home prices and rising foreclosures, lenders and brokers are discovering a new phenomenon: the “buy and bail,” in which borrowers with good credit buy a new home—often at a much lower price—then bail out of the “upside-down” mortgage on their first home.

Homeowners are able to pull off this gambit—which some lenders and real-estate agents call mortgage fraud—by taking advantage of mortgage-lending practices that allow them to buy a new primary residence before their existing residence has been sold.

And with the lending industry in disarray as it tries to restructure millions of mortgages, some boast they are able to pull off the strategy with ease.

The best part of Timiraos’ piece?

In some cases, homeowners are coached through the buy-and-bail process by real-estate agents and brokers who see nothing wrong with it…

“It’s just a business decision,” says Linda Caoili, a Sacramento real-estate agent who is working with Augustine and others who are considering walking away from their mortgages. “If you’re upside-down $250,000, why would you keep it? It just doesn’t make sense.”

Readers- fraud or fair play?

Source:

“Some owners plot walking away from foreclosed home”
Nick Timiraos
Chicago Tribune, June 15, 2008

Realtors Getting Kicked When They’re Down

These days, I may not be so happy, after all
After all that I have gained
I still feel sad when I’m all alone
I may have felt that path? Decay?
I may not be so swift, after all
All the chances you have given me
I just let you go

-The Rentals, “These Days” (1995)

As if the times weren’t tough enough already for Realtors, I came across the following by Mick Weinstein on Yahoo! Finance:

Realtors, Kiss Your 6% Goodbye!

This week, the Justice Department and the National Association of Realtors reached a settlement in the antitrust case against the NAR’s monopolistic hold on home listing information. It’s a victory for Internet-based and discount listing services and another stake in the back of traditional brokers attempting to recover from this downturn.

And then it got ugly. Weinstein added:

Media expert Jeff Jarvis says this means good riddance to real estate agents’ familiar 6% commissions: “The only reason… that Realtors could hold onto their high commission for such little value and work is that they kept information away from the marketplace, making it inefficient. This new economy can now come to real estate sales as information become freer. Oh, it’s not fully freed yet. But I do believe that the combination of this settlement and what it does to empower discount players and the depressed real estate market will combine to finally shove dynamite up Realtors’ rears.”

It’s interesting to note that, according to Mary Umberger of the Chicago Tribune, the national median income for a member of the National Association of Realtors was $42,000 in 2007, down about 11% from 2006. Umberger noted:

For newbies, the numbers were worse: NAR members with two or fewer years of experience earned a median of $10,500 last year.

Tough times indeed…

Sources:

“Housing: A Train Wreck in Slow Motion”
Mick Weinstein
Yahoo! Finance, May 30, 2008

“Assessing the wages of a downturn”
Mary Umberger
Chicago Tribune, June 1, 2008

FHA Chief Shoots Down Housing Bailout Bill

Here’s another great piece that was suggested to me. As you may have heard already, the U.S. House of Representatives passed a bill last week that would enable struggling mortgage holders to refinance into more affordable loans guaranteed by Uncle Sam. The legislation, spearheaded by House Financial Services Chairman Barney Frank, would require a significant expansion of the Federal Housing Administration (FHA). Well, according to Luke Mullins of U.S. News & World Report, FHA Commissioner Brian Montgomery is a bit leery of the proposal (understatement of the year). Mullins wrote yesterday in “FHA Chief Criticizes Rescue Plan”:

Montgomery expressed his opposition to the legislation recently passed by the House:

As one colleague described it, it is “on steroids” because it throws sound underwriting out the window. It moves us toward a federalization of the mortgage market, forces taxpayers to pay for bad loans, and doubles FHA’s portfolio, adding hundreds of thousands of risky loans in a Byzantine process that will take years to sort out and create a regulatory nightmare.

Besides risking the wrath of the powers-that-be in our nation’s capital, I must admit that I’m impressed that he said this within a room full of real estate agents at the National Association of Realtors Midyear Legislative Meetings and Trade Expo. I haven’t seen an obit for him, so besides a few claw marks, I’m assuming Montgomery survived the ordeal.

You can access Mullins’ piece here.

When Juries Actually Work

Ever serve on a jury? I have, and didn’t enjoy one particular experience that took place in 1996. That year, I was picked to serve on a traffic court jury for Cook County, Illinois. The case was about a man who was arrested for drunk driving when he was stopped at a Chicago Police Department roadblock. According to witnesses, police officers at the roadblock motioned for the man to come forward with his car. Seeing that there was no response, one of the officers walked up to the vehicle and discovered the defendant incapacitated, his car wreaking of alcohol, and a nice, big bottle of booze by the man’s side. Police officers turned the vehicle off for the driver, helped him out of his car, and informed him of his arrest. However, the arresting officers turned their back on the man for one moment (big mistake), at which point he declared, “Well, if I’m going to jail, I might as well have another drink.” The motorist then proceeded to grab his bottle and down the remaining contents. After hearing the case, my fellow jury members decided to ignore the breathalyzer results, as the procedure was administered shortly after he chugged the bottle. And the rest of case? Open and shut, right? Wrong. A number of jury members started to feel “sorry” for the man, and argued that he wasn’t really drunk, he was just “scared” of the big, bad, policemen (which, they rationalized, would explain why he didn’t pull forward at the roadblock when he was instructed to). Never mind that he was a pile of crap at the roadblock, his car stunk of alcohol, and the smoking gun was on the seat right next to him. To make a long story short, the trial ended up in a hung jury, and a mistrial declared.

I often wonder if someone lost their life down the road because jury members felt “sorry” for this individual.

Well, I recently read something in the North County Times that helped restore my faith in juries… a little. You may have heard of Marty and Vernon Ummel, who sued their real estate agent because, they argued, the $1.2 million they paid for their Carlsbad home in 2005 could not be justified when other houses on the street were selling for much less at the time. The Ummels claimed their agent failed them and thus owed the couple $150,000, the amount they felt they overspent.

Well, on April 10 it took a jury less than two hours to unanimously clear the real estate agent, Mike Little. According to the North County Times’ Teri Figueroa:

After about a week of testimony at the Vista courthouse, the panel of 10 women and two men rejected Marty and Vernon Ummels’ arguments that they overpaid $150,000 for their home near the Four Seasons Resort Aviara…

“Mr. Little did what he was supposed to do,” jury forewoman Wendi Brick said. “The bottom line is that you (as a buyer) are responsible when you sign a contract and purchase something.”

Now, if only those who are pushing for a mortgage bailout could grasp this simple concept…

Source:

“CARLSBAD: Jury clears real estate agent”
Teri Figueroa
North County Times, April 10, 2008

Housing Spindoctors

This morning I came across an interesting post on the New Jersey Real Estate Report blog (hat tip The Mess That Greenspan Made). In “Tracking Realtor Spin,” a chart depicting existing homes sales is paired with comments made by the National Association of Realtors. From reading these, you’d think it’s always a great time to buy a home. Some notable sales pitches, I mean, comments include:

Summer 2005- “We’ve been expecting sales to remain at historically high levels, but this performance underscores the value of housing as an investment and the importance of homeownership in fulfilling the American dream.” - David Lereah, NAR Chief Economist
Spring 2006- “Higher interest rates are slowing home sales, but we see this as another sign of a soft landing for the housing sector which remains at historically high levels.” - David Lereah, NAR Chief Economist
“After five years of booming sales, we are now experiencing normal market conditions across most of the country… most owners can expect steadier gains in home values for the foreseeable future.” - Thomas M. Stevens, NAR President
Fall 2006- “…the worst is behind us as far as a market correction — this is likely the trough for sales. When consumers recognize that home sales are stabilizing, we’ll see the buyers who’ve been on the sidelines get back into the market” - David Lereah, NAR Chief Economist
Spring 2007- “Buyers who’ve been on the sidelines may want to take a closer look at current conditions in their area – if they wait for sales to rise, their choices and negotiating position won’t be as good as they are now.” - Pat V. Combs, NAR President
Spring 2008- Existing-Home Sales to Stablize Before Upturn in Second Half of 2008 - NAR

Dead or Alive, “You Spin Me Round (Like a Record)” (1984)
YouTube Video Link

Source:

“Tracking Realtor Spin”
New Jersey Real Estate Report, April 9, 2008

So Cal Housing Market Report

Crash and burn
All the stars explode tonight
How’d you get so desperate
How’d you stay alive
Help me please
Burn the sorrow from your eyes
Oh, come on be alive again
Don’t lay down and die

-Hole, “Malibu” (1998)

I think Courtney Love best described the Southern California housing market these days. The reports coming out of there are SO BAD, I just had to talk about it. On Wednesday, the L.A. Times’ Peter Hong wrote:

The traditional spring home-buying season is off to its worst start in 20 years, data released Tuesday show, with sales so weak that foreclosures now account for more than one-third of all market activity…

The median price for a Southern California home fell below $400,000, to $385,000. Homes are now typically selling for what they fetched in April 2004, with the median price 20% below the market peak of $505,000 last year.

“…with the median price 20% below the market peak of $505,000 last year.” Truly disturbing.

With all this going on, Hong noted that So Cal homeowners are STILL living in la-la land when it comes to how much they believe their properties are worth. And by la-la, I don’t mean Los Angeles. He wrote:

Homeowners who aren’t facing foreclosure, meanwhile, often cling to outdated notions of what their properties are worth, real estate agents say.

David Emerson, a Lakewood real estate broker, said he was still able to quickly sell houses when owners priced them realistically.

The L.A. Times reporter uncovered some dismal forecasts for those who believed the worst had passed. He wrote:

Emerson also believes the worst is yet to come. “There are just too many foreclosures coming down the pike,” Emerson said.

Natalie Neith, a Beverly Hills real estate agent, has also seen a modest pickup in open-house traffic and sales recently, but like Emerson she sees more foreclosures coming…

“When I talk to sellers now, I say you need to reduce your price. You have the prospect of thousands of foreclosures coming. That’s going to be your competition,” Neith said.

California foreclosure filings were up 106% in March from a year ago, according to Irvine-based RealtyTrac on Tuesday.

Hole, “Malibu” (1998)
YouTube Video Link

Source:

“Foreclosure glut further depresses housing prices”
Peter Y. Hong
L.A. Times, April 16, 2008

What Housing Bust?

Lately, I’ve noticed the desperation permeating the U.S housing market has given way to a bit of optimism. Case in point, according to a Reuters/Zogby poll released yesterday, a majority of Americans think now is a good time to buy a home. The survey of 1,049 likely voters revealed that 53.8% thought that now was a good buying opportunity. 41.6% said it was not a good time to buy, and the rest were unsure. The poll, conducted April 10 to 12, had a margin of error of plus or minus 3.1 percentage points. Reuters noted:

While economists said it was unlikely the housing market had reached a bottom, some have grown cautiously optimistic that it was finally nearing the end of its slump.

Reuters’ Lynn Adler wrote a piece today that echoed such sentiment. According to Adler:

While the data says “no end in sight” for the housing crisis, real estate agents are beginning to see signs of life among people looking for homes to buy around the United States.

It’s too early to talk of a trend, but lower house prices and mortgage rates are bringing buyers out of hibernation, at least in some markets. Provided sellers are prepared to cut prices, buyers are willing to bid, real estate agents say.

“If you’re not going for pie-in-the-sky type of numbers and price your house accordingly, I think that they’ll go pretty quickly,” said Victoria Hanbury Howard, a real estate broker at Coldwell Banker in Washington.

Brokers report the same story in several other places, according to real estate companies with a wide reach like RE/MAX International Inc and Coldwell Banker Real Estate LLC.

If this anecdotal evidence proves durable, it could mark a turnaround from one of the worst downturns in the housing market in a century.

As further “evidence” of a changing outlook, Paul Kelma of the Suburban Chicago News wrote yesterday:

Today might be an ideal time to buy a home.

Bill Basic has seen this time come around maybe three times in the past 25 years.

The long time homebuilder and president of the SouthWest Suburban Homebuilders Association ticks off the key points…

It is THE single biggest wish in the American dream of home ownership: the “buyer’s market.”

Basic saw those conditions in 1983-86 and again in 1989-91, first when the market stalled during the presidency of Jimmy Carter, with interest rates near 22 percent, and again during the first Gulf War.

After each, pent-up buyer demand, dropping interest rates, too much inventory and stable prices opened the floodgates of a home buying upturn. He sees the pre-conditions for that kind of upturn right now.

And once it starts — and it will, with growing population and pent-up demand — prices will rise and the buyer’s market will be history.

“The time to buy is now. A lot of people are ‘down’ on housing and the (economic) times, but you can always find some bitterness. People who sit on the sidelines … if they’re going to sit on the fence, they’re going to be kicking themselves,” he said. “Once that inventory is down, you will see prices rise.”

Lynne Austin, president of the Home Builders Association of Greater Fox Valley, said the “kick” will come when a buyer sees other people living in “their” home.

Wow. With housing’s future so bright, there should be no need for a mortgage bailout, right?

Sources:

“Americans see buying opportunity in housing: poll”
Reuters, April 16, 2008

“Brokers feel a pulse in home market”
Lynn Adler
Reuters, April 16, 2008

“This may be the moment to seize”
Paul Kelma
Suburban Chicago News, April 15, 2008

Weird Housing Tales, Part 6

Earlier today I happened to catch this snippet from Chicago Tribune real estate columnist Mary Umberger:

The boom-boom room

A real estate agent in Alexandria, Va., was checking out a home for sale when he noticed something affixed to a basement window. It was a hand grenade, apparently put there to thwart burglars by the late owner, news reports said. Explosives experts removed it.

Source: PrankPlace.com

Source:

“Motivated seller tosses out a lifeline”
Chicago Tribune, April 13, 2008

Economists Predict 6% Jobless Rate, 2 Million Lost Jobs

Earlier today I read an interesting article that discussed the U.S. employment outlook and which jobs may or may not be good bets in a deteriorating economy. Martin Crutsinger of the Associated Press wrote:

While the downturn is expected to be short and mild, economists are still forecasting the unemployment rate, which jumped to 5.1 percent in March, will climb much higher before the nation’s job engine sputters back to life.

Economists are forecasting a jobless rate that will peak at around 6 percent, but probably not until early next year, several months after the recession is expected to end. Analysts said as many as 2 million people could lose their jobs in the current downturn.

Mark Zandi, chief economist at Moody’s Economy.com, said:

All the indicators suggest that we will see even larger job declines in coming months. Businesses are getting nervous and pulling back.

“Safe” Jobs:

• Healthcare
• Education
• Farming
• Some manufacturing (airplanes, heavy machinery)
• Government

“Unsafe” Jobs:

• Other manufacturing (automakers, housing-related like appliances, furniture)
• Construction
• Housing-related industries (real estate agents, mortgage brokers)
• Wall Street firms
• Discretionary services (tourism-related)

Source:

“Job winners and losers in hard times”
Martin Crutsinger
Associated Press, April 7, 2008

Weird Housing Tales, Part 5

Call it poetic justice. The circus atmosphere that surrounded the U.S. housing boom shows no signs of abating as the bust takes hold. This afternoon I came across an Associated Press piece on MSN Money which described how potential foreclosure buyers are crowding onto buses for day-long expeditions through empty homes in the hopes of finding bargain properties. From the article:

ORLANDO, Fla. - The white bus rumbles into the quiet suburban neighborhood, heading toward a foreclosed home that sits empty. Neighbors, young and old, cock their heads in curiosity or point at the slow-moving coach.

Once the vehicle stops, about 20 potential buyers file out and become detectives, opening and closing cabinets and drawers, knocking on walls and asking about the price, the previous owners and what repairs may be needed.

The event is called the “Foreclosure Bus Tour,” where aspiring buyers of foreclosed homes pay $45 per person (or $65 per couple) for the tour, house info, instructional sessions, and meals. During the Orlando tour, a mortgage broker, home inspector, attorney, and real estate agents were made available to participants. Organized foreclosure tours are also being operated in California, where the idea seems to have originated, and Phoenix, Detroit, Kansas City, and Jacksonville.

It won’t take a genius to figure out that the housing crisis has finally hit home if one of these tours is running through their neighborhood…

Source: LaughParty.com

Source:

“Bus tours show off foreclosed homes”
Associated Press, March 26, 2008

Tide Turning On Manhattan Real Estate?

Until recently, Manhattan, an island borough of New York City and the most densely-populated county in the United States, appeared to have weathered the housing bust sweeping across the United States. In the fourth quarter, the average price of a Manhattan apartment soared 17.6% from a year earlier to $1.44 million, according to Prudential Douglas Elliman, New York’s largest real estate services company. The addition of two high-end condominiums (The Plaza and 15 Central Park West) to the Manhattan market contributed to this price rise. The median apartment price rose 6.4% to $850,000, while the average price per square foot rose 18.2% to $1,180. Prudential Douglas Elliman added that the number of apartments for sale fell 13.5% to 5,133.

Back on February 19, Pamela Liebman, chief executive of the Corcoran Group, a New York City real estate company, told Reuters’ Jonathan Stempel that a lack of supply and significant demand by foreign buyers taking advantage of a weak U.S. dollar has meant that Manhattan and New York City has “absolutely stood alone” in avoiding declining home prices. Liebman said demand remained “very healthy,” especially for the largest, multimillion dollar apartments, but realized the situation could change. She said:

If Wall Street has a terrible year, and the press is really talking negative
about the economy and the election, I think things could really slow down at the end of the year. I don’t see New York City crashing or coming to any kind of a standstill, because the product is too good and there’s too much belief in the city. What will stall this market is a negative economy, nervousness and skittishness about job security, consumer spending, layoffs, and sellers with unrealistic prices.

Unfortunately, it now appears New York City no longer “stands alone” in avoiding falling home prices. Yesterday, data released by Standard & Poor’s for its S&P/Case-Shiller® Home Price Indices showed that prices of existing single family homes in New York City declined 1.3% in the fourth quarter from the previous one, and fell 5.6% over a one-year period prior to December 2007.

Speaking about the Manhattan market, Jonathan Miller, director of research at Radar Logic (a data and analytics business that produces a daily “spot” price for residential real estate in major U.S. metropolitan areas), told Reuters on February 19 that the Manhattan housing market was “definitely going to see weakness” within a year or two. Yet, Patrick McGeehan of the New York Times wrote on February 3 that:

But lately, more cracks in the housing market have begun to show, and the trend is reminding some analysts of the severe downturn in the region during the recession that followed the boom years of the late 1980s.

Even in Manhattan, signs of weakness have appeared beneath the headlines about ever-rising average sale prices of condominiums and co-ops.

A report last week found that rents in Manhattan declined in January, by more than 7 percent in some neighborhoods, according to the Real Estate Group New York.

The latest set of numbers “reinforces our sentiment that the market has, in fact, turned,” Daniel Baum, the chief operating officer of the company, said in the report.

As for the significant demand by foreign buyers that Ms. Liebman referred to earlier, that situation may have changed as well. On January 30, Emily Friedlander of the Wall Street Journal wrote:

For months, observers of the Manhattan real estate market have been crediting foreign buyers for Gotham’s strong market. But that may be changing. New York Magazine is reporting that foreign interest in Manhattan real estate is finally waning.

“We’ve had nine clients we’d been working with since October, and they’ve stepped back,” says one broker quoted in the article. “I have one prominent family from Singapore who were about to make an offer, and they decided no.” The magazine cites turmoil in the global markets, as well as tightened lending standards as factors. Another broker quoted in the piece says his buyer walked because a bank told him he had to put 40 percent down.

Flashback: NYC, 1994
YouTube Video Link

No Signs Of Housing Recovery

The National Association of Realtors released their latest housing numbers this morning. More bad news. Home prices are likely to decline in 2008 for the second straight year. According to CNN Money, the Realtors, in their monthly economic and sales outlook, are forecasting a 1.2% decline in the prices of existing homes sold in 2008. Only a month ago they were still forecasting that prices would be flat this year and housing would rebound in the second half of 2008. Last year was the first on record that the NAR recorded a full-year decline in existing home prices, as the median price fell 1.4% from 2006.

Regarding existing home sales, the Realtors are predicting a 4.8% drop in the number of houses sold in 2008. Last month they were still forecasting a 0.9% pickup in sales. The NAR predicts 5.38 million units will be sold in 2008, down from their January estimate of 5.7 million. Existing home sales plunged 12.8% in 2007, according to the trade group’s data.

The NAR sees even greater weakness in new home sales for 2008, with median prices declining 4.3% and the number of sales falling 17.7% from 774,00 units to 637,000 in 2008.

In addition, the National Association of Realtors’ index of signed purchase agreements decreased 1.5% to 85.9. the group said today. The measure was down 24.2% from this time last year. The pending home sales index is more forward looking than the Realtors’ more widely-followed reading on existing home sales, which tracks closings.

According to Reuters, NAR chief economist Lawrence Yun predicted home sales activity will remain soft through the first half of the year despite a generational low in mortgage interest rates.

Before the release of today’s numbers, Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis, told Bloomberg:

The housing outlook has deteriorated significantly and I don’t see a bottom on sales and starts until the middle of the year at the earliest. And our outlook on home prices has gotten worse.

Will Tax Credits For Home Buyers Stimulate The U.S. Economy?

Las Vegas, March 2003. I’m in from Chicago for a bachelor party and notice two of the guys I’m with are upset at each other. One of them, Jim, tells me that Bob is angry at him because he’s not gambling enough at the hotel/casino we’re staying at. Jim, who has a wife and kid and is stretched for cash at the moment, explains that Bob’s family are VIP’s of the hotel/casino and made arrangements for our accommodations. I’m also told that Bob’s family is receiving “comps,” or freebies that the casino gives you in return for spending money playing the games at their casinos. These could be food and beverage comps, like a free breakfast buffet, to free rooms for a future stay. So, the more money the members of our party spend, the more comps Bob’s family receives. Hence, Bob’s displeasure with Jim. And later on, me (guilty as charged!).

I appreciate Bob and his family for taking care of the Vegas arrangements (although I never asked them to). But, why would I spend more money than I originally intended to for the benefit of someone else?

Photo by Bob Townsend

In a press release dated January 10, James M. Weichert, president of Weichert, Realtors, a national brokerage, proposed that the U.S. government should offer a tax credit to people who buy homes as a way to “stimulate” the slowing U.S. economy. According to the Chicago Tribune this morning, Weichert has been meeting with officials of the National Association of Realtors to discuss a congressional strategy for the proposed tax credit. He said:

For years, economists have drawn a correlation between the real estate market, the largest segment of the gross domestic product, and the overall economy. When the housing market is flourishing it drives the economy. After the housing sector stalled, we began seeing a negative ripple effect. To me, the fastest and most logical way to economic recovery would be to provide an incentive in the form of a tax credit to home buyers to re-energize the housing market and in turn other sectors of the economy.

According to Steve Alessandrini, a spokesman for the New Jersey-based company, that’s about the extent of the plan’s details. “Obviously, that press release is a little vague,” he told the Tribune. Alessandrini added:

There are a lot of proposals out there, a lot of them focused on mortgages and providing relief to the at-risk market. But that’s not going to stimulate the housing economy. If you create an incentive for buyers, [a tax credit] would help out in reducing the surplus inventory [of homes for sale]. It’s also going to put more money into the economy.

There are mortgages out there for qualified buyers, but a lot of them remain on the market sidelines. These people need a push, and this plan would create that.

I’ve yet to see any evidence showing that the United States is anywhere near a bottom in the housing slump. A few “experts” have gone out on a limb and called a bottom, only to get burned (the ball’s still in play for White House chief economist Edward Lazear, who announced a housing bottom by June 2008). In this market, I’d have to think that a significant number of potential homebuyers will continue to remain on the sidelines for quite some time. Why? Because they don’t want to buy a home, thinking they got a bargain, only to see its value depreciate more. The prevailing psychology is, why buy now (tax credit or not), when homes are probably going to be tens of thousands of dollars cheaper in the near future? I know, it’s been said you shouldn’t try to time the housing market. Yet, it appears the housing downturn still has a ways to go.

Bloomberg noted this morning that:

Falling property values and tougher borrowing rules will lead to more foreclosures and keep the real-estate market in recession for most of this year, economists said.

Regarding property values, in a December 30 post I talked about how Robert Shiller, Professor of Economics at Yale University and co-founder of the S&P Case/Shiller house-price index, warned of more declines in U.S. home values. Shiller said:

American real estate values have already lost around $1 trillion. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses…

The last available data for the quarterly S&P/Case-Shiller U.S. National Home Price Index (which covers all nine U.S. census divisions) showed U.S. home values were down 1.7% from Q2 2007. Year-over-year, national home prices declined 4.5%.

But all real estate is local, right? Talking about the nation’s housing woes, Paul Kasriel, chief economist at Northern Trust Co., told the Chicago Tribune back on January 13 that Chicagoland’s problems “illustrate just how serious this housing bust is. Geographically, it’s all over.” The paper noted that Kasriel, like most forecasters, “expects the residential market overall to worsen through much of 2008.” He explained that real estate is “a chain-reaction market,” and the chain is broken. “Without that first-time buyer, there’s no chain reaction,” said Kasriel, recipient of the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005.

Weichert and Alessandrini emphasize the importance of the qualified buyer for their “stimulus” plan. A post by CNBC real estate reporter Diana Olick Friday afternoon makes me wonder if they overestimate the number of qualified buyers this time around. Olick wrote:

We’re talking today about what will get buyers back into the market, especially when all the so-called experts we put on the air say that prices are going to continue to fall through the rest of 2008 in the bulk of the nation’s housing markets.

Interest rates are low, affordability is improving, inventory is sky-high, and sellers are well aware of the difficult market. What’s better than all that for a buyer?

Well there’s the catch-the-falling knife issue with prices, and then there’s the mortgage issue. Whether it’s new or refi, the issues are the same. A mortgage broker I know writes:

“We’re undergoing a min refi boom right now with 30-yr conforming fixed rates not far off record lows. The difference this time around is the limited amount of people that qualify…”

So, will a tax credit for buying homes “stimulate” the U.S. economy? Doubtful. In Las Vegas, knowing the odds is important to one’s success on the casino floor. Odds are, the housing slump will continue on for the foreseeable future. Odds are, home prices will continue to fall. Which leads me to ask, why would someone gamble on buying a home in this market just to get a tax credit, the equivalent of a Vegas comp? Also, is it me, or is the real estate industry hoping to make out like Bob’s family in this situation?

You know what? What happens in Vegas should stay in Vegas.