Sunday, April 6, 2008

You say "to MAY toe" and I say "to Ma toe"...

We don't have a housing crisis!!

A housing crisis would mean we don't have enough housing and people are freezing to death on the street.  WE HAVE A FINANCIAL CRISIS CAUSED BY OVER-LEVERAGING HOME MORTGAGES ON OVERVALUED PROPERTIES!!!!

There is a significant difference between the 2.

The Financial Crisis will not be over for years, not months or quarters.  Just do the math: The median American income is insufficient to cover a mortgage payment, property taxes, and insurance on the median price American home.  It follows that the problem will not go away until either home prices fall enough, or incomes rise enough, to bring the 2 into balance.

Last time I checked the employment situation in the U.S. would be hard pressed to convince anyone that we will solve the issue with rising incomes.  Ergo, it will be falling prices.  And more financial crisis.  And more bank failures.  And more layoffs in construction, mortgage finance, real estate brokerage, retail, etc... And more ill conceived regulation and market interference from the "I'm from the Government and I am here to help you" crowd.

You heard it here first...

Places like Florida and California will not see their housing markets bottom until the lot value associated with the housing site is given a ZERO VALUE and the improvements (the house itself) are given a reasonable discount to its replacement costs.

I watched in horror over the last several years as Florida developers used the following reasoning:

Well the "knock down" cost me $600k, so I will have to build a $1.2mm structure and ask $2.5mm (with property taxes of 2.1% of the purchase price... egads!).  Now the market is SATURATED with $2.5 million houses...  This market will not clear until the lot is valued at ZERO, the structure at $800k and the builder's $700k profit  is eliminated.

That's how markets work.  These homes had construction loans.  Now they need permanent financing.  How long can the builders fund their losses?  What will the banks sell these properties for out of foreclosure?  Guess how many realtors put pen to paper and brain to calculator?  I'd be willing to bet - NOT A ONE.  "No man can understand what his salary (commissions) requires that he not understand".

And here comes the oil import crisis.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

No comments: