The latest home-sales data paint a bleak picture: The housing market is in a double dip and still years away from a true recovery. The Obama administration’s policies have only prolonged the agony.
Sales of existing homes dropped 9.6 percent in February to their lowest level since 2002 — 4.88 million per year. And that’s the good news.
Sales of new homes have collapsed. In February, they dropped 16.9 percent to an all-time-record low — 250,000 a year, down from 900,000 in early 2007. As the nearby chart shows, these fell off a cliff at the end of last year, because the first-time homebuyer’s tax credit only “borrowed” future sales, and now the future is here.
Home prices are following suit. The median price of an existing home dropped 5.2 percent to $156,100, while the median new-home price is down 13.9 percent, to $202,100. Indeed, a look at the Case-Shiller 20-City Home Price Index shows that housing entered a double dip in the middle of last year.
This mess was years in the building. Nearly two decades of massive federal housing subsidies — cheap low-downpayment loans by Fannie Mae and Freddie Mac plus Federal Housing Administration loan guarantees, along with the longstanding tax deductiblity of mortgage interest — resulted in a huge overbuilding.
That is, homebuilders built millions of homes we didn’t need as people who couldn’t really afford them — and should have remained renters — bought with low or no downpayments. Now these folks are becoming renters again, as they lose their homes (and savings) to foreclosure — leaving a gigantic glut of inventory on the market.
The official statistics show an inventory of 3.67 million new and existing homes — 8.6 months’ worth at the present anemic sales rate. But the real inventory is likely double that, once you count the homes now in the foreclosure pipeline.
Making matters worse, more defaults will come: Nearly one in four borrowers — more than 11 million households — owes more than the house is worth. Another 2.4 million homeowners have less than 5 percent equity, putting them right on the edge. And those numbers will all soar as prices slide further.
Not all underwater homeowners will default, but it’s a sure bet millions more eventually will.
All this means there’s a backlog of some 10 million homes that must get sold before housing can truly recover. But fewer than 5 million homes now trade hands in a year — and that’s mostly sales of nondistressed homes, which aren’t even part of the glut. So it’s clear that home prices are bound to go down further and remain down for years.
Every economist knows you get more of what you subsidize. Due to all the overbuilding from years of federal housing subsidies, today a staggering 18.4 million homes are empty year-round. (That’s down from 18.9 million a year ago, as lower prices have lured investors who’ve rented out homes bought at foreclosure.)
Given that there are 112.5 million occupied housing units (including rentals) in America, that means that there’s one vacant home for every six occupied ones.
Short of bulldozing the millions of unneeded homes, it will take years of population growth and household formations to absorb the excess.
The good news (such as it is) is that free-market clearing processes are working. Today, one in five homebuyers is an investor, and one of every three sales is all-cash. Distressed sales account for 40 percent of the market.
Since the mid-’90s, when liberal activists really started pushing “affordable homeownership,” banks have poured trillions of dollars into mortgage loans (now defaulted and mostly government guaranteed) instead of loans to businesses — the proceeds of which would have gone into plants, equipment and software, all engines of job growth.
So now, nearly two years after the recession “ended,” we’re stuck with millions of unneeded homes, and millions of unemployed people. The feds have finally realized that stricter lending policies are necessary, but it will still take several more years for housing (and probably everything else) to recover.
What should we do? More federal subsidies are no answer. Hastening the foreclosure process (rather than slowing it, as our leaders mostly seem to be trying to do) is a good place to start. Keeping in place borrowers who haven’t made a mortgage payment in over a year will only further delay the housing recovery.
We might even want to import buyers: Economist Gary Shilling has suggested granting permanent residency to any immigrant who buys a home.
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