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| Home Front Economy |
| US home sales and prices falling at record levels |
| 2008-12-24 |
| THE US housing market took a sharp turn for the worse in new data this week, in sign the US recession that shows no sign of abating. Existing US home sales and prices both fell at a record pace last month, according to a report released on Tuesday, further evidence that the financial turmoil which intensified in September was driving consumers deeper into retreat. "The quickly deteriorating conditions in the job market, stock market and consumer confidence in October and November have knocked down home sales to another level," said Lawrence Yun, chief economist for the National Association of Realtors in the US. Sales of newly built US homes slowed to the weakest level since 1991, according to separate figures from the Commerce Department. Housing is at the root of the year-long US recession and the global malaise, and economists see little hope of a lasting recovery until that market stabilizes. If it deteriorates significantly, that would increase foreclosures and bank losses, putting greater strain on government efforts to revive growth. "The bottom line: Bah humbug. Recession, recession, recession," said Jennifer Lee, an economist with BMO Capital Markets in Toronto. Modest US stock market gains evaporated after the housing data was released, pushing the Dow Jones industrial average down 0.6 percent in afternoon trading. The US economy shrank at an unrevised 0.5 percent rate in the third quarter, official data showed. Consumer spending plunged 3.8 percent, the biggest drop since 1980. Economists expect a much bigger decline in economic activity in the current quarter as job losses pile up and households and businesses curtail spending. That in turn is hurting U.S. trading partners around the world. An economist at the San Francisco Federal Reserve Bank said the US recession would likely last 18 months, making it the longest since World War Two, with unemployment peaking at a 25-year high of 8.4 percent. |
| Posted by:tipper |
| #18 Get rid of all taxes except Property Value Tax (Land and Intellectual). The money raised goes to the government to fund property defence (police, army, courts and group health (inoculation/vaccination)). The rest is paid as a dividend. 1/ This prevents housing getting expensive 2/ Eliminates the moral hazard welfare state. 3/ Squeezes out economically destructive rent seeking. |
| Posted by: Bright Pebbles 2008-12-24 20:20 |
| #17 While I agree that the tax break on home interest and real estate taxes is debatable (what's the difference between a homeowner with an ARM and no money down and a renter?), the capital gains exclusion of $500K every five years was a "reasonable" effort for the following reason. Much of the gain on a home sale was due to inflation, especially back in the '70s. Why should a homeowner have to pay a tax on that? People got stuck in their homes because they didn't want to pay 35% cap gains on the inflated value. Of course, Congress could have done better: simply publish an inflation figure for each year and exclude that part of the gain. But no, they wanted to keep it "simple". |
| Posted by: KBK 2008-12-24 13:55 |
| #16 The housing market was the single greatest depository of consumer value for many years. People used their home as a cash cow. As home values rose, people pulled out equity for purchases of all sorts of things. One of two things need to happen. Either we need to start removing existing homed from the market by demolition when they are foreclosed on in order to jack up the value of the remaining homes or another source of value needs to be created. That can't happen until Sarbanes-Oxley is either repealed or greatly modified. S-Ox is designed to depress corporate balance sheets so that each quarter represents not reality but the worst possible case. This keeps cash positive companies who must show paper liability from showing any growth. It also prevents companies from going public and gaining access to public capital. This eliminates corporate investment as a potential source of value for individual investors. Bear Stearns was cash positive but was broke according to S-Ox accounting requirements. Same with AIG. The reason the government had to step in and take the most "troublesome" mortgages was because the accounting requirements forced the companies to value ALL mortgages according the the price of the last one sold (mark to market). So the public can not create value in investments in private industry because S-Ox has wiped out the value of private industry. There is another shoe to drop in all of this in 2011 when the boomers start retiring in droves and cashing in their 401K, IRA, and selling the homes in high-cost areas to move to lower cost areas more suitable for life on a fixed income. |
| Posted by: crosspatch 2008-12-24 13:41 |
| #15 Well Bush and the Dems said they wanted to make Housing affordable. Seems they did that by taking everyone down. Housing prices always drop in the winter. |
| Posted by: rjschwarz 2008-12-24 11:00 |
| #14 RGR RGR No mo uro. Just testing.... |
| Posted by: .5MT 2008-12-24 10:00 |
| #13 Welcome to one of the myriad anamolies caused by our bizzare tax system. The more complicated the tax system the more room there is for Pols and cheats (redundant I know) to scam the system. The recipients get drunk on the income and then comes the hangover. I want to see Friedman's flat tax with a high personal exemption AND THAT'S IT. Then decisions of an economic nature won't get made based on politics. |
| Posted by: AlanC 2008-12-24 09:51 |
| #12 #6, Besoeker, You're describibng the kalephorneeah situation to a "T". The governments, local, state, and federal knew what the situation was , squinted, smiled, and watched the bucks roll in. greenspan knew what was going on, but he wasn't going to turn the lights off on the party either.As long as revenue was being generated, everything was tolerable. This is the "government" we have. I guess we're not smart enough for anything better. I know for damn sure Cal voters aren't. |
| Posted by: Woozle Elmeter 2700 2008-12-24 09:19 |
| #11 That's a scary graph. Why the hell do we allow the unionization of government employees? Of all the workers in the universe these should be MOST subject to the needs and policies of their employers (that would be us) not forcing changes in policy to suit their needs. |
| Posted by: Hellfish 2008-12-24 08:50 |
| #10 Roger Roger - Affirmative, agree, understand, concur.... |
| Posted by: Besoeker 2008-12-24 08:17 |
| #9 RGR? Please explain (apologies for my ignorance). |
| Posted by: no mo uro 2008-12-24 08:11 |
| #8 RGR RGR No mo uro. My old pop used to tell me "he didn't give a damn what the other kids math grade looked like, he was only interested in MINE!" I guess them that wants to live in CA, MA, or NY can do so. Excluding highly respected RantBurgers, hat tip to the poor, feckless, donk bastards. |
| Posted by: Besoeker 2008-12-24 08:05 |
| #7 Good explanation, P2K. I understand the evolution of the concept, P2K, and that to one extent or another it was well intentioned. Nonetheless, in 2008 there isn't any justification at all for keeping this. Besoeker, I'm guessing that a lot of those buildings will be mothballed short term, because the public sector unions will structure the government they populate in whatever way possible to guarantee their continued worship of the false god of perfect income stream security. When and if tax revenues go down, or are even not allowed to increase over time, they will close all the buildings, store all the equipment, and sit huddled in a barn doing nothing at all for the taxpayers but still collect their guaranteed public sector check. That's what they'll do. The very last thing that will be cut will be payroll. And if you think it's bad in the SOuth, take a look at places like MA, CA, NY, etc. As bad as it is in your neighborhood, it's a lot worse in other places. |
| Posted by: no mo uro 2008-12-24 07:57 |
| #6 One of the secondary effects (which most of us aware painfully aware) of sky rocketed home prices are sky rocketing property taxes. |
| Posted by: Besoeker 2008-12-24 07:41 |
| #5 The time when making home ownership a highly tax sheltered investment on the premise that it is good for the country is long past It's a carry over and evolution of the understanding that the GI loans after WWII made the modern tract housing construction a means to sustain employment. Government planners still smarting over the less than effective New Deal programs took the opportunity to subsidize the housing industry [an thus employment] by alternate means after seeing the 'blip' created by another program. |
| Posted by: P2k on holiday 2008-12-24 07:20 |
| #4 Excellent graphic, GBUSMC. Housing prices are so out of whack with housing value that a decrease in price is inevitable and a good thing. Unless you bought high. BP, housing SHOULD be a place to live, not an investment. The problem here in the U.S. is that the first two houses you own are hugely tax subsidized by the home mortgage deduction. In essence, the federal (and some state) governments have decided to make real estate as an investment a better deal tax wise than stocks, bonds, commodities, businesses, etc. Any time you subsidize something, people will do it more than they would in an otherwise unencumbered marketplace. Also as an inevitable result of subsidization, prices will be elevated with regard to actual value, as a result of the investment favorability vs other vehicles. Oh, I know, the people who support this crazy idea will argue that it helps people of lesser means be able to buy a house (where else have we heard that rhetoric lately?) and that we can't get rid of the deduction now because lots of folks wouldn't be able to afford to live in the houses they now occupy. Fine, then, phase it out over five or ten years, to allow pay and house values to normalize over time. The time when making home ownership a highly tax sheltered investment on the premise that it is good for the country is long past. Get rid of the home mortgage deduction, and within a decade or so home prices will stabilize at a number that truly reflects their value and in all likelihood tend to stay there. |
| Posted by: no mo uro 2008-12-24 06:12 |
| #3 I'd say housing affordability is rising, rather than price is falling. Homes are places to live, not investments. |
| Posted by: Bright Pebbles 2008-12-24 05:19 |
| #2 how much more of a drop would be required to return house prices to their long-term averages? A History of Home Values |
| Posted by: GolfBravoUSMC 2008-12-24 04:01 |
| #1 Lessee. Following such a RECORD above-average run of price appreciation for residential real estate in all major markets, how much more of a drop would be required to return house prices to their long-term averages? I heard a figure for the national average, but in this sort of segmented market I think that's close to useless as a yardstick (housing prices in Indiana haven't risen meteorically nor plunged precipitously, I'd guess, since 2000 - whereas in many "hot" markets the swing has been/will be quite dramatic). Given the specific hyperinflation in residential real estate in major markets (and now the correction), I'm not sure what housing price trends tell us, if anything, about macro activity. |
| Posted by: Verlaine 2008-12-24 01:06 |
