As you may have come to deduce, I’m not always the brightest bulb in the lamp. There are days that my genius is fully illuminated, and then there are days that 40 watts is a stretch. Some things I get. Some things escape me. This blog falls under the category of “things that escape me.”
Why can’t the housing market work its way out of the funk it has found itself in for the past few years?
The housing sector of the economy is a long way from 2006 when our home equity gave us such a euphoric feeling of wealth that we regularly spent money like it was the day after winning the lottery. The economy was humming.
Today, resuscitation is desperately needed to a lifeless and non-responsive housing market. As maudlin as it sounds, the question must be asked: has the real estate market been underwater too long to save? For many in the market, long gone is the equity, the ability to re-finance, or the ability to sell. Heck, we can’t even make some of the needed home repairs because the equity we would have used has been gobbled up in the depreciation of the house, the street, the neighborhood, the community, and (generally speaking) the entire marketplace.
Who fell asleep on the lifeguard stand during this housing bubble thing? We’re still overburdened by a glut of housing that alters supply versus demand in favor of the supply side. The net effect when there is more than what we need is prices that end up at the bottom of the deep end. How deep is the housing abyss? Well, during the period best known as the “boom” for housing, we effectively built 12 years’ worth of housing in five years. WOW!!! That, folks, is what is referred to as “over-built.”
Somebody smarter than me (that opens up a host of opportunities) must figure out what to do with all of the existing housing stock. Unfortunately, that stock increases most days (not so much because of “starts,” although that number is up slightly), but because of foreclosures. The numbers of people losing their homes is staggering – that, in turn, further erodes the values. UGH! This negative spiral is flushing economic growth for years to come.
We must fix housing. Awhile back, a couple of those guys who are smarter than me, Bill Gross and Mohamed A. El-Erian (of PIMCO fame), said the best thing that could be done is to destroy the existing unoccupied housing and start over. Get rid of the current vacant supply. That would put up to 2.8 million people who work in the housing industry back to work building houses and force pricing upwards on the remaining stock.
I know it sounds crazy, but desperate times demand desperate measures.