Putting On a Happy Face is Not Justified

It was Salvador Nasello who famously said, “If you laid every economist in the country end to end you would still not reach a conclusion.” And just to demonstrate this, the Economist for the National Association of Realtors (Lawrence Yun) says we are in for better days ahead. (“Why home sales will rise this year.”)

Of course Realtors are famous for putting the best face on everything, and sure enough this employee of our industry has all of the requisite graphs to “prove” his point. And, he gives his reasoning: “More jobs, rising stock market wealth, rising apartment rents…” etc, etc.

One of the things he “credits” for the potential for increased sales is falling prices, which, although they contribute to increased sales, diminishes the wealth of the existing owners and that is more deleterious to the overall market. Few benefit from it since most people are not buyers, or sellers, they are holders and for holders, their wealth in diminished!

If sales numbers alone were the single criteria, it would be best if prices for all homes were $1 – we would have LOTS of sales, and people would move every few months just for the hell of it!

We are already in a strange and economically unjustifiable land. Lenders are reluctant to lend even to the most qualified Buyers because Lenders can close their doors, fire everyone, sell their buildings, borrow at zero percent from the Fed and buy government bonds that pay one and a half percent.

One and an half percent is all profit, and the more you borrow at zero percent, the more money you make at no risk.

The government knows this and tries to bully the lenders to actually lend money, and they do – just enough to keep the government, their “Regulators,” reasonably happy, but not enough to buoy the system.

The Federal Reserve on the other hand, cannot raise their lending rates above zero without crashing a tenuous market for car loans, and business loans, and increased inflation in the face of high gas prices and increasing food prices.

The Federal Reserve is trying to balance a number of things that are not symmetrical and are inherently out of balance in a good market, but are tragically imbalanced right now.

IF gas prices come down (as they should), and if the pressure on prices on food can be diminished through stopping the insane subsidy for grain Ethanol, then interest rates will be permitted to rise slightly, and while that will help the economy it will not help the housing market, except that over the long haul Lenders will have to actually lend money and buy fewer government bonds.

But all of that is long range, and nothing in the mix offsets the existing and continuing foreclosures. The number of foreclosures already sitting empty, those in reserve (foreclosed but held in inventory and not on the market), and those with Notice of Default but not yet foreclosed, is stunning!

There are not millions of potential Buyers just waiting to whisk those homes off the market, and until we get to a stable market without foreclosures in the double-handful, this market will not turn around.