For Recovery, Housing Market Must Clear Out Excess Inventory

Thee is a long and detailed piece in Bloomberg today — U.S. Home Prices Face Three-Year Drop as Inventory Surge Looms — looking at the current state of the Housing market, especially the excess inventory. (I have a quote on the futility of HAMP).


“The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market.

Shadow inventory — the supply of homes in default or foreclosure that may be offered for sale — is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.”

Here is my quote, which regular readers will recognize (from what I have written here previously) :

“If the market doesn’t fall to its natural bottom, price gains in the next five to 10 years won’t keep pace with inflation as the difference is made up “on the backend,” said Barry Ritholtz, chief executive officer of FusionIQ, a New York research company. Price increases that fail to at least match inflation are the same as reductions in value, Ritholtz said.

The Obama administration’s effort to help mortgage holders, the Home Affordable Modification Program, or HAMP, is another source of future inventory as owners with new loan terms re- default, Ritholtz said. About half of the modifications done in 2009 were behind in payments by the first quarter of 2010, according to the Treasury Department.

‘Day of Reckoning’

“The belief has been: if we stimulate sales with a tax credit and delay foreclosures with modifications, the market would stabilize,” said Ritholtz, author of “Bailout Nation.” “We’re just putting off the day of reckoning and drawing out the pain by not letting the housing market hit its bottom.”

I’ll see if I can the updated version of the Ned Davis Research charts showing fair value relative to median income and renting postedlater today . . .


U.S. Home Prices Face Three-Year Drop as Inventory Surge Looms
John Gittelsohn and Kathleen M. Howley
Bloomberg, Sept. 15 2010

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