By Mandelman
The forces of supply and demand are what drive the prices of goods or services, but today, the Big Kahuna is demand. When demand for something goes up, prices follow in a hurry… and when demand falls, prices fall fast.
That’s what’s happened to our housing market… the only difference is that when you’re talking homes, demand is really dependent on our ability to express it… and that means being able to get loans.
When investors fled the market for residential mortgage-backed securities in the latter part of 2007, after the ratings agencies downgraded the ratings on 1032 bond issues beginning on July 9th of that year, loans became scarce and then non-existent, and home prices fell off a cliff.
Today, we can’t bring the demand back for numerous reasons, one of which being that we can’t bring back the private securitization market and that means government the lender of first, last and only resort.
We can’t bring back the private securitization market because it ended as a result of investors losing trust… specifically trust in the ratings agencies, but also in Wall Street’s investment banks and our financial regulators in general. And once you lose trust, you just don’t get it back… period.
We didn’t act quickly enough to provide the mortgage financing that was gone, and by the time we did, home prices in many previously high demand areas had been cut in half. So now, well over a third of the market is underwater, effectively underwater, or unable to sell at a price that would provide them with the 20 percent down payment needed to finance their next home.
There are the demographic trends that would have impacted our housing markets regardless of the financial crisis, such the growing population of baby–boomers marching into their retirement years and therefore having less natural demand for buying homes.
Young people aren’t showing up as first time buyers like they used to either, in part because they’re saddled with unprecedented levels of student loan debt, but also because many can’t find good jobs and lack the down payment required to qualify today. I’d also imagine that having seen so many lose homes to foreclosure, many are in no hurry to follow suit.
And then there’s the ongoing foreclosure crisis, the looming shadow inventory and upcoming HELOC adjustments that are all likely to continue adding fuel to the foreclosure wildfire.
Those factors, among others, …read more
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