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

Category: Media, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “For Recovery, Housing Market Must Clear Out Excess Inventory”

  1. super_trooper says:

    I would assume that you expect the largest price decreased in LV, FL and CA. I wouldn’t expect TX to change much , nor charlotte area for example.

  2. curbyourrisk says:

    But, but, but….didn’t you recently say things were at the bottom??? I stand by my call…another 30% before be bottom. Unless ofcourse wage inflation miraculously happens over a weekend some time in the next 2 years.

  3. curbyourrisk says:


    A few postings back I mentioned the term “employment bubble” to which you responded WTF is an employment bubble. I did take the time to answer you but it was the last comment in the thread so not sure you ever saw it.

    Granted it sounds stupid (I am sure by me sayign that everyone else here will pile on), but it was a term I coined explaining things here at work. Here is my response.


    I had written about what I called an emplyment bubble back in 2006 here at work. I talked about how Companies were holding on to people that they did not need. As far as I was concerned I assumed 5% of the work force was NOT NEEDED and dead wood within a company. Theses were the people who gave there time and were not ready to retire. Companies let them hang around the last few eyers, because profits were good and they would find places to stick them. When I wrote about this my company did not like the idea of it, as I work for a Japanese American company and they pretty much do things like this all the time. It was a direct shot at them and all comapnies that do this. You might not agree, nor would a lot of people….but as far as I was concerned…5% is A LOT of people and I considered it an employment bubble.

    Enter the recession (which we are still in, and I venture to call it a depression). All these jobs that were dead wood….guess what? They were the first to go….. AND THE RESULT???? Leaner costs with NO PRODUCTION slow downs. The American companeis (which still produced here) did not lose a step witht he first round of lay offs. y neighbor was a quality control manager with a Fortune 500 company. I always told him his job was not necessary as EVERY unit had one. They took the 8 unit managers and kept the one with the shortest tenure. The rest of them were shown the door. Did they ever need 8 managers??? OBVIOUSLY NOT. This is what I meant by an Employment bubble. People working who did not need to be employed (from a corporations view). You are fine to disagree with me and what I might call it, but when I wrote about this 2006… sounded good to me and my company liked the analysis…just not the way I weant about targeting it.


  4. ironman says:

    BR: You’re more than welcome to borrow this chart, which shows the track that U.S. median house prices have taken with respect to median income since 1967. (Related post here.) I’ll look forward to NDR’s latest….

  5. call me ahab says:

    “For Recovery, Housing Market Must Clear Out Excess Inventory”

    wow- you think?

    akin to – “the unemployment rate will improve once people find jobs”

  6. dead hobo says:

    This makes me think that the govt and Fed should think up some 2011 new year resolutions to heal the economy. Since monetary and fiscal policy are so intertwined now, the list need not distinguish between the two.

    We resolve for 2011 to be better stewards of the economy and promise to …

    1) Stop fiddling around with housing prices and allow prices to fall to income, savings, and demand. Since prices for all won’t fall to $0, eventually buyers will return. inventory will be sold, and new homes will be built.

    2) To get people back to work, we resolve to let housing fall in price to a point where buyers want to buy them without govt intervention. Once inventory clears, new homes will be built and people will go back to work.

    3) We (the Fed) promise to stop tinkering around with interest rates every few weeks, directly and indirectly. We finally realize that have become the problem and are no longer the solution. We finally get the fact that in 2010 we redefined the concept of interest rate risk and will probably be the root cause of a lot of people losing money in long bond funds when we stop buying down long term rates. To all who lose money due to our journey of discovery, “sorry.”

    4) We promise to encourage banks to lend more by creating a set of clever Hobsen’s choices for bank management. We realize that only providing liquidity while constantly tinkering around with economic policy makes bankers timid. Since we resolve to tinker much less and since we realize we are already propping up the banking system and will continue to do so regardless of what happens next, we resolve to create a set of initiatives that are, in effect “Lend Or Die”, metaphorically, of course. With respect to housing losses, we think it’s time to eat more of your own cooking. Don’t worry we’ll still be there although your management probably won’t.

    5) We promise to stop propping up the stock market. This means no more cleverly injected massive liquidity just to raise equity prices, no more tweaks when a lot of bad news becomes public, and no more occasional goosing when the Dow falls below 10,000. While we understand that a lot of people are still fooled by this, we finally get that fact that prices look hokey to everyone else and nobody except a few computers has any concept of what prices should be. Equity markets will become populist again when they look real.

    6) We resolve to make the equity markets safe and to throw out the gangbangers. Capital won’t flow naturally until the thugs are taken off the streets. HFT can stay as long as it uses the vending machine model, meaning that if it exists to promote efficiency, then that efficiency should me no more intrusive than a vending machine. Every other aspect becomes highly illegal.

    7) We agree to limit the commodity markets to activities that promote price discovery and specifically exclude activities that promote price increases when hot money flows in their direction. Due to world economic growth, prices will rise anyway over time as a matter of normal demand. Artificial demand caused by hot money and asset inflation due to financial innovation will be eliminated by making such financial innovation highly illegal.


    Uncle Stupid and friends

  7. AJB says:

    Question: Can / should anything be done about the supply of new homes?

  8. jjay says:

    For housing to recover, we need millions of jobs to flood back into this economy from overseas.
    Or we need illegal aliens deported, and legal immigration curtailed to shrink the labor market and boost wages.
    Neither is going to occur.
    More jobs and factories are offshored every day.
    Legal and illegal immigration continue unabated everyday.
    Our descent into poverty will go on and on.
    Except for the wealthy elite who planned and facilitated the descent.
    The housing boom (HELOC’s), Credit Card boom, Student Loan boom are at an end.
    They all created the illusion of a functioning economy for a time.
    All that is left now is the bad debt from those three, plus a bloated military.

  9. ashpelham2 says:

    If only I could go back in time to 2004, 2005, 2006 and find articles written by so many knowledgeable people proclaiming that America’s “Growth” during that time was driven only by debt and over-consumption, and that no meaningful gains in wages, incomes, or jobs were taking place….This was basic wisdom for people who knew better, such as the person with an economics background and a strong eye for details and research. It was also seen by the wisdom of the blue collar common man, who knew borrowing money against his house didn’t “seem” right, but did it anyway because people in suits told him to, and if they say it’s alright, then it must be. They would never want him to lose his home, after all……

    America, Land of Hypocrisy…..

  10. rktbrkr says:

    But housing bottomed last June!

    Tuesday, 16 Jun 2009
    Cramer: Housing Has Officially Bottomed
    Residential real estate has finally found a floor, Cramer told viewers on Tuesday. The sector’s long, steep descent is all but over. He had predicted this day would come by the end of June, and he was right – with just two weeks to spare.

  11. louis says:

    You still need to do something about people that bought in the bubble. You will continue to have shadow inventory for years. All of these problems are part of the consumption glut. You need to reset people and start over.

    The wisdom when all this started was excess saving in China when in reality it was excess consumption at home.

  12. NoKidding says:

    main article: Like ahab said, its a no brainer.

    hobo: I’d send you to the Senate on that platform, but on one point I think you’ve missed.
    “2) To get people back to work, we resolve to let housing fall in price to a point where buyers want to buy them without govt intervention. Once inventory clears, new homes will be built and people will go back to work.”
    I know that housing usually leads market/GDP recoveries, but household formation or immigration leads housing and perceived stable income leads household formation or immigration. Chicken or the egg? If eight months inventory vanished tonight, who would rush to replace it?

    I say let housing fall to market price for these reasons:
    1) Its going to do it anyway
    2) Resisting is expensive
    3) By this time the market has had fair warning of the danger

    If housing really does crash, watch out for jjay’s illegal aliens. At five families to the house, they can generate enough cash bussing tables and cleaning bathrooms to work the mortgage. It only takes one legal citizen with a bank account. That is the seed of the next American middle class.

  13. Mike C says:

    @ curbyourrisk,

    I think you’ve hit on something that is very important yet gets little thought or commentary and fits into the theme of this blog of “The Big Picture”. We obviously have an “unemployment problem”. But what if productivity has gotten so strong, that companies, especially big corporations SIMPLY DO NOT NEED any more employees to produce the goods and services demanded in aggegate? What the hell do we do with all these people? And colleges/universities keep cranking out more and more each year. What is the unemployment/underemployment rate amongst recent college grads?

    Seriously, what do we do as a society with this structural excess of potential labor? How do these people house, feed, and clothe themselves? Do we just have a permanent government check going them and call it unemployment instead of welfare?

    Frankly, if I had my way, and could be dictator, I’d mandate a 4 day, 6-7 hour day, or maybe 2 weekly shifts of 3-4 days. It would be a cut in pay for the currently working, but then the unemployed could be put to work in actual productive capacity. People would have more free time to strengthen relationships, pursue outside hobbies and vocational interests. Maybe crazy…I don’t know…but it really is time to think outside the box. This societal model isn’t sustainable anymore built on building and buying more houses, cars, and unnecessary junk for those who do have jobs with a sizable minority without

  14. dead hobo says:

    NoKidding Says:
    September 15th, 2010 at 11:19 am

    I know that housing usually leads market/GDP recoveries, but household formation or immigration leads housing and perceived stable income leads household formation or immigration. Chicken or the egg? If eight months inventory vanished tonight, who would rush to replace it?

    I’m open to allowing illegal alien buy houses that have become affordable to them due to falling prices. Somebody has to buy them and if they’re smart enough to qualify for the loan or otherwise pay for it then give them a green card. Eventually the stock of low prices homes will disappear and this ‘loophole’ will vanish until the next housing crash in a couple of decades.

  15. FrancoisT says:


    Funny you mention wage inflation. Economist Steve Keen made the remarkable and pretty logical claim that:

    [See the whole interview with Max Keiser here ( starting @11:30mins]

    the major economies are entering a debt deflationary spiral. There is an easy way out of it: increase workers’ wages which would allow them to pay off their debts and create inflation. But, economic policy makers don’t understand this, and therefore, it will be the last thing they do.

    Of course, Keen was too polite to mention that economists of the neoclassical strain despise working people so much that they can’t even conceive such a solution. They only think about workers when it’s time to tell them to man up and sacrifice for the benefit of the money class.

  16. [...] mentioned earlier this morning, courtesy of Ned Davis Research are these two updated charts, as of the end of Q2. (Click thru [...]

  17. FrancoisT says:


    Seriously, what do we do as a society with this structural excess of potential labor? How do these people house, feed, and clothe themselves? Do we just have a permanent government check going them and call it unemployment instead of welfare?

    I’ve thought along the same lines for a while. I think we need to do several things:
    1) First and easiest: Repair our crumbling infrastructure. It needs to get done anyway. Time to just do it.

    2) We need to rebuild the conditions that were so propitious to an industrial economy. That means reforming the patenting process, regain the ability to scale up, eliminate tax loopholes for the rent seekers and non productive financial BS and divert these monies to those who produce stuff. Moreover, people who have studied, or went through offshoring seriously will tell you the same thing; it ain’t all that awesome as it’s touted to be. There are a LOT of associated costs and logistical headaches that the apostles of free trade a gogo won’t mention.

    3) It IS possible to develop a green energy infrastructure in this country. Plus, it’s not as if we have a choice: Others are aggressively investing in R&D, building and manufacturing it right now. Are we supposed to see them eat our lunch AGAIN?

    All this takes time; but that can’t be an excuse for doing nothing, since it would waste even more time; time that we don’t have a ton right now.

    That is my 2 n’gwees.

  18. curbyourrisk says:

    @ Mike C. – Sounds like you are describing most of Europe.

    @Francois T – I have been arguing long and hard that the ONLY WAY to incite inflation is through wage inflation. Otherwise it is nothing more than price spikes that will be corrected through NORMAL MARKET ACTIONS. In order to create inflation (my definition of inflation is as follows:a sustainable rise in prices brought upon by rising wages that leads to consumers ability and willingness to pay higher prices.) you need pricing power. Until people can pay the prices you demand you are only assuming it. The only way to generate pricing pwoer is through increased wages. I have sadi it repeatedly that our inflation took place from 1990-2005, but it was through WEALTH INFLATION and not wage inflation. What is inherently dangerous about wealth inflation is it is based on assumptions and the HOPE that wealth is not lost. Another is it is generally based on assets; homes, cars, equities…all things that GO DOWN in value as well as up. SO, when you borrow against wealth inflation and your asset prices go down…what are you left with?? DEBT with little ability to pay. how screwed up is that….

  19. louis says:

    “I am in favor for the first time in my memory of raising taxes,”

    Greenspan returns.

  20. KLeBrun says:

    I have had 45 years in real estate and finance, including Wall Street – Mr. Ritzholtz – you hit the nail squarely on the head.

    And the sad part of it all is that the Cheney/Bush administation had ample warning from a variety of sources that we were headed for an economic train wreck. We abandoned some 60 plus years of experience analyzing millions of loan defaults to develop underwriting procedures that gave us an acceptable level of defaults. We abandoned those procedures in 2000.

    Dropping interest rates increased housing prices under traditional underwriting criteria because buyers could borrow more resulting in more money chasing a limited supply. Then subprimes completely abandoned underwriting standards resulting in a huge increase in money chasing a limited supply. With subprimes, if you could breathe you could borrow an unlimited amount of money in some states.

    That gave us our real estate boom – a massive amount of borrowed money chasing a limited supply.

    The tax cut ideologues were boasting that tax cuts were driving the economy when, in fact, it was the massive borrowing against ever increasing home prices.

    We ended up with the biggest financial scam in history with Wall Street, the banking industry, the mortgage industry and the real estate industry earning hundreds of billions in fees.

    It was an out-of-control economic train wreck egged on by the tax cut ideologues.

    And no bureaucrat was willing to step in front of the out-of-control economic train wreck and end up in Siberia – if they were lucky.