Alan Abelson channels Mark Hanson, to discuss the ongoing housing overhang. The bottom line remains that housing is likely to be a drag on the economy for the foreseeable future.

Hanson suggests that any prospect for an imminent housing recovery are based on wishful thinking, and not the actual data. And, he adds that the banks and servicers have become the “largest landlords in the world.”

Here’s Ableson:

“[Hanson] lists the many woes that afflict the industry. High up among them is “effective negative equity,” which he defines as the inability to pay off a mortgage, plus paying a real-estate broker 6% and coughing up 10% to 20% of the purchase price as down payment on a new purchase. Mark reckons that a majority of mortgages fall into that unenviable category rather than the 28% commonly estimated.He also cites a humongous default, foreclosure and short-sale backlog overhanging the market. Since 2007, he relates, there have been only four million foreclosure completions and short-sale liquidations out of a probable 14 million to 18 million. That alone is enough to give you the willies.

Toss in unfavorable demographics, mounting energy costs, a miserable excuse for a mortgage market and inexorably declining home prices…well, you get the point. Housing is one of those festering sores on the economy that will be with us for quite a spell. And so long as it is, or until jobs grow more abundant and consumer income muscles up, the likelihood of a decent and sustained rebound for the industry seems a good piece off. And, we’re afraid, the economy’s recovery is apt to maintain its desultory pace.”

Nothing in that I can see warrants arguments from me . . .


An Epidemic of Amnesia
Barron’s, MAY 28, 2011

Category: Credit, 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.

11 Responses to “Housing Overhang Persists”

  1. ToNYC says:

    If you don’t like the culture, go out and make one of your own.
    When you see the numbers and don’t start immediately drilling the other way, better get out of Dodge.

  2. Dow says:

    Where does the ‘probable 14 million to 18 million’ figure in foreclosure and short-sale liquidations come from? I am aware the number remains high and there’s a backlog, and i don’t doubt the numbers, but I’ve never seen a figure that high before.

  3. rmasand says:

    Hanson is an optimist.

  4. Tony says:

    One observation is that rents in Phoenix tend to be higher than expected with so much inventory. We are looking to rent for awhile upon an imminent re-location, but all the foreclosures and short sales languish empty and un-rented. It seems the banks need to set up a process whereby these properties can be occupied.

  5. victor says:

    Abelson and Hanson (it even rhymes) are pessimists, they feel obligated to be so in their weekly pieces, that’s their job. The US population is still growing, albeit most growth coming from minorities groups notably Hispanics and Asiatics. Household formations are still up, what is holding the recovery up is of course JOBS. I suspect most excess inventory in housing will be worked off within a couple of years and we’ll be then off to the races again. A recent poll worldwide asked the participants in the sample what their countries’ main problem was. The number one issue was “housing”, lack of it that is. And here we are with an EXCESS housing? I too see prices declining until buyers can afford to…buy, end of worry, and beginning of some new worry. Have a happy Memorial Day. BR thanks for all the good stuff on your site.

  6. Francois says:

    As long as there is fraudclosure by the servicers and the banks aided and abetted (a.k.a. not only unpunished but brushed under the carpet) by their allies in the WH and Congress, there won’t be trust.

    Without trust, you do not have a good economy.

    How can this possibly be difficult to understand, if not for the fact that many people seem to be paid NOT to understand?

  7. andrewp111 says:

    Here is the solution to the problem.

    The Federal Reserve prints up enough trillions to buy up all foreclosed properties in the USA in one fell swoop, at a big discount. The Fed (or the FDIC) then becomes an actual landlord, and rents the properties out for the next 50 years, after which time they are sold. As a Federal Government entity, the Fed does not pay local and state property taxes, which should give them an advantage in making money as a landlord. The maintenance details are handled by contractors. This way the properties stay occupied, they are off the bank’s books, and the housing market can reset back to fundamentals and recover without the overhang. Some banks will go under when the value of their loans goes below the solvency threshold, but so what? That is what the FDIC is for.

  8. The Window Washer says:

    Read the short version of Shillings letter that Mauldin put out in his newsletter. You’re way off on the number of years.

  9. The Window Washer says:

    Damn Andrew,
    They should have done this with dot com stocks, would have solved everything.
    I must say you followed the comments rules, but your won’t work at just about every point. So I guess maybe your comment is meant to be ironic

  10. ottnott says:

    “Effective negative equity” strikes me as a misleading term.

    The “negative equity” portion of the term is strongly tied in with default risk, but what “effective negative equity” is really measuring is something more along the lines of “not enough equity and cash on hand to sell and buy another home”. Any drag on the economy would be from those homeowners who would like to relocate for a job, but are discouraged from doing so due to negative equity – and then, only the subset of such homeowners who are unwilling to rent in the new location.

    The silliness of the term is apparent when you consider that most first-time homebuyers would have effective negative equity right after purchase, having had to scrape to put the 20% down payment together.