National Association of Home Builders
by Tom on May 15, 2008
in Uncategorized
This is off of their “Eye on the Economy” newsletter:
Fiscal Policy Is Needed to Break the Downward Housing Spiral Falling house prices pose a huge risk to the U.S. economy and to the financial markets. Falling prices decimate the quality of outstanding mortgages âwhole loans and securities structures.
This leads to progressive tightening of lending standards in primary mortgage markets, a process recently documented by the Fed’s Senior Loan Officer Opinion Survey for April.
This tightening process further weakens effective home buyer demand while falling mortgage quality feeds the upswing in foreclosures that dumps more supply onto glutted markets — putting more downward pressure on house prices from both directions.
The diabolical feedback loops in the housing and housing finance markets make it extremely difficult to craft forecasts of housing market activity for the balance of this year and in 2009. NAHB’s current forecast shows very large declines in new-home sales and housing starts in 2008, with only modest recovery in 2009.
NAHB’s downbeat housing forecast actually is subject to considerable downside risk. The Federal Reserve would like to break up the feedback loops that are dragging housing downward, but the Fed apparently lacks the tools necessary to do the job.
A fiscal policy solution is sorely needed to spur home buying, stem the upswing in foreclosures and cushion the downdraft in house prices. There’s a lot of activity on these fronts, in both the Senate and the House, and the President presumably would be hard-pressed to veto well-structured legislation to help current home owners and to help stem the housing market contraction.
Okay, now I ask you to compare that to what Morgan wrote at www.blownmortgage.com about the falling house prices:
The story the press should be telling:
Here’s a story the press should be covering more: housing affordability is rocketing back towards sustainable levels. Below is a graph from the NAR on housing affordability and you can see as the market tanks homes are becoming more affordable than they have been at any point in the last 4 years. They’re also b-lining for a return to more historically affordable levels such as during the 1990’s.
We’ve seen 7 straight months of improvement and here’s hoping for more. While it sucks as a homeowner to see your value tank hard (trust me I know) it is the only hope for the housing market recovery that everyone is trying to eyeball right now. Only affordable homes that naturally increase demand will stop the free-fall. It doesn’t take rocket science to figure this out but the sooner we can get to that affordability the level the sooner the bottom will begin to firm up.
The National Association of Home Builders is advocating for government bailouts. Morgan Brown is saying, “This is a healthy but painful adjustment in the markets to get back to where the housing markets should be.”
My vote is with Morgan, what do you think?
Tom
