Tag Archives: mortgages

Hitting Bottom in Housing- Deed of Trust note buyer

The housing market should “run its course and hit the bottom.”  So said presidential candidate Mitt Romney last October.  I don’t find much inspiration or brilliance from any of the presidential contenders, but Romney was exactly right in his statement, as we need to let the housing market find its natural bottom, and stop propping it up with expensive and ineffective government programs.  While those programs may have had a small impact on slowing down the housing decline, they also delayed the chance for us to begin a real recovery and rid ourselves of the after-effects from the bubble.

Since the crisis began in 2007, government programs to save the housing market and economy in general have done little more than run up the balance on the nation’s credit card, while letting the market run its course would have caused a more severe downturn in the short run, but allowed us to bounce back much sooner.  Government played a major role in creating the crisis, so it escapes me how we can expect the same players who caused the problem to now solve it.

Joel Bowman of the Daily Reckoning expressed well the difference between the free market and the state/government: “The two entities are day and night…white and black…truth and government statistic. To the extent that the former exists, the latter does not. One produces; the other consumes. One adds value and meaning to peoples’ lives; the other subtracts value and feeds on the self-worth of those it engulfs. One is dynamic, responsive, nimble and creative; the other is brittle, deaf, lethargic and breathtakingly inelegant in all its forms. One serves customers, the other serves sentences.  It might well be said that, while the free market bends over backwards to serve the needs and desires of individuals, the state merely bends individuals over backwards.”

If, tomorrow, we could yank all of the government housing programs from the past five years, stop allowing the FHA (Federal Housing Administration) to allow down payments of as little as 3.5%, and begin reducing the size and scope of Fannie and Freddie, housing prices would admittedly drop quickly and the economy would take a hit.  However, we are going to hit that end point anyway.  Shouldn’t we just yank off this Bank-Aid quickly rather than drag it out over a number of years?  The end result will be worse if we let this sore fester.  Rather, let’s allow housing prices to decrease to a level more in line with current incomes.

Housing prices dropped (again) almost 4% nationally last year.  Home ownership rates have fallen for seven years in a row, and more than one in eight (13.9%) housing units were vacant last quarter.

Meanwhile, between 2007 and 2010, median income in the U.S. fell 3.5% to just over $51,000.  According to the Huffington Post, 15% of Americans currently live below the poverty line, but an additional 43% would be under that line within three months if they lost their job.  Will any of those families be buying real estate anytime soon?

In the past three years, 389 banks and thrifts have failed.  Invictus Consulting Group states that 758 more are at risk of failing.  Does this give you a warm feeling that Congress and the Fed know what they are doing and that the trillions of dollars spent to save the financial system has been money well spent?  The FDIC insures the deposits of those banks, which means that Mr. and Mrs. Taxpayer are on the hook for that money.

Lower home prices would be difficult for all of who are homeowners, as it means that we lose yet more equity in our houses.  If we’re going to lose it anyway, it would be better to get it over with now.  Unemployment is going to stay high and average wages low for years to come, so housing values must line up with the new reality.  Even when housing prices hit bottom, I wouldn’t expect an immediate increase in prices.  Property values would graphically look more like a long “U” than a “V”.  I’ll take that over an ever-lengthening right side of an “A” anytime.

Alan Noblitt is a deed of trust note buyer in California.  A deed of trust note buyer is one who buys trust deeds and mortgages resulting from owner financed transactions.