Did anyone who has been paying attention not see this coming — debt-consolidation mortgage programs, a housing crash, and more?:
Sales of previously built single-family homes plunged in July to their lowest level since May 1995 as job fears trumped today’s low mortgage interest rates and relatively affordable home prices.
The sales of existing single-family homes, condominiums and townhouses fell to a seasonally adjusted annual rate of 3.83 million, the National Association of Realtors reported Tuesday.
That’s a 27.2 percent drop from June, about twice as much as analysts surveyed by Bloomberg expected. That’s also a 25.5 percent drop from the same time a year ago. The sales of all these housing types combined was the lowest since the group started tracking the numbers in 1999.
As the Washington Post article goes on to state:
Existing home sales surged in the early spring largely because of a lucrative tax credit program that targeted some first-time buyers and repeat buyers. Many economists predicted that home sales would drop briefly when the program expired April 30 and would then recover. But now, many are questioning how soon the rebound will occur, and July’s results add to those fears.
The reason should have always been painfully obvious: a tax-credit cannot solve the intrinsic, fundamental problem in the housing market (or any market). If I have $2,000 to my name, a future tax-credit on a home purchase would not eliminate the fact that I have $2,000 to my name. I would not be able to make the purchase in the first place.
There are two major problems in the housing market. First, look at the extent of the housing bubble at the top of the post. The size of the bubble was astounding, and its collapse should have surprised no one. Now, it seems that the U.S. housing-price index, at least earlier this year, is back to where it was in fall of 2003. Moreover, any attempt to stop the decline has always been destined to fail because the market had been extremely out of balance. Prices now have merely returned to the height of the last boom.
It would not be surprising to see further price-declines since there is an oversupply of housing in the market at a time when few people can afford to buy at home. Here is a chart showing the true extent of the decline in U.S. home sales.
The true effect of the housing-bubble collapse may be in the death of real estate as a sound, long-term investment:
Housing will eventually recover from its great swoon. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.
The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming.More than likely, that era is gone for good.
Investments are things like stocks, bonds, and equity shares in businesses — items that people do not need to survive. A home is just that: bricks, wood, or stones (here in Jerusalem) that provide shelter. Since investments are inherently risky — to varying degrees — no one should assign unnecessary risk to something needed to survive. Still, it was not surprising that people increasingly relied on their homes at a time when real wages were (and still are) declining and other forms of compensation were (and no longer are) growing in popularity.
And it did not help with realtors promising buyers that “home prices always increase!” Yeah, just like gold in 1980, the NASDAQ in 2000, and tulips in 1637.
The solution is to increase both demand and the capacity to buy through helping unemployment and underemployment through reduced payroll taxes and corporate taxes — among other bigger-picture solutions.