Homeowners are still Suffering in the Housing Market but Speculators are Profiting

Posted by PITHOCRATES - February 3rd, 2013

Week in Review

Housing sales drive the economy.  Because it takes a lot of economic activity to build houses.  And even more for homeowners to furnish their homes.  This is why the government gave us the subprime mortgage crisis and the Great Recession.  They kept interest rates artificially low.  And the Clinton administration forced lenders to lower standards to put as many people into houses as possible.  But, alas, they put a lot of people into homes that couldn’t afford them.  Using subprime mortgages to get them into those homes.  Like the adjustable rate mortgage.  And when interest rates went up so did their mortgage payments.  And they defaulted.  Which kicked off the subprime mortgage crisis.  Giving us the Great Recession.

These low interest rates created a great demand for housing.  Everyone was borrowing money to buy.  Because money was so cheap to borrow.  And with those lower standards borrowing money was never easier.  Especially for investors.  Who bought houses.  Fixed them up.  And put them back on the market.  House flippers.  With all this demand housing prices soared.  Creating a great housing bubble.  Which burst.  As all bubbles do.  And housing prices plummeted.  Leaving people with mortgages greater than the new value of their houses.  Some walked away.  Especially those who put little to nothing down.  Like those house flippers.  And those subprime borrowers.  Flooding the market with more homes.  Putting further pressure on housing prices.

It was a huge mess the government gave us.  The damage was great.  And we’ve been waiting a long time for the housing market to recover.  Housing prices are finally rising.  But not for the right reasons (see Home prices on the rise, but not ownership by Alejandro Lazo posted 1/29/2013 on the Los Angeles Times).

The sharp increase in home prices — particularly in regional markets such as Phoenix and Las Vegas, which had been so decimated by the bust — is raising concern among some economists…

It is those kinds of big increases that could fuel speculation.

“It does concern me a bit,” Zillow.com chief economist Stan Humphries said. “It encourages people to think about housing as a short-term investment, instead of a long-term investment…”

While prices may be rising, homeownership is struggling, an indication that investors are playing a big part in fueling the market’s rebound. The Census Bureau said Tuesday that national homeownership fell 0.6% to 65.4% in the fourth quarter over the same period a year earlier…

The spike in prices is masking the trouble that borrowers with underwater mortgages are facing. In fact, it’s precisely because so many borrowers cannot get out from underneath their upside-down homes that prices are rising so much, economists have said, because those people are simply hanging on and not putting their homes on the market.

People underwater are hanging on because they don’t want to take a huge loss by selling.  When you lose some 25-40% of your home’s value there’s only one way to get it back.  You keep living in it.  For a long time.  For only time can restore a home’s value.  Which a homeowner will lose if he or she sells.

So house prices are coming back up.  But like elsewhere in the economy it’s the rich who are doing well.  Not middle class families.  Those who want to live in their homes.  Furnish their homes.  These people who drive real economic activity.  Not the house flippers who are just trying to profit off the misfortune of others.  Who are picking up houses on the cheap thanks to those lost their homes or sold them at a loss.  And flipping them to make a profit.  These are the people doing well in Obama’s America.  Not middle class families.

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Britain’s Green Deal fails to attract a Single Homeowner to Exchange Higher Debt for Higher Energy Bills

Posted by PITHOCRATES - November 18th, 2012

Week in Review

The British have a program where they encourage homeowners to borrow up to £10,000 ($15,900) to weatherproof their homes in exchange for higher energy bills.  With the goal of combating global warming.  And saving the planet.  So how is that program going?  Not good (see Green Deal ‘in tatters’ as no-one registers by James Hall posted 11/16/2012 on The Telegraph).

The Green Deal encourages homeowners to take out a loan to make their house more energy-efficient. The project goes live in 10 weeks but households have had since October 1 to have their home assessed for the scheme prior to its launch.

However Greg Barker, the climate change minister, has admitted that “no assessments have yet been lodged” on the Government’s official register by homeowners…

Luciana Berger, the shadow climate change minister, described the Green Deal as a “shambles” and said its launch is “lying in tatters”. The Coalition hopes that owners of up to 14 million draughty homes will sign up to the scheme…

Under the Green Deal people can borrow up to £10,000 from a private sector loan provider and have loft and wall insulation fitted in their homes. The loan is repaid over a period of up to 25 years through higher bills. The idea is that bills will fall once the loan has been paid off because the houses need less energy.

They’re scratching their heads why not one of the 14 million homes signed up yet for this program?  Well, I’ll take a guess as to why.  How about that 25 year payback?  This means a couple could start a family and raise 7 kids and send them on to college before breaking even on their investment.  That’s not a good investment.  Why would anyone want to raise their energy bills for 25 years?  Especially when a lot of things can happen in 25 years.

People change jobs and move.  People lose their jobs and move.  People get divorced and move.  People get married and move.  People suffer a loss and move.  People suffer ill health and can no longer maintain a house and move.  Twenty five years is a long time.  A lot of things could happen to prevent people from remaining 25 years in the same home.  And, yes, you may be able to get that money out of your house when you sell it.  As long as there aren’t any houses selling in your neighborhood for £10,000 ($15,900) less.  And that’s the last thing a person wants when they’re trying to sell their home.  Trying to recover the cost of a home improvement when they’re selling.  Especially in a depressed housing market.

So there’s that.  Then there’s something else.  Energy bills have soared in recent years.  Which was the whole point for the Green Deal in the first place.  And if those energy bills are high now what’s to keep them from being higher later?  Especially with the government’s green policies to reduce global warming.  No, the British homeowner probably can count on few things in life with any certainty.  Taxes.  Death.  And higher energy bills.  So why would they want to add to those energy bills when they’re only going to continue to rise?  Because the government says those bills will be cheaper 25 years hence?  When it’s the same government who made those energy prices soar in recent years?

Many real estate experts will tell you there are few home improvements that an owner will get their money back on when they sell.  Kitchen and bathrooms lead a very short list.  But finished basements, dormers and sun porches?  Kiss that money goodbye.  Because when it comes to selling a house it’s all about location.  People pay what the location is worth.  Not what the house is worth.  If you build a $250,000 house in a $100,000 neighborhood guess what that house will sell for.  The same price all houses sell for in a $100,000 neighborhood.  Around $100,000.  If a buyer is choosing between two houses that cost $115,000 in the $100,000 neighborhood which do you think the buyer will choose?  The one with the new insulation that raised the energy bills?  Or the one with the new bathroom or the new kitchen that the new homeowners will use every day of their life in their new home?  They’ll choose the nice bathroom and kitchen.  For their energy costs will probably be a wash.  They’ll either buy more energy at a lower rate.  Or buy less energy at a higher rate.  Giving them no advantage in energy costs no matter which house they buy.

This is why no one is signing up for this program.  It’s just a horrible deal for homeowners.

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