The Plain Truth About Housing

Implications: I continue to think that we are a minimum 18 months away from a resolution or recovery in our housing market.  And I don’t think we have reached a bottom.  We haven’t seen a glimmer of stabilization in our major home builders.  I think this will be confirmed when these companies show increasing erosion of capital and cash flow difficulties.  We won’t be gracious when the difficulties accelerate, so the rancor involved in losing money will make loud noises for us to observe.  Off with the silk stocking attitude and on with more base business practices when this happens will make it apparent where the bottom is.  We can then recapitalize with more assured prospects of meeting the market need for affordability.

Analysis:

This article presents conclusions I can agree with.  In addition, I can point out that American savings practices are at historical lows and defaults in mortgage debt are rising.  Our mortgage institutions are in tatters – an inflammatory word, I’ll agree, but these operations are indeed in flames.  FNMA is losing money, it appears, and the sub-prime market is going to have to recapitalize itself after suffering calamities and catastrophes.  Take a look at Washington Mutual as an example of these ills.

The first mass housing auction that I’m aware of will be held in the Phoenix Convention Center in late March.  The idea here will be to dispose of the standing inventory on the perimeter of the metro market.  The last numbers I saw indicated a supply of 18 to 24 months, much of which has never been occupied.  Not only is price a sticking point, but the long and expensive commutes to the jobs are a hinder.  These commutes do not rival the California commutes which can figuratively cross time zones, but they are not easy to afford in this market with its preponderance of low wage jobs.  Despite these numbers, builder tracts are still active with cancelations imminent when the existing housing inventory prices collapse, which I think will happen.

Phoenix is not adding a whole lot of jobs at the high end.  The current additions concentrate in retail, community service jobs such as teaching, healthcare and public safety and FIRE administrative jobs.  The members of these occupational forces do not have the financial wherewithal on the average to house themselves in much more than class “B” apartments.  The population growth in the community realizes this soon after arrival.  As a result, there is a real transitory nature to the community with many moving on to the greener prospects of California or back to their Midwestern or Eastern point of origin.  I suspect that most States other than California and its west coast neighbors, Oregon and Washington, and the eastern seaboard other than those states surrounding Boston, New York City and Washington, D.C. share the same problem.  As a help here, I believe the U.S. now has a competitive advantage in manufacturing which should bring our capabilities up from the current 12% of GNP to the old 20% or so.  And, as is happening in the Phoenix area, this country will spawn a whole lot of one man shops providing services in order to make a living.  But these assists will be slow in coming to help the housing market in a recovery from the current conditions.