Summary
The stimulus of 1st time buyers and speculators in the foreclosed properties is simply a short term stimulus and doesn't begin a return of the housing market which has not been addressed in a serious manner. The new home and resale market above $350.000 in the Lehigh Valley Pennsylvania market place is not even a glimmer of 2007 and the market for homes in the $500,000 is almost absent of sales even though home prices continue to be reduced in the hopes of a sale. The missing ingredient to a market resurgence is "buyer confidence" which continually is eroded by government deficit spending and will get worse as interest rates rise as a result of government intervention to permit financing of the deficit which will further deepen the market the problems as social agendas trump the return of a strong economy.
Analysis
Stimulating the market with first time buyers helped in removing foreclosed properties from the market but also generated lost revenue to banks as did short sales but did not address the losses created by the acid securities sold to investors by Wall Street and our Banking System therefore a time bomb remains ticking and their are no demolition experts working on the problem.
My experience with real estate market adjustments started in the early 1970's with the causes directly tied to Wall Street, the Banking System and the Federal Reserve. In each downturn foreclosures in the residential resale market was the first to react, then new home sales, then the office markets and finally the retail and industrial real estate markets. Foreclosures were spread all through the property types and until the market adjusted and foreclosures were removed from the market and interest rates stabilized along with employment the recession began to diminish and the economy was on its way to recovery usually within 24-36 months depending on which period in time is reviewed.
The largest factor is always over priced land for the home builders due to sliding home prices. Builders must divest themselves from the high priced land either by bankruptcy or deed in lieu of foreclosure as was a part of the resurgence in past downturns. In the 1990's the RTC was formed to reconstitute the banking systems and "let banks fail" or assist in forming bank mergers. Additionally, the RTC acquired all types of real estate that we nonconforming or had been received by banks from foreclosure and in lieu transactions. Once these properties were in the possession of the RTC the banks were capitalized and the market immediately began a resurgence and confidence was restored. The RTC sold off properties mostly in the new market capturing equity. Today our government did not use the same model of recovery even though the RTC still remains a viable entity. However, foreclosures of builder acid land are not being pursued by banks who keep extending mortgages for builders and developers hoping the market will return an clean out these acid properties. The banks by not acting today will have to act in 2010 stalling the recovery. The mansion building for americans is over. Large homes are not selling now and this market will not recover as taxing the "rich" and everybody earning over $250K combined with the cap and trade taxation and inflation will not permit this market to exist as it had existed the the pre 2008 period. Simple math will reveal that the acid properties held by banks and builders will just get more expensive due to interest and tax accrual. If the builder cannot make money building home on their lots in 2009 certainly they will not make a profit in 2010 as the market will no come close to the prices the 2005-2007 market. The banks and home builders will pay the price in 2010 and pass this down and prevent a resurgence in 2010 where higher interest rates and taxes will smother the American people. My prediction is the bank failures will again become a national tragedy in 2010 and change the political agenda as Americans vote their displeasure and change the political playing field.
