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January home prices continue decline
Foreclosure sign
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JEREMY HOBSON: Now let's get to this morning's news about home prices. We just got the S&P Case-Shiller index which found average prices at their lowest level in 11 years. Prices dropped in all of the 20 cities in the survey, except Washington, DC.
Let's bring in Juli Niemann, analyst at Smith Moore and Company. She's with us live from St. Louis as she is every Tuesday. Good morning, Juli.
JULI NIEMANN: Good morning Jeremy.
HOBSON: So what do you make of these bad numbers this morning from Case-Shiller?
NIEMANN: Of course, we keep in mind all housing data is seen in the rear view mirror. But still, this is unrelentingly horrible. And it's a huge drag on economy. Now the optimists were discounting the news saying it's seasonal factors -- bad weather -- but bottom line this is the sixth straight month we've seen sales and prices go down. Even new home sales are down 28 percent year over year. We're slumping our way into a double dip housing recession here and it's getting worse. There's no momentum for a turn around, inventory is still very high, lenders still have big inventory of houses in various stages of foreclosure, and they haven't even put it on the market yet. And if you want a sense of impending doom, one in five homeowners have negative equity, and potential buyers out there -- well if prices are going lower, do you really want to jump in yet?
HOBSON: Juli, quickly, I mean is there any solution to all of these problems in the housing market?
NIEMANN: Well, the creative solutions by bankers have to come around right now. It's a little oximoronic but your choices are one: bulldoze and write off the assets. And they really don't want to do that. Or, rent. Form a new real estate division. Renting -- population is still growing. You've gotten rental shortage due to apartments being condiminiumized. And you want to get the adult kids out of the basement and into their own places.
HOBSON: Juli Niemann, analyst at Smith Moore and Company. Thanks as always.
NIEMANN: You bet.
I don't understand why Juli Neimann says the 2 options are either destroy the houses or have the bank become a rental agency. What about liquidate the assets for their market value? When did we decide that we'd give up on letting markets clear? Was it about the time that the politically connected were about to come out on the loosing end of the market?
Also I'd like to second the previous poster about prices in general. Why is a statistic that shows a part of the cost of living going down bad news? All you can say is that its bad for some and good for others.
I did not mean to imply that a drastic shift to lower housing prices would not be painful (obviously it already is) or that "reorganizing our priorities" would not incur huge losses for those of us who are heavily invested in the current scheme of things.
Yes your pension fund would stop collecting interest. And the people relying on that interest would need less income because they'd have zero housing expenses. And most people in most places would enjoy a huge leap in their standard of living because they could stop dedicating a huge fraction of their lives just maintaining the four walls around them.
I'll say it again. The goal of a productive society is to reduce the cost of everything. The fact that you and many others happen to have an enormous investment in the current setup doesn't change that one smidgen.
Imagine if housing suddenly became free for everyone. So the pension fund that owns my mortgage would stop collecting payments from me. What effect would that have on the retiree depending on monthly checks from the pension fund?
I sell building supplies for a living. What would free housing do to the value of the $1M+ inventory that I still owe money on?
Get real
Every time Marketplace does a commentary, or a commentary like this one disguised as news, the comments are unrelentingly preposterous. Why would we want the price of ANYTHING to go up? As a society our job is to make life easier. Suppose all housing could suddenly magically be free for everyone. Would that be a "drag on the economy" or would we instead be free to pursue more exciting things after reorganizing our priorities? Why would we imagine it to be a positive thing to restart our housing industry into cranking out more houses when there are hundreds of thousands of vacant houses already on the market? Does it constitute an improvement in our economy when millions of people are working to produce useless things that benefit nobody? Who comes up with these nutty ideas?
