Housing Starts UP with Market Glut?

Three years ago, when this derivative housing mess caught my attention, the reason I started looking into it was that the basic facts didn’t make any sense. Housing prices had been going up at a rate of as much as 20% in one month.

Coming from Wall Street with an M.B.A. and having studied, written about and commented on economics most of my adult life, I looked for obvious answers. Inflation? Nope, not that. Population increase? Nope not that. Migration patterns? A little but not nearly enough to account for the increases quoted by developers and secondary sellers.

So I asked sales people in real estate how they accounted for it. They told me that in Arizona it was being fueled by people selling their homes in California for $2 million and buying the same thing here in Arizona for less than half that amount. OK that would mean some migratory pattern. Are you from California?, I asked many people. Some. OK. Assume that my little non-scientific survey turned out wrong, and we start with the hypothesis of high prices in California fueling the Arizona boom.

More questions. How does that account for other parts of the country. BY the way, who is buying the homes in California? The story I got was that Vietnamese families were moving into expensive neighborhoods and 20 people comprising multiple generations (Gran Torino with Clint Eastwood? Good movie, but hardly the rule) could afford the $2 million price tag.

So after going down about a dozen rabbit holes my suspicions were raised about Wall Street’s involvement. You see they are the only ones who come up with other people’s money, selling them on a great investment opportunity because that is the only way Wall Street makes money.

Ok the rest is history. Prices went up simply because Wall Street was using a power pump forcing money into the system that the system could not absorb.

So like a balloon, it expanded, especially when the number of housing units sold was going down. The only way they could keep pushing out more money was by inflating the appraisals on the property. As the number of balloons declined relative to the supply of “air” (money) they had to blow the balloons up further and further even though everyone knew they would eventually pop. But they had that covered too, as everyone now knows because they made money on the way down through credit default swaps, federal bailouts etc.

Which brings me to my point. All current indications from the economists and experts who study this sort of thing are that in 20 years, (that is in the year 2030) there may be as many as 30 million unoccupied dwellings in the United States, even taking all the best predictions for population growth, migration etc. And you don’t need to employ an expert to see that there are unoccupied houses in your neighborhood and that there are even unoccupied neighborhoods, thanks to the foreclosure mess. So the inescapable conclusion is that we have built too many homes, shopping centers, office buildings etc. The demand is not there and it isn’t going to be there for decades.

So here is my question: Why are houses still being built? Who is financing them and who is buying them? Why are there government programs providing new home building incentives when what we need are new rail systems, new electrical grid, new high-speed internet, and new technology retrofitting homes that waste energy? Is something funny going on, AGAIN?

14 Responses

  1. they want us all in section 8 public housing or in jail, but in either case they want us as slaves. this is sad but true why else are they so willing to throw us aside with nothing to sow for it?

  2. Like I’ve been saying I knew obama was dirty from the start the very first thing he did after he was elected was hire and appoint a real estate developer to “fix the housing crisis”.

  3. DING DING DING!!!! WE HAVE A WINNER IT’S WHAT I LIKE TO CALL THE “FRAUD NGUYEN” name of your street Trust Takeover these @$$holes bought my house for $0. So one might think that “gee that’s all I would have to pay to get it back”. yeah right this whole system is built on a congress, judiciary, administration and private sector all competing with eachother to see who can suck us all dry the most and when we’ve figured them out and what their game is, they levy a full scale treasonous foriegn invasion to take and occupy property that is in all respects LEGALLY OURS WE PAYED FOR IT, THE BANKS TOOK THE BAILOUT! NOW THEY WANT SCREW US OUT BY ANY WAY THEY CAN LIKE EMINENT DOMAIN FOR THE “ECONOMY”. IF YOU ACTUALLY LOOK INTO THE LAWS STATE OR FEDERAL YOU’LL EVENTUALLY FIND THAT JUDGES PENSION PLANS ARE POOLED WITH MBS, WHY DO YOU THINK WHY NON JUDICIAL FORECLOSURE IS SOOOO POPULAR HERE? BECAUSE IT’S A WAY FOR JUDGES TO AVOID GETTING CAUGHT UP IN ANY CONFLICT OF INTEREST. NONE THE LESS THEY HAVE TAKEN A POSITION OF DEPENDENCY AND ARE OTHERWISE INCAPABLE TO BE JUDGES, THEY SHOULD BE REPLACED BY JURIES ONLY. CONGRESS IS TRYING TO DRIVE US OUT, BILL CLINTON SAYS MORE ILLEGAL IMMIGRANTS WOULD BE GOOD FOR THE ECONOMY(YEAH CUZ IN THEIR MIND THEY’D HAVE FRESH SLAVES TO REPLACE US WITH), NO MATTER HOW YOU LOOK AT IT THIS IS THE GOVERNMENT LEVYING WAR AGAINST US IN THE FORM OF AN INVASION, AND IF IT’S WAR THEY WANT ITS WAR THEY’LL GET IF THEY CANNOT STEP ASIDE PEACEFULLY.

  4. Bob G’s quote below is one of the most perceptive, succinct, and clever summations of the financial mess our financial overlords have created that I’ve ever heard…

    “Over a year ago, I wrote an article on the economy and retail and suburban shopping centers. The growth of these correlates almost completely with the advent of credit cards in the late 1950s. Credit cards are nothing more than miniature government printing presses that people carry around in their wallets. The growth of credit card debt tracks closely with the growth of retail and suburbia. Of interest to note is that while these two variables climbed in tandem, the personal savings rate went in the opposite direction for 40+ years.”

  5. Have we learned NOTHING from the past?These figures are a direct manipulation from those that want to control & stand to gain a profit at any give point in the timeline or equation . Much like the CA DEPT RE ,MLS, Banks & financial institutions ,manipulate the housing prices & markets in Ca.
    Fer fuck sake …Follow the money!!
    welcome to the mis-information age

  6. Ian, if a builder doesn’t make money on the sale of the house he builds, he doesn’t make money at all. You can’t make money by building the house…someone has to be there to buy it. The sales price has to cover all the builder’s costs, or he loses money.

    The housing bust isn’t uniformly bad throughout the country. That is a fact. But nevertheless, it is the explosion of easy credit that has made this thing the mess that it is.

    Over a year ago, I wrote an article on the economy and retail and suburban shopping centers. The growth of these correlates almost completely with the advent of credit cards in the late 1950s. Credit cards are nothing more than miniature government printing presses that people carry around in their wallets. The growth of credit card debt tracks closely with the growth of retail and suburbia. Of interest to note is that while these two variables climbed in tandem, the personal savings rate went in the opposite direction for 40+ years.

    I think that there is a lot more pain to come.

  7. 2 Z

    The one thing that was not mentioned in the WSJ coverage is how many foreclosed on homes by a GSE servicer are being signed over to HUD .

    This is well documented in records/ foreclosure cases all over America and is currently under the radar.

  8. I wondered about this same topic years ago, when I learned that there were on average, 3000 plus homes for sale in my county at any given time. Each year, 1600-2500 new homes were built per year. I reasoned that builders don’t make any money selling homes. They make money building them. An analogy to the current situation would be that “lenders” don’t make any money modifying loans, they make money on foreclosures, They have insurance against defaults, but no insurance against modifications.

  9. I read Bob’s comment as sarcasm…over 17 million seasonal/vacation homes seems like an awful lot to me…but this is one of my favorite Garfield articles because it shows he is a curious person who doesn’t buy the conventional wisdom…just like those of us who read his stuff…and put it to good use…

  10. Bob, Census data from 2007 is NOT a reliable source since the escalation in confiscation and foreclosure has occurred between 2007 and now.. as Neil said…

    “And you don’t need to employ an expert to see that there are unoccupied houses in your neighborhood and that there are even unoccupied neighborhoods, thanks to the foreclosure mess”

    Add to that retail space FOR RENT in each and every downtown across America once occupied by a small business owner, and then compare that with the CRAP held on the FED’S books for CMBS… the American taxpayer and future generations apparently are expected in one example to bail out Hilton Hotels…. why not convert Hilton’s defaulted properties into “affordable housing” and take their defaulted burden off the American tax payer.

  11. I think these numbers may be high. Here’s the census estimate for 2007:

    There were 128,203,000 housing units in the United States in 2007. Approximately 110,692,000 were occupied as regular residences and 17,511,000 were vacant or seasonal.

    could be a lot of seasonal/vacation homes.

  12. When the truth about the “shadow inventory” of foreclosed properties is known and understood…

    http://blogs.wsj.com/developments/2010/04/28/debate-rages-over-supply-of-foreclosed-homes/?

  13. Judge: Family Can Seek Rescission, Damages From Mortgage Lender

    HONOLULU — A federal judge on April 15 refused to dismiss a Hawaii family’s lawsuit seeking rescission and statutory damages from their mortgage lender based on its alleged violations of the Truth in Lending Act because they do not need to allege that they can tender the full amount of the loan and because their damages request was timely (Annette Kuulei Agustin, et al. v. PNC Financial Services Group Inc., et al., No. 09-00423 SOM/KSC, D. Hawaii).

  14. Neil ,
    I agree 100% with you , we are at a time when we cannot afford to waste a dime on needless new housing , new shopping centers & office buildings. i am so glad your out there using the ” bully pulpit ” that
    living lies has become. Thank you again for all your hard work .

Leave a Reply

%d bloggers like this: