Bailout

Getting the housing market moving

By Felix Salmon

It’s a bit too wet to schlep into the office today, but I did manage to make it in there yesterday, and shot this reaction to the housing numbers. Warning, lots of hand-waving ahead:

The backstory here is basically the big secular shift that Richard Florida talks about a lot, especially in his latest book. In order to have more renters we’ll need more landlords, and they don’t seem to be buying, record-low mortgage rates notwithstanding. What’s going to entice them into the market? Lower prices, is my guess, along with some confidence that the market isn’t going to plunge the minute the government stops backstopping everything. Right now, there’s a massive inventory of unsold homes, along with an even bigger shadow inventory of homes which probably would be sold, either by their owners or by the banks which essentially control their fate, if only the market were healthier.

What can make the market move again? Not cheaper money and lots of liquidity, clearly: we’ve tried that. The only other option, as far as I can see, is lower prices. But the government has a vested interest in any price declines happening slowly rather than quickly. So don’t hold your breath.

Full post as published by Macroprudential on August 25, 2010 (boomark / email).