Reuters Blogger Says What Many of Us Have Known

Not often you see this from the media as whole – a realistic look, for better or worse, at the place housing holds in the U.S. economy.

Felix Salmon on Monday wrote about the current policy when it comes to escalating foreclosure notices, a policy which says, well, maybe it’s best for the economy as a whole to file the notice and then not actually foreclose on the home …

But a warm occupied home is a much happier thing, economically speaking, than a cold and empty one, even if the occupiers haven’t made a mortgage payment in years. Foreclosures carry a large economic cost and all things being equal, the less of them there are the better.There’s something conceptually attractive, especially to small-government libertarians, about ripping the bandage off the patient harshly. Foreclose on anybody who’s delinquent, stop providing massive government subsidies to the mortgage sector and let the market find the true market-clearing level for house prices. But we simply can’t do that — it would mean a financial crisis much larger than the last one, with substantially the entire banking system becoming insolvent; the resulting plunge in stock prices and global economic growth could make the last recession look positively tame.

Ripping off the bandage, as he says, isn’t really a solution. Anyone who spends any time looking at the absorption rate figures – the amount of time it would take to clear every home off the market if no new homes were to come on – realizes there are definite limits as to what kind of inventory the market can handle before it collapses under its own weight.

Right now, at least here in Phoenix, we’re balanced about as well as we can be. There’s enough supply that buyers have some choice (too much supply, thanks to the imaginary listings known as short sales) and sufficient buyers that a well-priced home will sell in a reasonable amount of time.

Well priced, incidentally, means well priced in comparison to the current market and not in comparison to what the value might have been five years ago.

It’s not a perfect balance, largely because of the constant supply of foreclosed homes that are coming on the market. Demand only can cause prices to rise when the demand results in a reduction of supply. There’s essentially an unending supply, though not all on the market, which means demand hasn’t been able to move prices upward and – in some areas – prices have continued to fall.

But it’s the balance we’ve got, at least until we work through the foreclosure wave.

Let’s hope the lenders policy continues to follow Mr. Salmon’s advice.

Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.

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