Tuesday, May 31, 2011

Housing Market

I must be dense
. The problems with housing prices, new home starts and foreclosures doesn't seem that big a deal. The market keeps trying to act as markets always do. When there is a huge supply, prices go down. When there is a limited supply, prices go up.

Our government keeps throwing money at the markets trying to keep house prices high. The lenders get hammered by political winds concerned about foreclosures, lowered prices, demands for higher quality loans and lots of politics. every politician wants to give away the property to the deserving and needy poor... But that seems to mean that someone has to take the loss. None of the lenders want to lose any more than they must. So, with political pressure, they hold off foreclosing and pretend the loans are being serviced. In the meantime Fannie and Freddie keep spending money like they had it...well, they do now. They have no other shareholders but the U.S.Government. Why do we allow those companies to remain in existence-? Oh-! Yeah, politics. slush funds for constituents and jobs for lovers-du-jour.

In the meantime, New Home starts are not finding loans, buyers with large enough down payments and face competition from older homes, less-than-10-years-old that are in foreclosure... meaning possibly more square footage, more prestigious community, established schools and safe neighborhoods...

Also, underlying -ALL- of the above is the dynamic of demographics. Yes, Boomers are retiring at large numbers. They will likely inherit their parents house at about the same time as they retire. They will have two houses, paid off or mostly so. Will they sell at discount to shore-up and replace damaged retirement accounts-? Will they hold and try to rent them out while seeking warmer climes for their golden years-?

All of this is playing out and would move faster with probably a bit more predictability -IF- the politicians got out of the housing game. Is that likely to happen-? Nope. Giving away the property of others is a great way to be re-elected again and again... plus depressed housing prices slows the migration to warmer, non-union states... meaning less stress from redistricting and new boundaries with un-bribed constituents... SO; Nope the politicians have found some catnip and will roll all over it...

The old saying that "Demographics is destiny" applies here. Boomers are the first generation, in history, whose numbers are larger than the preceding generation and the following generation, combined. That means huge demands for entitlement spending, medical services, and changes in their discretionary buying patterns... They have everything. What will they spend their "play money" aka "entitlement largess" on-? Will they invest in businesses-? some may-not many. Will they get scammed by schemers like Bernie Madoff-? Yes, quite a few will. They have never had money to blow and the promise of secure, safe, outsized returns will be too hard to resist. (I saw an ad in the WSJ today promising 22% return on capital over 5 years.... P.T. Barnum said "There's one born every minute"... WHY would anyone thing they can -SAFELY- get a 22% ROI without taking an outsized risk-?) Most boomers have been "wage slaves" their entire life. They may have enough to remain comfortable as the years come in. However, I'm betting that the sharks smell greenbacks in the water and will soon be swirling about.

While we're -all- focusing on the housing market and return of "stagflation" we are ignoring the -boom- in new car sales. why are cars selling so readily-? GM spun off it's old GMAC in bankruptcy and then bought a new bank to make loans to their new car buyers. Why-? Cause new car sales mean big sales results, a quick IPO and pay-back to the U.S. Government... And the sooner the unions can sell the stock they took in the bankruptcy....then the Unions can turn about and demand more- everything-, cause that's what unions do. When your pension plan is invested in the company you gotta have profits to make investors buy the stock. So, as a union, you can't go on strike, make crappy cars and return to war against evil management and the shareholders and lenders... BUT...Nobody is looking at the quality of the new car buyers to continue to make payments. Nobody is examining -who- is buying all these new cars. Another financial meltdown-? Maybe-maybe not...but the politicians, unions and deal-makers who securitize the new car loans would sure benefit until it collapses...

Housing and automobiles are two huge drivers of the national economy (jobs). They consume lots of resources, require lots of transportation services, and mean jobs for a very large number of people. More than the military, but I doubt they mean more jobs than the combined state, county, municipal and federal government... I suspect that governments make more paychecks and have more promised in retirement.

The cash for clunkers wiped out a bunch of the used car market...so used car prices are up...almost equal to a new car... I get suspicious when I see the market acting in unusual ways... I like the old "buy low, sell high" and "surplus equals lower prices, scarcity equals higher prices" rules... When the politicians fingers are playing in the marketplace, one must be very quick and very clever to stay on the good (profitable) side of the deal. Politicians never worry about consequences...Why-? Cause voters (and our media proxies ) are lazy, have short memories and don't want to dig into the details of why-what-and what next-? They profit from our carelessness... and year after year, they keep doing it.

They depend on our being too busy with our lives to notice how they are robbing us...or they used to... Since they have over promised us into near bankruptcy, everyone is watching where the money goes.... Plus this internet thing allows ideas to flow unfiltered... We can communicate without the usual bribed gatekeepers and media guardians... Do we really need the pretty people explaining everything in baby talk-? Are we really -that- ignorant, naive, trusting, complacent-?

They depend on it. So do the predators who are coming for the scarce retirement dollars available when boomers suddenly have too much time and nothing to do all day.

No comments: