Housing market settling down - growth to resume in outer areas?

April 27, 2012

We know a woman who left the US for Canada in 2003 and bought a condo in Toronto for $300k. It may have been worth close to $400k at the height of the building boom in 2008 but she sold it in 2011 for about $325k.

Back here in the US she has just bought a condo of nearly the same square footage for $95k. It was worth $250k back in 2007.

I tell her she should be a big fan of James Johnson (Fannie Mae, Goldman Sachs), Barney Frank (US House of Reps Financial Services Chair,) and other famous US housing bubble blowers.

Canada has had a bit of a drop in home values but nothing like the American housing market calamity. If you thought it was all over, that bottom had been reached, and "the only way is up" you might be in for a shock.

Fringe area tollroads depend for their traffic on fringe area housing growth.

American Enterprise Institute economists Peter Wallison and Ed Pinto say instability and shocks will likely continue.

Their summary:

"The US housing market is in serious trouble, far worse than in almost any other developed country. Since 2006, housing prices have fallen 30 to 40 percent in most areas; millions now owe more on their mortgages than their houses are worth, and millions more have only slivers of equity. The average homeowner today has 7 percent equity in their home, versus 45 percent as recently as 1990. The private housing finance system has virtually disappeared, and the government system that remains is pursuing the same policies that produced the current problems.

"The affordable housing goals imposed on Fannie Mae and Freddie Mac in 1992 were the major contributors to both the deterioration in underwriting standards between 1992 and 2008 and the growth of an unprecedented ten-year housing bubble that suppressed delinquencies and stimulated the growth of a private securitization market for subprime loans.

"But other government policies are also to blame for the deterioration in the US housing market, including the thirty-year fixed-rate mortgage, the mortgage interest tax deduction, the right to refinance without penalty, and the Community Reinvestment Act. Until Fannie and Freddie's market dominance and the government's role in the housing finance system are substantially reduced or eliminated, the United States will continue to have an inferior and unstable housing market."

From what we hear China may have an even more distorted and unstable housing market than the US, but that's little consolation.

Wallison & Pinto's full report:


TOLLROADSnews 2012-04-27

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