As Yaron Brook has pointed out, the primary cause of the housing crisis is an array misguided federal policies. As my wife and I have have tried to buy a house, I’ve noticed a few details that fit into this picture.
The first thing we noticed is that many houses on the market in our area are completely trashed. We were interested in one house because it’s a fixer-upper, and we were told that we couldn’t qualify for a loan to buy it, because it needs so much work. This puzzled me till I worked out why loans in such cases generally don’t work. If we were going to buy that house, we’d need to dump somewhere between $10,000 and $20,000 into it to bring it up to standard living conditions. (This house has completely stained carpets, goop on the walls, holes in the walls, broken windows, a dead tree and weeds in the yard, and siding in desperate need of repairs and paint.) We were told that lenders are worried that, once people move into such houses, they won’t be willing or able fund the needed repairs. For a moment I wondered why a lender wouldn’t simply give us a loan that included cash for the repairs; then I put myself in the lender’s shoes and saw the danger of such a deal.
By encouraging people to buy houses who would not otherwise qualify, the federal government has handed over the keys to people who frankly are not ready for home ownership. Many simply aren’t ready to take care of the houses or to competently rent them out, so they end up dumping trashed-out houses on the market. My guess is that this is a large, if not the major, cause of depressed housing prices in many areas.
Also in our area, some very nice houses have sold for what they were going for a few years ago. So, while well-kept houses aren’t showing strong equity growth, neither are they showing severe losses. (Granted, I live in Colorado, not Los Angeles or Las Vegas.)
Another thing I noticed is that, between about 2000 and 2004, housing prices shot through the roof. This does seem to have been a bubble, which also fits with slumping housing prices now.
Of course, part of the problem is that buyers don’t know where the market will bottom out, so they’re reluctant to buy given the uncertainty. However, I get the sense that, once the market is clearly turning up, a lot of hesitant people will jump in suddenly.
My wife and I have been trying to buy a house on “short sale,” which means that the bank is controlling the sale and willing to take less than the price of the outstanding mortgage. This house, too, has substantial (but I think superficial) problems, which goes a long way toward explaining its relatively low price.
The take-home lesson is that averages don’t account for the state of particular houses. Depressed housing prices reflect, in part, a declining condition of many houses. And that in turn was fostered by idiotic federal policies. While certainly it’s a good idea to be aware of economic trends, it’s also easy to get caught up in statistics and lose sight of what’s really going on.