Archive for Sunday, July 31, 2011

Boost in 2010 from stimulus now ‘killing’ housing market

Home sales down 25 percent compared with last year

July 31, 2011


Call it a stimulus hangover.

In 2010, Lawrence’s real estate market started to show signs of life as tax credits for first-time homebuyers — part of the federal stimulus package — did boost sales.

But now as numbers for the first half of 2011 are released, it is clear that Lawrence’s real estate market is no longer stimulated.

“The stimulus created an artificial boost for awhile,” said Gary Nuzum, senior vice president of McGrew Real Estate. “We knew it would help us last year, but we also knew it was stealing buyers from us in future years. And it has. It is killing us right now. I never thought it would hurt us this much but it has.”

Home sales and construction

Homes sales for the first six months of 2011 are down nearly 25 percent compared with the first six months of 2010, according to numbers released by the Lawrence Board of Realtors.

Board president Bob Kocour, an agent with Stephens Real Estate, said the numbers look a little better when compared with 2009, when the tax credits were not in place. But still, this year’s totals are about 5 percent below totals from 2009, which most real estate professionals said was a historically bad year.

“I think we’re down about 50 percent from our peak,” Nuzum said of the number of homes being sold in the market. “Something has to happen in the economy to get people feeling comfortable with being homeowners again.”

The slowdown in home sales has had the predictable impact on home construction numbers. The city issued 59 single-family and duplex permits for the first half of 2011. That’s down from 75 permits in the same time period a year ago.

“That number is pretty discouraging,” said Bobbie Flory, president of the Lawrence Home Builders Association. “I can tell you that this downturn has lasted longer and has been deeper than most people in our industry anticipated.”

Kocour said July numbers do seem to be better than anticipated, and he said the market still has some good things going for it — namely interest rates. But Kocour said real estate agents are nervously watching the debt debate in Washington, D.C. There has been speculation that interest rates will rise either because the debt ceiling is not raised in a timely manner or because credit rating agencies downgrade U.S. debt.

“But hopefully by Tuesday, they’ll have something in place,” Kocour said. “They better, anyway.”

Economy’s effects

Local industry leaders are in agreement about what is needed to provide the market a sustainable boost: jobs.

“There are a lot of people still on the sidelines out there, and it is certainly because of the economy,” Kocour said. “Businesses that normally hire people aren’t doing that, and they aren’t moving people around right now either.”

Kocour said the trend in Lawrence does seem to be that work situations are causing more people to leave Lawrence than to move to the community.

On the building front, Flory said that national economists keep telling builders that there is good reason to believe the market will bounce back. In the meantime, the number of builders constructing homes in the city have dwindled to a “handful,” she said.

“Nationally, we are told that there is all this pent-up demand that is going to burst at any minute,” Flory said. “The reality is that there are still children growing older and leaving home who need a place to live. A lot of people are putting a lot into the pent-up demand theory.”

Here’s a look at some numbers from the first half of 2011:

  • Realtors have sold 551 homes, down from 742 a year ago. The category that is particularly taking a beating is sales of newly constructed homes. They are off almost 60 percent. A total of 34 newly constructed homes have been sold in the first half of 2011
  • The average selling price of homes in Lawrence is up 2.4 percent from a year ago. The average now stands at $182,058. The median price is $161,000. Real estate professionals said the higher prices are because there are far fewer homes being sold to first-time homebuyers, which tend to be lesser priced homes. Nuzum said many of the homes on the market are priced above $200,000. He estimated those homes are selling for at least 5 percent less than they were a year ago.
  • There are lots of houses on the market. In June, there were 1,030 homes on the market. That’s up from 891 a year ago.
  • Homes are taking longer to sell. The average days a home sits on the market is now 100. That’s up from 81 last year.
  • The number of apartments being built in the city is on the rise. The city has issued permits for 126 apartment units. That’s up from 83 during the same time period of 2010.

Commercial projects

There have been several large commercial projects started in Lawrence during the first half of the year. Here’s a list of the 10 largest projects thus far:

  1. Bowersock north bank power plant: $11.3 million.
  2. Comfort Inn & Suites, 150 N. Iowa: $3.3 million.
  3. Wastewater treatment plant improvements, 1408 E. Eighth St.: $3.1 million.
  4. Crossgate Casitas apartments, 2451 Crossgate Drive: $2.1 million.
  5. Hy-Vee renovation, 3405 Clinton Parkway: $2 million.
  6. Northwind Apartments, 200 N. Mich.: $1.3 million.
  7. Single-family dwelling, 1716 Lake Alvamar Drive: $1.1 million.
  8. PKV Dental Offices, 530 Folks Road: $1 million.
  9. LMH information technology/business health remodel, 325 Maine: $867,834.
  10. Plastikon Industries remodel, 3780 Greenway Circle: $800,000.

In total, the city has issued permits for $49.8 million worth of projects. That’s up from $47.6 million during the same period last year. That puts the city on pace for about $100 million worth of projects in 2011. Here’s a look at how that $100 million pace compares with the amount of projects started in past years:

  • 2001: $152.2 million
  • 2002: $141.5 million
  • 2003: $150.5 million
  • 2004: $117.7 million
  • 2005: $131.2 million
  • 2006: $171.4 million
  • 2007: $104.4 million
  • 2008: $146.4 million
  • 2009: $75.3 million
  • 2010: $101.8 million


Cait McKnelly 6 years, 10 months ago

This article and this article in the same paper on the same day says volumes. It also says volumes that a $1.1 million dollar single family dwelling is on the top ten list of building projects in the county. As recently as 2000, depending on the location, you could still actually buy a small home for 40k. Now you're lucky to get a car for that much, much less a mobile home.

Joe Hyde 6 years, 10 months ago

I wish I could recall the exact day and year when the news article appeared in the Journal-World (early 1990s maybe?), but not that many years ago Lawrence recorded a single-year $50,000 increase in the average price of a new home. Repeat: a $50,000 single-year average increase.

You look today at some of the 2x4 stick frame houses built here in the late 50s and early 60s -- virtually shacks rotting on their foundations -- and even those are being sold for $100K plus. The housing market has gone from mildly addled to totally insane.

cato_the_elder 6 years, 10 months ago

If you add "overbuilt," we're in agreement.

Steve Jacob 6 years, 10 months ago

Can you imagine the glut of houses on the market without the tax credit in 2009-2010? Let's face it, first time home owners now need 20% down and a 740 score to buy a house, and that's tough.

Scott Kaiser 6 years, 10 months ago

"Stimulus." "Cash for Clunkers." More like taking from the rich and giving to the poor. It's STILL taking! "Redistribution?" Please! It only creates more poor. How's that "Hope and Change" working out for YOU?

Liberty275 6 years, 10 months ago

"How's that "Hope and Change" working out for YOU?"

I knew it was a lie from day one. We never counted on obama to do anything for us, so we just continue doing for ourselves as we can. I do wish the housing market would come back so we can get out of this podunk little cornfield town.

Steve Jacob 6 years, 10 months ago

I say this over and over, the US economy almost collapsed in September of 2008. Part of the reason why is we turned a blind eye to the banks, and inflated the housing market. Sure Obama is just printing money, but Bush let the banks print money. Both hurt the economy.

Crazy_Larry 6 years, 10 months ago

The Republicrats and Democans have been working together for decades...kind of like a tag-team. How's that two party system working out for you!?!?!

chootspa 6 years, 10 months ago

It actually wasn't a high enough or sustained enough stimulus as Keynsians warned before the fact, but y'all do enjoy that austerity in the next couple of years and see what decreased spending does for an economy. I'm sure that will work out real grand.

itwasthedukes 6 years, 10 months ago

Keep on believing that Keynesian theory works no matter how many time is fails. The definition of insanity... Will never work with free people.

jafs 6 years, 10 months ago

If the theory calls for larger or more sustained stimulus spending, and that doesn't happen, it's not a good test of the theory.

Bozo's analogy is a good one - if the doctor prescribes a 10 day course of antibiotics taking 2/day, and you take 1/day for 5 days, you can't complain if the treatment doesn't work.

I'm not saying Keynes is correct - I don't know what the truth is there.

beatrice 6 years, 10 months ago

That "Hope and Change" is working better for us than I can possibly imagine the "economy is fundamentally sound" "Mavericky / Winky winky" thing would have worked for us.

cato_the_elder 6 years, 10 months ago

Obama and his liberal Democrat pals have proven for all time that Keynesian economics is a cruel fraud that steals from future generations to pay for present-day government largesse. While far too many of our citizens remain mired in economic stagnation since Obama was elected, a bitter price for many to pay, at least a much greater portion of the voting populace has now awakened to the fact that Keynesian economics doesn't work.

just_another_bozo_on_this_bus 6 years, 10 months ago

All this proves is that an aborted program of stimulus spending doesn't work any better than taking only the first two days' worth of a ten-day regimen of antibiotics.

The current "austerity hysteria" will have only one concrete result-- an even worse recession that may very well become permanent.

cato_the_elder 6 years, 10 months ago

Wow, Bozo. You apparently support eight more years of Porkulus spending at a trillion bucks a pop. Is your lack of concern with continued profligate spending perhaps related to the possibility that you pay no income taxes? Are you one of the 51%? Is that why you don't mind the rest of us paying considerably more?

just_another_bozo_on_this_bus 6 years, 10 months ago

Actually, I'd support a $2-3 trillion stimulus package, if it's spent on things we actually need, and which would do what the name infers-- stimulate the economy.

But I'd also support massive reductions in spending on things that do absolutely no good for anyone-- you know, the real pork.

cato_the_elder 6 years, 10 months ago

So you acknowledge, as Obama himself has, that the shovels and projects were absent from all of the "shovel-ready" job promises that Obama made when his and the Democrats' first "stimulus" legislation was enacted?

just_another_bozo_on_this_bus 6 years, 10 months ago

The stimulus package was clearly flawed. There were so many special interests and lobbyists to satisfy, and getting the funds in circulation quickly was of utmost importance. No doubt, in a perfect world, it could have been done much better.

But as flawed as it was, even though it was only 1/3 of the size it should have been, it did what it was designed to do. It stimulated the economy, which is in somewhat better condition that it would have been otherwise.

cato_the_elder 6 years, 10 months ago

Bozo, Obama's Porkulus spending has been a complete disaster. Unemployment is still at 9.2%, underemployment is in excess of 18%, and our rate of economic growth measured in GDP is on life support.

Government can never create prosperity. Only free enterprise can, and only if government gets out of the way.

just_another_bozo_on_this_bus 6 years, 10 months ago

I repeat--

All this proves is that an aborted program of stimulus spending doesn't work any better than taking only the first two days' worth of a ten-day regimen of antibiotics.

And I would add that for any stimulus program to be truly effective, it needs to directed at the working and middle classes, not the oligarchy.

cato_the_elder 6 years, 10 months ago

Sure, Bozo. Check this out:

You say: "All this proves is that an aborted program of stimulus spending doesn't work any better than taking only the first two days' worth of a ten-day regimen of antibiotics."

Bozo, that's one form of abortion that any thinking person will support.

beatrice 6 years, 10 months ago

Apparently, cato believes in Trickle Down Economics. Even though they have proven not to create jobs, he still supports massive tax cuts to the weatlhy.

cato_the_elder 6 years, 10 months ago

"...massive tax cuts to the wealthy?" Cuts from what? Who sets the standard? Is it simply what some members of Congress arbitrarily decided over a decade ago, which is now irrelevant? Do you know who already pays the lion's share of the income taxes in this country? It's certainly not the 51% who pay no income taxes at all. Are you part of that 51%?

What's clearly been proven not to create jobs is Obama's Porkulus debacle, which has demonstrated for all time that Keynesian Economics doesn't work. It now looks like Obama ordered his recession-loving ice cream cone with two dips, not one. Try this on for size:

just_another_bozo_on_this_bus 6 years, 10 months ago

I assume you've been asked before, but why did you choose a user name that's so obviously inaccurate?

Liberty275 6 years, 10 months ago

Technically, you should be "furtherleft_furtherright if you're a libertarian. :-} I find the left to be societal dictators and the right fiscally no different than the democrats (minus sanders, an admitted socialist).

Jimo 6 years, 10 months ago

Socialist intervention enslaves? Lost our freedom? Free market? ROFL Try all right, no left.

Cue rolling eyes.

Al Krause 6 years, 10 months ago

Washington never/won't learn. Stimulus, incentives, tax breaks - all serve to distort the market by manipulating supply and demand. They fall into the "For God's sake, make it look like we're doing SOMETHINGg!" category.

When you have a market made up of over 300 million individuals making individual decisions, the market will inevitably right itself and negate all the "gains" that were achieved through the use of "stimulus" or "incentives".

To the gentlemen who spoke of the risk of a permanent recession, it's no longer a risk. It's here.

Factories/jobs are sent overseas (the corporations laid off each others customers), H1Bs and other foreign (i.e. cheap) technicians are brought in and cheap illegal immigrants are allowed in via a wink-wink-nudge-nudge attitude by the government. Many empty factories have been razed to the ground to lower taxes and will never be rebuilt - try building in today's over-regulated environment.

Even if the Democrats are booted out there will only be a 6-month spasm of relief as uncertainties are removed and businesses start hiring again - at a cheaper rate in this saturated labor market - and it will remain saturated until the above problems are resolved.

Sadly, I don't see anybody in the political classes who have the fortitude to start undoing this mess.

Casual905 6 years, 10 months ago

Oatka -Stimulus, incentives, tax breaks - all serve to distort the market by manipulating supply and demand. Right on target. The tax code needs MAJOR overhauling. Lower the rates and get rid of all breaks and incentives, farm, mortgage deductions, corperate tax breaks. I like the Ross Perot solution everyone pays their share and you can do your taxes on the back of a post card. There's going to be alot of hurt and pain before this thing corrects itself. As is so readlily apparent our current politcal system is completely incapable of solving big problems. Republicans are heartless and democrats are spineless. I cut the president a little slack because he was handed a big pile of crap, but he is product of the same politcal culture.

lunacydetector 6 years, 10 months ago

it will only get worse. is it worth riding out the storm and how many years will it take to break even on a house these days, 10 years, 20 years? buying a house these days is just like buying a car......a car depreciates 20% when you drive off the to speak.

Ron Holzwarth 6 years, 10 months ago

You can live in it, and that's got to be worth at least what you would pay in rent for a similar home.

Another option is to rent it out, and let the tenents make the payments for you.

In either case, it shouldn't take 10 or 20 years for you to come out ahead when you sell the property.

Ron Holzwarth 6 years, 10 months ago

Whoops! I meant tenants, not tenents! I do know the difference!

JerryStubbs 6 years, 10 months ago

This article has some good information but the title seems to be completely inaccurate. There are exactly two sentences that support that premise and I didn't find any thing to back them up in the rest of the article.

1 Our economy is still recovering from the biggest real estate swindle in the world in all of recorded history CHECK 2. People are losing jobs in Lawrence and leaving town CHECK 3. Apartment volume is at an all time high and big projects are still on line for completion CHECK 4 The 2010 Tax credit stimulus (some people say cutting taxes can be a good thing) probably made an artificial bump in sales. CHECK

You would think that real estate people would be thankful sales haven't been stale for three years straight.

Casual905 6 years, 10 months ago

THe economy is down but 100 million in projects isn't so bad. I don't think we should let single family home sales and construction be the index for Lawrence real estate market. $49 mil is up from last year even in this economy. Seems like somebody is interested in Lawrence. Let's face it there had to be a market correction in Lawrence. There was a time when all you needed to be a building contractor was a cell phone and a friendly banker. They were giving loans to anybody that was breathing. They were starting to build some crap homes on $80,000 lots. Builders and developers were out of control. I think it's a good thing you need 20% down and and good credit, makes for more stable neighborhoods. I can't understand why some are so down on some of the stimulus programs. Would the realtors rather not have had the income generated from housing incentives. I didn't see the autodealers turning those cash for clunkers customers away. The economy needed a shot in the arm to keep it from failing completely. The auto industry was on the ropes along with all the supporting industries and jobs tied to them. That would have been a big hit to already weak economy.

Richard Heckler 6 years, 10 months ago

What killed the housing market,lost 17 million jobs,took down some 401k's, took out tons of medical insurance coverage etc etc etc?

The Reagan/Bush Savings and Loan Heist(Cost taxpayers $1.4 trillion)

  1. Wall Street Bank Fraud on Consumers under Bush/Cheney

  2. Bush and Henry Paulson blew the $700 billion of bail out money?

To further stagnate the markets:

THINK tax cuts that do nothing to make an economy strong or produce jobs.

  1. Still A Bad Idea – Bush Tax Cuts - The ENTITLEMENT program for the wealthy at the expense of the middle class

In the end big debt and super duper bailouts were the results which does not seem to bother Republicans, as long as they are in power.

In fact, by the time the second Bush left office, the national debt had grown to $12.1 trillion:

  • Over half of that amount had been created by Bush’s tax cuts for the very wealthy.

  • Another 30% of the national debt had been created by the tax cuts for the wealthy under Presidents Reagan and George H.W. Bush.

• Fully 81% of the national debt was created by just these three Republican Presidents.

Bob_Keeshan 6 years, 10 months ago

Maybe they'd like to give back all the sales they made last year...

Mike Ford 6 years, 10 months ago

firstly, Mr. Obama wasn't going to get a fair shake from sore losers and still hasn't. If no tax credit then what? whiners would complain regardless.... he inherited a ponzi scheme economy where Dubya had pushed people to take loans out on houses to support pursuit of the mythological american dream. once the house equity market lost value and people had taken a gazillion mortgages out on their homes and no value was left, voila, this current mess. Clowns hate reality. Clowns are making the denial of economic history prior to January 2009 their favorite pastime. I wish I could delete 1980 to 1988, 1988 to 1992, and 2000-2008. Fox, the Gop, and the Tea Partiers must all go to the same memory programming software to delete responsibility for their clown leaders. My parent got the tax credit and that purchase was one of the very few real estate transactions where we live. I wish I could play dumb and blame the next does that work???? Notleft_Notright..... I have a question for you since you claim to be a liberatarian.... I go to the county fairs and such and start up conversations with the guys at the liberatarian booth. Limited government is fine...but the way the gop does it is that they decide to limit the government by reducing expenditures of the people or groups they don't like in a very racist way. They target their enemies. If everyone sacrifices for everyone's good..that's fine.. however, the gop isn't that objective and I always end up having a long polite discussion with the guys at the lib booth. The other problem is this; how does one rectify the facts that these immigrants want to start from zero after treatying away millions of acres of Choctaw lands in MS, LA, AL, ARK, GA, and OK. DO you simply forget this and give them a pass? My ancestors applied for Oklahoma Choctaw lands that the Dawes Commission confiscated and redustributed in small allotments and ended up staying in AL and MS. I guess those who forget history can be played by others...

jayhawklawrence 6 years, 10 months ago

Try lowering your prices.

Let market forces work instead of blaming someone else.

Mike Ford 6 years, 10 months ago

if we do that will you return the lands you paid little or nothing for? probably not... you'll have some christian reconciliation ceremony attone for your sins and still live on stolen lands. Quebec tried to secede from the rest of Canada a decade or so ago and the Haudenosaunee and Anishnabek people whose lands were confiscated to create this province were like "No you don't". When the South seceded the tribes in Indian Territory were left to deal with Albert Pike and the Confederates as the North flew the coop. Pro Union Indians like Opathleyahola and John Ross went as refugees to Kansas and when it was all said and done the US punished entire tribes for the actions of small factions within their tribes and took a lot of land away and then forced Kansas tribes like the Sac and Fox of the Miss RIver, Ottawa, Miami, Quapaw, Citizen band Potawatomi, Wyandot, Peoria, Osage, and Kaw peoples onto said land in Indian Territory. You all can always make up policy as you go right?

Jimo 6 years, 10 months ago

Or, alternately, you're just constructing the foundation of the next housing boom. Except I'd expect it to be focused more on rental housing for families and a more 'mature' adult market of people who don't want to over-invest their money in real estate.

frank mcguinness 6 years, 10 months ago

Gary Nuzum said “We knew it would help us last year, but we also knew it was stealing buyers from us in future years. And it has. It is killing us right now. I never thought it would hurt us this much but it has.”

I guess I must have missed the article last year where gary complained his company was selling too many houses. I sincerely doubt 2010 would have been as nice had there been no tax or other incentives to buy a house.

Seems like Obama is damned if he does and damned if he doesnt. I'll be sure to avoid referring people to garys company since hes in the business of complaining.

Mike Ford 6 years, 10 months ago

liberty one they stole the land so you'd have a place to live. you're a beneficiary of theft. Calling me racist is your feeble attempt to circumvent reality which is something you, the gop, and the tea partiers are really good at doing. Otherwise you're still in Europe right?

yourworstnightmare 6 years, 10 months ago

tuschkahouma, you and L1 are both correct.

L1 did not personally steal land, but he is a beneficiary of it, just as I am.

L1, to ignore that what happened in the past has no bearing on the future or present is just silly and irresponsible.

Our ancestors stole land. We must accept and live with that by trying to do the best we can for all Americans today, including and especially Native Americans.

Then again, L1, I understand that as a libertarian you feel no and accept no responsibility for anything in society, so I am likely wasting my breath.

Cai 6 years, 10 months ago

I'm right with you - up until "as a libertarian you feel no and accept no responsibility for anything' ....

Believing that the government should stay the hell out of many things or all things (depending on your brand of libertarianism) doesn't mean that society as a whole doesn't have any responsibility.

There were also a lot of groups that were stolen from (land and otherwise) that weren't Native American. (The Mormons in 1833 and 1846 and the Japanese in 1942 being the two I can name off the top of my head). Yes, they were on a smaller scale, but at some point, we have to recognize that there's a certain amount that people can and should do for themselves as well. I can give you a free ride to college and/or technical training but will you use it?

just_another_bozo_on_this_bus 6 years, 10 months ago

"It is no different than the mafia in my eyes,"

Which goes a long way towards explaining why no rational discussions can be had with you.

Liberty275 6 years, 10 months ago

Who is "they"? You think about that question, figure out what libertarianism is, and you will discover that libertarians are probably the strongest allies Native Americans have.

You do have enemies, but your enemies are insidious. They pose as your friend and promise you trinkets, but their real goal is to continue enslaving you to the federal government. It is unfortunate to see you defend those that convinced you with their pretty lies.

Your problem isn't your race, your problem is the people that have convinced you that you are little more than 3/5ths of a man.

As for land. You accuse others of stealing it, but you neglect that your ancestors came from across the sea, no different than everyone's. There have been several migrations into the Americas, can you prove you are a descendant of the first wave? If not, then what makes you any more entitled to the land than any man woman or child here?

yourworstnightmare 6 years, 10 months ago

This statement by Mr. Nuzum makes no sense: "“The stimulus created an artificial boost for awhile,” said Gary Nuzum, senior vice president of McGrew Real Estate. “We knew it would help us last year, but we also knew it was stealing buyers from us in future years. And it has. It is killing us right now. I never thought it would hurt us this much but it has.”"

I guess he would have preferred that no houses were sold in 2010, either.

I fail to see how selling houses in 2010 is hurting them and is stealing buyers. It seems that without the stimulus, no one would have bought homes in 2010, either. Please explain.

Mike Ford 6 years, 10 months ago

I realize that in my lecturing I appear to deviate from the subject at hand sometimes and that's not my real intention. So many of the people on here argue from a point of abject lunacy at times that I have to get at the source of lunacy. You are not free, you did not come to a land of plenty. You came to a land of at least 700 indigenous nations whose lands you have exploited renamed and ruined. Your country committed theft in it's borrowing of governance ideas from both European, Greek, and Haudenosaunee Confederacy ideas. No one likes plagarists. Mr. Obama did something at the time which is more than Dubya did. There is a group of people who will not own what the Bush Administration did anymore than what Harding, Coolidge, and Hoover did. If you won't join people trying to fix the problem, than you either need to come with something actually viable or shut up. Sorry, Reaganomics didn't work so you need to toss that one.

Paul Decelles 6 years, 10 months ago

Hmmmm, “The stimulus created an artificial boost for awhile,” said Gary Nuzum, senior vice president of McGrew Real Estate. “We knew it would help us last year, but we also knew it was stealing buyers from us in future years. And it has. It is killing us right now. I never thought it would hurt us this much but it has.”

Really Mr. Nuzum? I bet you didn't raise any protest when people were encouraged by brokers and agents to buy more house than they could afford.

irvan moore 6 years, 10 months ago

prices are down, the people down the street just sold their house and took a $40,000. loss after living in it for 5 years. they were ready to leave Lawrence and could afford it so the house sold fast and cheap.

whatupdown 6 years, 10 months ago

Interest rates can only and will go up and this will send home prices down more..... better to rent than own for several years to come, another year and we should be in much higher unemployment and heavy stock loses.

Carol Bowen 6 years, 10 months ago

  1. We had a glut of homes on the market.
  2. People who could not really afford homes were able to buy them anyway.

Isn't this why the housing market had/s a problem? Why would the builders and realtors want to go back to that market? They should have used the stimulus to plan differently not for more of the same.

jafs 6 years, 10 months ago

It's absurd to talk about the tax break as "killing" the market.

It provided a temporary boost to a slow market, and now the boost is gone, that's all.

The reasons the market is slow have nothing to do with the tax break, or lack of it. They have to do with the economy in general, availability of credit, jobs, etc.

verity 6 years, 10 months ago

I spoke with a realtor about a week ago in what is basically a bedroom community for Wichita (real estate prices are quite a bit lower there than in Lawrence). She said that foreclosures have gone way up since last November and she is having trouble selling a house for $140,000 when someone can buy a foreclosed house that is just as nice for $60-70,000. I wonder if this has also affected the Lawrence market.

It seems to me that 100 days to sell isn't all that bad, considering that other markets in the state are said to be six months to one year. This is only hearsay---but I know the house where I was speaking to the realtor has been on the market for eight months---a really nice house and apparently no bids at all. Another house close by has been on the market around a year.

Part of the problem seems to be that owners will not go down on the price. If you can continue living in the house, that makes sense, but if the house is setting empty, you're out taxes, insurance and utilities and possibly a lot of interest (depending on your tax situation).

verity 6 years, 10 months ago

Or maybe loans should have been regulated in a sensible manner, so that neither side would have been harmed.

jafs 6 years, 10 months ago

There are many ways in which this crisis could have been prevented by adequate regulation, without involving interest rates.

Disallowing credit rating agencies from being paid by issuers of the securities they're rating is the simplest and most obvious way - the conflict of interest there is absurdly evident.

Other ways could be requiring borrowers to have a certain percentage as a down payment, requiring banks to keep a certain percentage of their loans in house, where they have more of an incentive to make sure loans are sound, etc.

None of these would involve regulating interest rates.

jafs 6 years, 10 months ago

That's not an adequate understanding of the problem.

Banks made loans which were then bundled, securitized and sold, with those securities being rated by the issuers of them.

Mortgage brokers offered loans to people who really shouldn't have qualified for them, because they could turn around and sell them on the secondary market.

When you have brokers putting down whatever they want on loan applications regarding income without verifying it, interest rates are irrelevant.

When you have bundled and securitized loans that are rated by the issuers' agencies, you have fraud, and securities are rated highly and easily sold, when they should be rated much lower, and not sell as easily.

Interest rates wouldn't have solved any of these problems.

Banks that keep mortgage loans in house have a much larger interest in assuring those loans are sound. If they can easily sell them on the secondary market, that's somebody else's problem

jafs 6 years, 10 months ago

If banks don't care whether the loans are sound or not because they can sell them on secondary markets, interest rates won't deter anything.

If people think that they can get loans they can't afford, and banks don't deter them, interest rates won't solve anything.

Yes, there were idiots at all stages of the game. People who get loans they can't afford are acting idiotically, brokers who give loans without caring if people can pay them are acting idiotically, people/organizations that buy sub-prime mortgage backed securities and think they deserve a AAA rating are acting idiotically, etc.

The simplest fix would be to eliminate the secondary market, so that banks must keep all mortgages in house. That would force them to care about the soundness of the loans.

The next best would be to make it illegal for the issuers of securities to pay the rating agencies, and get rid of that conflict of interest.

Without the ability to fraudulently sell those securities, the whole chain would collapse, and banks would care more about their loans.

just_another_bozo_on_this_bus 6 years, 10 months ago

So the only cure we need is usury?

Isn't that what the mafia does?

jafs 6 years, 10 months ago

Your argument is overly simplistic, and doesn't convince me that higher interest rates would have solved/prevented this problem.

If a bank can just sell their mortgages on the secondary market and thus transfer the risk there, what difference would higher interest rates make?

jafs 6 years, 10 months ago

I disagree.

The reason that the secondary market bought the loans is because they could bundle, securitize, and sell them again.

The reason they could do that is because the credit rating agencies were paid by the issuers of the securities, and rated them much more highly than they deserved.

Without the fraudulent ratings, the whole scheme would have collapsed.

jafs 6 years, 10 months ago

We disagree on the causes of the problem.

I say the problem is that bad loans were made, by banks and mortgage brokers, only because they could count on passing the problem down the line.

If a bank makes a loan, and keeps it in house, they have a large vested interest in making sure it's a sound loan.

This has little to nothing to do with interest rates.

jafs 6 years, 10 months ago

You have proven nothing, simply asserted a variety of things, all of which unsurprisingly tend to fit in with your free market theories.

Your argument that interest rates are information, and that banks acted incorrectly based on their perception of those can only be true if those banks are run by idiots, who don't know that the Fed sets interest rates in order to stimulate the economy. Most bankers, and financial advisers, etc. are quite aware of how the system works, don't you think?

They could do it, again, because at the end of the chain was a fraudulently obtained high credit rating, so that the folks who bought the instruments at that end were unaware of the amount of risk they were taking on. It's extremely probable that if they had been aware of that risk, they wouldn't have bought those instruments, and thus the chain wouldn't have been possible.

By the way, I don't have a particular position on whether the Fed should set interest rates or not - I can see some probable arguments both ways.

The issue is whether or not loans were sound, not interest rates. If the loans made were sound, the problem doesn't exist. If not, then it does. You are right that everybody seemed to think that housing would just continue to go up indefinitely - that's called "unreasonable optimism" and it's part of every bubble, and the Great Depression.

That problem, plus some greed and stupidity, can't possibly be solved by interest rates.

jafs 6 years, 10 months ago

Do you mean to say that until now, bankers, financial advisers, mortgage brokers, and a large variety of people in the investment business didn't understand that the Fed lowers interest rates in order to stimulate the economy? That's frightening, but unlikely.

I can't answer that question, but I know for a fact that a number of rating agencies were rating securities as AAA when they knew the rating was incorrect, based on information from employees within those agencies.

That's your fundamental mistake in logic - lower interest rates do not lead directly to unsound loans, without a number of other factors. If banks kept their loans in house, they wouldn't make unsound loans no matter how low interest rates are, because they're taking on the risk of borrowers defaulting.

It's reasonable to assume that lower interest rates may result in more loans - people have more of a chance to be able to afford the payments. But, without other factors, they wouldn't lead to unsound loans.

If I had a bank, and interest rates were zero, and I could lend money at 1% and make a profit, I still wouldn't want to lend money to somebody who couldn't pay it back.

just_another_bozo_on_this_bus 6 years, 10 months ago

In a very high percentage of the "liar loans," the buyers were eligible for government-backed loans. They came with much more stringent requirements, but also much better terms for the buyers.

But the lenders could make more money by offering more expensive loans with terms that were guaranteed to lead to a default.

If the "housing bubble" had consisted of the loans described in the first paragraph above, unqualified buyers would not have been lent money they couldn't pay back, qualified buyers would have had reasonable terms, the bubble would not have been a bubble and we quite likely could have avoided the collapse that has us where we are.

But Wall Street would have missed out on $trillions in profits. Profits that they got to keep, while the rest of us deal with a collapsed economy.

just_another_bozo_on_this_bus 6 years, 10 months ago

As if high interest rates on loans will necessarily translate into high interest rates for depositors.

There are advantages and disadvantages to both high and low interest rates.

But the notion that the "market" will always make the perfect choice between them is little more than fantasy.

just_another_bozo_on_this_bus 6 years, 10 months ago

And besides, one of the causes of the bursting of the housing bubble was that the sub-prime loans that were packaged up and sold off is that they had extremely high interest rates, meaning borrowers were all but assured of defaulting.

just_another_bozo_on_this_bus 6 years, 10 months ago

You do realize that the government is just the people, don't you? What makes you think that the people can't make decisions and take actions through government, including controlling interest rates?

Cai 6 years, 10 months ago

I just want to applaud the two of you for having an actual thought out discussion that's been informative and thought provoking without devolving into mudslinging. Thank you for the awesome reads!

meggers 6 years, 10 months ago

The overall economy is harming the housing market. To suggest that the stimulus is to blame is akin to saying that coupons and sales harm retailers, because once they expire, people won't purchase their products. If that were true, retailers wouldn't continue to offer such incentives.

In other words, the premise of this article is nothing but politically-driven hogwash.

Kontum1972 6 years, 10 months ago

LMAO...get this i recieved a check from Countrywide...for 202.00 for the scam they ran when the were selling homes....that was 19 years ago....oh justice be not slow

vuduchyld 6 years, 10 months ago

I didn't see any statistics on the article on anything outside of Lawrence. Were we the only place affected by the stimulus?

Nellane Laney Croan Stussie 6 years, 10 months ago

Wait until they "close the tax loophole" for mortgage interest! You folks in real estate would be wise to start retooling for another profession!

Nellane Laney Croan Stussie 6 years, 10 months ago

Wait until they "close the tax loophole" for mortgage interest! You folks in real estate would be wise to start retooling for another profession!

just_another_bozo_on_this_bus 6 years, 10 months ago

The mortgage interest deduction makes absolutely no sense for McMansions. It should be capped at somewhere around the median price for all houses.

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