ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Tuesday, December 30, 2008

Home prices

Glenn at Instapundit had the following yesterday:

HOUSE PRICES: Still too high? I think so, and I’m surprised at how unrealistic sellers still seem to be. I’m seeing people put houses on the market for 10-15% more than they paid two years ago, when those houses are probably worth 10-15% less. Or worse.

UPDATE: Reader Bob Molyneux writes:


My wife and I are in the market for a house in the Duluth, Georgia area and we have seen a ton. So many are junked up–don’t you folks know what a garbage bag is? Are banks really that uninterested in selling foreclosed houses that they make it almost impossible? I don’t know about a buyers’ market but our credit rating is great and our current locked in interest rate is 4.97%, we have money in the bank, and this will be an oldie but goody: a “conventional” loan. Maybe we are picky but I would guess that you are right that the better houses are 10-20% high. The bad houses are 90% high.

Yeah, I think people are still in denial. Don’t know why the bankers aren’t better about prepping these houses for sale.

I don't have any personal knowledge of the business decisions that go on inside banks on these foreclosed properties, but from my experience with other businesses (especially "big" businesses), it seems to me that there's just no process at the bank to do the prep work.

The only person at the bank that actually looked at the house is most definitely someone with no authority at the bank (how many bank CEO's are doing property tours of their run-down assets?) So whoever actually looks at the dilapidated properties would have to convince someone at the bank to fork over money to sell an asset for which they have already lost money. That money would have to be accounted for at some point, and it would be entirely subjective. So there's no reward for the individuals in the bank to clean up the property.

There used to be a market for this sort of thing - speculators would buy up foreclosed properties, "flip them" and sell for a profit. But with the housing downturn, nobody wants to buy anything, and in addition, speculators can't get loans to do it.

So the buyer in Glenn's post is going to see a lot of really crappy, overvalued homes while looking. If he can get past the garbage and look at the house from a non-cosmetic standpoint, he might stand to make a heck of a deal in this market.

I agree with his consensus that prices are too high. People are in denial right now. Soon they will be moving to the anger side. That's when the federal government will be pressured to "step in". My only worry is that someone is going to make the case that vast swaths of housing will need to be bulldozed to drive down prices, in line with the fallacious "broken window" theory of economics.

Your Co-Conspirator,
ARC: Brian

Comments (3)
St Wendeler said...

I would say that the asking prices are higher than they should be, but that doesn't mean that the final, agreed upon sale price is anywhere close to that.

People are asking for a high number, but I suspect that they're getting much less than that.

Another issue is the uncertainty regarding the incoming administration and the recent, disjointed actions by the Bush administration. So many promises made and so little is known about the President-elect that people are overly cautious.

No one is taking any action (investing in stocks or houses, lending money, etc) because no one has any idea what Bush/Paulson will do in his remaining days and even less idea what Obama will do on January 21st.

I too fear a broken window approach... the argument has been made throughout the MSM, from guest columnists in the WSJ to the New York Times.

We're all Polynesians now.

Where is the next Milton Friedman???

St Wendeler said...

damn spell check...

the final two sentences should've been:

We're all Keynesians now.

Where is the next Milton Friedman???

Although, it'd be nice to be Polynesian right now... Or at least in Polynesia, what with the frigid temperatures in the Midwest brought on by global warming!

Brian said...

They aren't getting ANYTHING. the houses just sit is my understanding. This further degrades the market.

Buyers aren't going to pay a high price. There's too much supply on the market.

Glenn is right. People are in denial.