Home Sellers Forced To Cut Prices--Finally

It was only a matter of time when reality would catch up to the housing market. The foolish homebuyer's tax credit was able to give a boost to prices in the short run of up to 10% in some areas. But alas the credit has expired so naturally demand has fallen off a cliff and home sellers are now forced to cut prices (a good thing for the market). From the WSJ:
Home sellers continued cutting prices in August, real-estate website Trulia.com reports. As of Sept. 1, 26% of homes on the market saw their prices cut–accounting for more than $29 billion in reductions.

Price cuts on average were about 10%, or about $34,000.

“Nationwide, sellers continue to slash prices and this is a worrisome trend,” said Pete Flint Trulia’s co-founder. Not everyone would agree: Some contend that home sellers who refuse to cut prices have unrealistic expectation and are keeping the housing market from picking up.
California’s reductions have increased steadily since the federal home buyer tax credit ended in April. Scenic Long Beach came in at 28%, while Fresno and Sacramento both registered 26%. Long Beach was up from 25% a year ago, while Fresno spiked from 20%. Sacramento stayed the same.

While the Fed is likely panicking and preparing more quantitative easing after hearing the word "price deflation", this is actually a positive development. The problem with the housing market is not that people do not want homes. The issue is that home prices are still overvalued and need fall another 10-20%. Then people will be able to afford homes and the market will begin to stabilize as buyers once again come into the market. This is what eventually has to happen before the market will recover. No Keynesian stimulus can prevent this process from occurring; it can only delay it (and delay it they have). It will not be fun when the washout finally occurs. People who cannot afford their homes will be foreclosed upon--there is no way around this fact though it is a tragic outcome.

Black Swan Insights


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