For Those of You Who Think a Housing Recovery is Right Around the Corner

By the Left Coast Rebel

Spooky stuff.

Screenshot from a Freddie Mac investor presentation, total U.S. housing equity versus total outstanding debt:

Screen shot 2011-09-22 at 11.27.00 AM

No amount of bailouts or Keynsian intervention is going to fix the housing mess. It's simply going to take years. And at the rate of government intervention today (which thereby prolongs the downturn), perhaps decades.

Related: Crony capitalism update via the Washington Post, via Memeorandum: Solyndra employees: Company suffered from mismanagement, heavy spending

UPDATED: Not quite as scary as it seems? San Diego SLOB member, econo-blogger WC Varones corrects:


I don't think there's a $4 trillion shortfall -- what that chart is saying is total home values are $16.1 trillion of which $10 trillion is mortgage debt and $6.1 trillion is equity.
Whoops, my bad -- I see WC's point here. The total value of U.S. housing stock (real estate) is 16.1 trillion, of which 6 trillion is equity and 10 trillion is debt.

Of course, at the tippity-top-peak of the bubble, equity was over 20 trillion and debt was pretty close to today's 10 trillion.

UPDATED X2: Reader Nick, who blogs at It's Just My Opinion writes:

If real recovery isn't going to happen before consumer spending picks up (which, historically, is a fairly good guess), and consumer spending recovers when housing prices are "reasonable" and equity is increasing reliably, then we're certainly in for a long, drawn-out recession. To paraphrase our Dear Leader, though, let's be clear: this recession could have been over by now if the government had acted responsibly and in the people's greater interest. Instead, we had bailout after bailout, shifting the entirely predictable and obvious losses onto the public, and intentionally elongating this recession from perhaps a couple years to a decade or longer.

The government created the conditions for the bubble through tax policy, Fed rates and statements, and utter lack of anything resembling transparency in financial disclosure (a complete abject failure of all the "oversight" the Democrats like to say we need even more of). The government encouraged the bubble. The government wasted trillions of taxpayer dollars trying to keep the party going when it was over. The government bailed out the big banks, rewarding them for all the bad loans they had issued during the bubble. The government propped up the housing market with public money, turning a potential six month correction into a multi-year grinding halt to the housing market, with all the job and income losses that caused. There's a lot of fault to go around, to be sure, but there's a common thread which seems to run through everything which went wrong with the economy... I'll leave it to the reader to see if they can spot the singularly largest (by far) cause of the problems.

2 comments:

  1. If real recovery isn't going to happen before consumer spending picks up (which, historically, is a fairly good guess), and consumer spending recovers when housing prices are "reasonable" and equity is increasing reliably, then we're certainly in for a long, drawn-out recession. To paraphrase our Dear Leader, though, let's be clear: this recession could have been over by now if the government had acted responsibly and in the people's greater interest. Instead, we had bailout after bailout, shifting the entirely predictable and obvious losses onto the public, and intentionally elongating this recession from perhaps a couple years to a decade or longer.

    The government created the conditions for the bubble through tax policy, Fed rates and statements, and utter lack of anything resembling transparency in financial disclosure (a complete abject failure of all the "oversight" the Democrats like to say we need even more of). The government encouraged the bubble. The government wasted trillions of taxpayer dollars trying to keep the party going when it was over. The government bailed out the big banks, rewarding them for all the bad loans they had issued during the bubble. The government propped up the housing market with public money, turning a potential six month correction into a multi-year grinding halt to the housing market, with all the job and income losses that caused. There's a lot of fault to go around, to be sure, but there's a common thread which seems to run through everything which went wrong with the economy... I'll leave it to the reader to see if they can spot the singularly largest (by far) cause of the problems.

    ReplyDelete
  2. A recovery that may take decades. The rate of government intervention and the national debt attributed to it, the housing market could be ruined for life.

    ReplyDelete

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