Wheeling West Virginia Real Estate Blog, Broadwater Properties: Where have all the down payments gone?

Where have all the down payments gone?

By Lou Barnes - Inman News®

It is an election year. In addition to the distorted economic "analysis" offered by the ever-cheerful stock market channels, CNBC and Bloomberg, political interests will add their garbled gabble all year long.

Today's reports of 200,000 new jobs in December and unemployment down from 8.7 percent to 8.5 percent were greeted with happy bugles from the usual suspects. Ignore that, and watch the markets themselves.

Interest rates rise on legitimate good news; today's 10-year Treasury-note yield has fallen to 1.94 percent, and mortgages are near 4 percent again. The stock market rises on good news, and today it is flat to down.

The addition of 200,000 jobs is good news, but year-over-year earnings have risen only 2.1 percent. A few are back to work, but it's not the job that it was. And even if employment growth persists at that level, and new unemployment claims stay down as they were in December from 400,000 weekly, it's not enough to dent the job losses since 2007.

Part of the tepid response from markets today is derived from ongoing concern for Europe. Perhaps the best indicator for markets this winter will be the pace of recession onset in Europe. Genuine economic turn depends on housing. Many self-deceiving financial-market types in the last weeks have announced discovery of a housing turn; although there is none in the actual market, there is one in public policy.

The Federal Reserve is very reluctant to lecture politicians (because of its perpetual political peril), but has done so this week. Fed Chairman Ben Bernanke shot a very well-done paper at congressional committee leaders, laying out damage by insufficient credit, by pinched and self-destructive attitude at the regulators of Fannie Mae and Freddie Mac, and by exposing the total absence of administration policy.

Today, Bill Dudley, president of the New York Federal Reserve, fired off another:www.newyorkfed.org/newsevents/speeches/2012/dud120106.html.

President Obama and Treasury Secretary Timothy Geithner have been so completely detached from housing that even a blast from the Fed may not get their attention. But I can hope.

We have 4.2 million homes in terminal delinquency, not yet foreclosed, and another 600,000 REO (real estate owned or bank-owned properties). The annual rate of sale of existing homes is a little over 4 million -- one-third of that in distressed resales, barely moving the newly distressed, with no net gain.

That absorption conundrum is bad, but masks a tough and unusual phenomenon in the ordinary, nondistressed market: an odd freeze descending.

Here in my Denver backyard, the listed for-sale inventory dropped by one-third last year, ordinarily the precursor of rising prices. Maybe that will happen here -- we led the nation in foreclosures way back in 2004 -- but there is another force in play: down payments.

Where to get one? The most common source is rolling over the equity in a current home to buy a new one. Right. Roger that. Although we do not have the underwater inventory that Zillow "fantasizes," with local prices roughly the same as 2001 and price-appreciated equity a memory, there are fewer and fewer owners both wanting to move and with equity to roll. Thus, fewer and fewer listings.

Other than appreciating value, nothing but loan amortization builds equity. See entry for "glacial," and kids can Google Rip Van Winkle.

If you're not an owner, down payments come by saving money. Good, healthy discipline. However, in prior times your savings earned something. Even in a bank. In the 1990s the stock market might have doubled your savings every other year.

Another reliable source of down payment: bonuses. As I ask clients about that, today I get a lot more wry chuckles in response than happy answers. Same for stock options, proceeds of initial public offerings, or growing commission income. And there are sad answers to the prospect of help from tapped-out families.

If mortgage credit began to flow on reasonable terms, and somebody running for office told the American people that modestly rising home prices are in the national interest, and we got a 5 percent or 10 percent rise in prices, we would unlock the entire economy.

You might ask a nearby politician about that.

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