New HUD chief speaks: Housing crisis is in "fourth, maybe fifth, sixth" inning

More Monday-morning quarterbacking on the Sunday talk shows. This time it's HUD secretary Steve Preston, who's been on the job about two months.

Appearing on "Late Edition With Wolf Blitzer" (long transcript, so scroll down), he gave a fairly cogent answer as to who's to blame for the housing mess.

BLITZER: Who was asleep at the switch or who was to blame for this housing crisis that has plagued us now over these past couple of years?

PRESTON: You know, I think all of the factors that have gone into these issues have been multifaceted. I think there was confusion at the closing table as to what people were getting into. I think you had builders overbuilding in many of these markets, and as a result, needing to sell that inventory and doing so aggressively.

And I think at the end of the day you had mortgage instruments that were poor financial risks that ultimately landed in the hands of investors that they probably should never have bought.

On whether the end is in sight:

BLITZER: Are we at the beginning, the middle, or near the end and see some light at the end of the tunnel?

PRESTON: Well, I think we're pushing through the middle right now. We still have very high inventories. If you look at home inventories, they are generally around 10 1/2 to 11 months…

BLITZER: You mean there's a surplus of homes on the market out there, and not enough customers.

PRESTON: Yes. Typically you'd see sort of a six- or seven-month inventory. We're 10 1/2 or 11. So we need new home buyers to come back into this marketplace. And we have to work hard to stem the tide of foreclosures so we don't have more of those homes coming into the inventories.

Preston also reminded homeowners that HUD has "thousands" of counselors poised to help them "understand if they should restructure their mortgage" (at www.hud.gov). He also said counselors would, "if they can," accompany borrowers to their bank or mortgage lender.

He wasn't asked whether HUD's efforts were producing any results yet.

-- Annette Haddad

Photo: Steve Preston taken June 13, 2008

Credit: Getty Images

Comments

[E]

4th, 5th or 6th inning?

He must be referring to the "subprime" issue. LOL!

The game hasn't even started for the Alt-A team!

10-11 months of inventory?

HAHAHAHAHAHA

Tell that to the condo developers.

Tell that to the high end homedebtors who have had their houses on the market for two years.

We've got years and years worth of inventory in the "bubble regions". Decades if you just want to look at condos.

But the numbers sure look nice when you use "nationwide" statistics and don't include all the "phantom" inventory.

You're doing a heck of a job Stevie!

ROFLMAO!

[Rational Renter]

I think you could make the case that we are as far as the sixth inning for much of the country. However, for Southern California and Florida, that is an overly optimistic assessment. Considering the staggering number of SoCal homeowners who are now underwater in their mortgages (and will have no way of refinancing when their ARMs reset), foreclosures are only going to get worse.

[SoCalJim]

"BLITZER: Who was asleep at the switch or who was to blame for this housing crisis that has plagued us now over these past couple of years?"

C'mon.... buyers in over their heads have noone to blame but themselves. Otherwise, RE is just a market doing what every other market does - some days/years it is up, other days/years it is down.

Buyers in over their heads are not infants. If they are not intelligent enough to determine the risks or that they cannot afford an expensive house on a relatively meager salary, they should not buy, should seek advice from someone who would inject a dose of reality, or learn that lesson the hard way. Why reward "not-so-smart" buyers that fall into the latter category? Whatever course of action, such buyers who bit off more than they could chew will (ideally...) learn from their mistakes and live within their means.

I am contnually confused why certain people want to "blame" someone else. Look in the mirror. The answer is quite simple.

[mike]

does he know if the game is going into overtime/extra innings???

[The original RZ]

Simple economics tells us that when there's a larger supply than there is demand, prices typically drop. If there is such an oversupply as the new HUD chief keep talking about in his comments, why haven't prices dropped more? (This is a rhetorical question).

[Tony]

I happened to catch this softball interview. Ghengis Khan could be sitting in the chair across from Wolf and he wouldn't ask him a tough question.

Basically, Mr. Hud guy didn't lay the blame anywhere, or if he did, it was in a very passive, non-threatening manner. Look at this answer he gave:

"And I think at the end of the day you had mortgage instruments that were poor financial risks that ultimately landed in the hands of investors that they probably should never have bought."

That ultimately landed in the hands of investors??? As if they just "landed there", almost by happenstance. It's not like Moodys gave a bunch of junk bonds (or SIVs or whatever you want to call them) a triple A rating so Wall Street could peddle them overseas to retirees in Norway. And the phrase "they probably should never have bought," is another way of passing the blame from Wall St./govt. cronies to the public. These were peddled as safe investments and rated as such - why wouldn't pension funds be interested?

Steve Preston seems to be another in a long line of first-class jerks. Be afraid. Be very afraid.

[Nick]

Man, what a quintessential parroting of the NAR propaganda. We don't need buyers to come back to the marketplace; they are being smart, and staying away while prices are still way too high. We don't need to "stem the tide of foreclosures"; there are millions of bad loans valued at hundreds of billions of dollars still out there, and they all need to fail, go through foreclosure, and get into the hands of people who can actually afford the assets (and correct prices accordingly).

It boggles the mind that anyone could think our government is capable of fixing anything related to the housing market correction when we have people like this, in charge of government housing organizations, who say things like this. He is either incredibly naive, or completely politically motivated, and either of those means he's incapable of actually helping the situation, and should really sit this one out.

[MarkW]

He's got his flag pin. That makes me feel better.

[Chris Pepper]

I think all these guys are in a tough spot......this guy, Paulson, NAR, ect. ect. Its easy to be on the sidelines and berate these guys but their jobs are two fold.......fix the problem and institute policy so that it doesn't happen again. Can't have this thing totally collapse..... that wouldn't be in the best interest of the country. If they slowly deflate the bubble it buys everyone some time to solve some of the issues at hand, gives inflation a chance to kick in a bit and spreads the impact of this mess over time. I think Paulson and these guys have done a pretty good job up to this point. I suppose we could point the finger at these guys for letting it happen, but what good does that do.

[Nick]

I'll take the counter-point to Chris, and point the finger at Paulson, Bernanke, the FHA, Congress, et all for not only not helping, but indeed exacerbating the current mess. They all had their contributions, and are all partially responsible for the current mess. In no particular order...

Bernenke:
- Could have: warned about systemic risk, instituted policies to prevent it, urged Congress to prevent it, used the Fed rate to fight inflation instead of jawboning about it, pushed Congress to fix the lending standards before risk got too big, took the anti-politicizing stance about the correction
- Actually did: bailed out IB investors, gave shady backdoor preferred loans through the discount window, jawboned inflation while it got out of control, allowed financial companies to defer (hide) losses

Paulson:
- Could have: pushed for oversight reform, refused to allow US dollar to be backed by mortgage bonds
- Actually did: pushed a $300 billion lender payoff bill through to pass legislation allowing treasury to backdoor nationalize the insolvent GSE's which should have been wound down, created enormous moral hazard

FHA:
- Could have: refused to subsidize overly risky loans or shady lending practices
- Actually did: took over the "always fail" lending market after the rational lenders fled, exposing taxpayers to hundreds of billions in eventual losses

Congress:
- Could have: fixed the GSE lending standards to prevent hundreds of billions in losses, fixed industry oversight, prevented off balance sheet accounting, stopped the Fed's backdoor bailouts, made the RE industry more transparent and less fraudulent (, stopped the economy from bleeding all production jobs, encouraged saving instead of spending, etc, etc, etc.)
- Actually did: enacted a $300 billion payoff for irresponsible lenders with 600 pages of riders nobody really understood or even looked at, hemmed and hawed about "helping" people while keeping housing unaffordable for honest Americans, then went on vacation

They are all culpable.

[RM]

With respect to timing using the term "innings" may be OK, but in terms of impact or fallout the term "magnitude", as in an earthquake needs to be used. As the foreclosures increase, so does the magnitude of the banking shake out. Right now we may be at just a 4.0 or maybe even a 5.0, but as we work our way towards a 8 or 9.0 magnitude, not many banks will survive. The economic fallout will be like the ripple effects of a very strong earthquake.

[jaded]

I'm going to go out on a limb and agree with the guy. Commodity prices are receding, meaning that there is deflation, not inflation. The dollar is getting stronger, and the bulls are coming back to the market. The Fed will start to lower interest rates, and capital will start flowing back into the country. With lower interest rates, there will be fewer foreclosures, and fewer foreclosures mean less inventory. Prices will start to rise, esp. since loans will be cheaper, and it will be as cheap to buy as it is to rent.

And don't forget that there are plenty of homebuyers patiently waiting on the sidelines to enter the market. When the interest rates fall, and the hysteria over the foreclosure numbers lessens, people (including the Armegeddonists), even in California and Florida, will buy. Most people want to own a house, not rent an apartment.

Everything's going to be ok.

[Laker]

jaded,
If your theory is correct and interest rates will go down, in order to match rents, i think only 0% interest rate for 30 year fixed will be enough to offset the cheaper rent, but i don't think it is coming....
If you take a $600,000 loan, using 0% for 30 year will be about $1667 per month. So after putting 20% down, for purchase price of $750,000 add $750 property tax and $100 insurance, you get $2500 before upkeep. Just about the rent payment....

So conclusion: Either interest rates drop to 0% for 30 year fixed (no 2 year teaser) and that will make prices stop dropping, or drop the asking prices 50%