HUD chief warns of "fundamental oversupply" of houses

The nation's top housing official warned today that America has a "fundamental oversupply" of homes for sale, and that as many as 2 million homes will be foreclosed on this year.

Bloomberg News:

The U.S. economy is suffering from a "fundamental oversupply'' of homes and a glut of subprime mortgages scheduled to reset through 2010 that will continue to weigh on housing prices, Housing and Urban Development Secretary Steven Preston said.

"As we entered this crisis our markets had become more complex and interdependent than anyone really understood with respect to asset classes, financial institutions and geographies,'' Preston said during a speech in Washington today.

You can read Preston's entire speech here. Other highlights:

A full 9 percent of all loans in this country are either delinquent or in some state of foreclosure. ... Nationwide, we have an 11-month inventory of supply of housing relative to sales.

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--Peter Viles

Photo Credit: A.P.

Comments

[david yen]

How does he explain homelessness? Or has housing for lower income people dropped so far off the radar that he doesn't even think about the fatuousness of his statement?

If every household had one, and only one, house, or apartment unit, there is an oversupply. However, many people have more than one house. If we want to have one house or apartment unit for every household, regardless of income or wealth, plus additional houses for everyone who wants theme and can afford both houses, I'm not so sure that there is an oversupply.

[Giacomo]

The bureaucrats and executives in the middle of this mess never tire of claiming that no one "really understood" what was happening during this bubble, despite great evidence to the contrary.

Heck, by 2004 half of my neighbors understood that house prices had escalated beyond all reason and that the new buyers were spending beyond their means. And most of us probably didn't even have college-level Econ! Are we supposed to that the people in charge didn't have a clue?

[Giacomo]

Mr. Yen, I think by "oversupply" he means that there are more houses available than there are people who can afford to BUY them. He is using language common in discussions of a free market economy.

I don't think it's fair to criticize him for being unaware of alternative definitions from Mystical Magical Utopias where privately-owned properties are given over to anyone needs a place to crash.

[E]

Good thing he didn't say condos.

You can NEVER have too many condos!

[Valley Observer]

The brokers et al understood exactly what was happening -- an opportunity to earn a lot of fees and commissions.

[Keith]

Giacomo,
You are right. They did know. But the people who bribe the politicians were making a fortune so nobody said anything. This is what happens when you get Republican deregulation. Remember the 1970s when the market was allowed to regulate itself and the air in LA was as thick as pea soup, and Lake Erie was so polluted that all the fish were dead? That is what business self-regulation gets you.

John McCain was in the middle of the S&L crisis in the 80s. He is one of the "Keating Five" who took bribes to allow a giant Lincoln Savings to steal from the public in the exact same way as banks are doing now. Charles Keating went to prison and John McCain is trying to become the "No Regulation" "The Market Will Regulate Itself" president.

But at least he'll have good help from bimbo Palin who's experience includes completely screwing up a real estate deal to build a rec center in her tiny little town, and being able to see Russia from somewhere in her state. Impressive resume. We are screwed.

[dclogang]

"Fundamental Oversupply?" No no no..

"Fundamentally OVERPRICED" is more like it.

Here's the solution to this "crisis"......

Lower the house prices to what people can afford. i.e., those with 20% down payment and the medium income of that area.

When house prices in the SFV come down to this level I will buy a house and not until then.

Lower the Price=Lower the supply.

Very very simple concept.

[dclogang]

One more thing....

I wish the media or some other entity would educate people on what is actually happening and stop calling this a housing crisis.

It's not a crisis for everyone. It makes it sound like all homeowners are in trouble.

Those who rent or by those who didn't use their houses like an ATM machine are fine. (basically the responsible ones)

YET, many (not all) in the government feel like they must step in and take charge.

Which brings me to this point...

I hope everyone sees that the Government, by taking over AIG and saving these huge financial compaines that this is turning into something OTHER than a democracy.

We need to teach our children about the constitution..I'm afraid of the future. Are we going to see tanks in the streets when the uprising happens. There's a run on the banks folks.. the economy is well, I think we all know.
Bar codes on our foreheads next? Where does it stop. Excuse after excuse will be given to us by the gov as they slowly take over our lives..... until our freedoms are G O N E. Am I being paranoid or....am I just tired?

[The Original RZ]

Maybe in economic terms it's an oversupply based on current prices, but there are thousands (maybe even millions) of people in the U.S. who rent or live with their parents who could be buying homes if they are priced properly, not inflatedly. Seems to me that if the prices are allowed to correct, then there will be a demand for this so-called "oversupply."

Basic economics tells us that when there's a larger supply than demand, sellers need to drop their prices in order to lure buyers. Why does this basic tenet seem to be so difficult for the HUD chief and many others to understand?

[dog-walker]

dclogang,

Yes. I keep thinking the same thing. It's like living in a funhouse. I guess it's just politics, right? Everyone says whatever they think everyone else wants to hear, and the result is nonsense.

There are plenty of people who would like to -- and could -- buy a house at a reasonable price... that is, at a price that is inline with their income. This insisting on maintaining prices that require entire generations to indenture themselves for the rest of their lives to impossible, ridiculous mortgages just so the minority of home owners who paid too much in the last few years and don't want to recognize it, and the minority who would have realized incredible, fabulous, life changing capital gains if they had sold at the top... but didn't... and don't want to recognize that now they can't, and the minority of depraved bank executives and mortgage brokers who tore to shreds any scrap of social contract they could lay their hands on and ruined their companies (not to mention the world economy) and don't want to recognized that they have destroyed their own lives -- just so this MINORITY of citizen don't have to accept that they now won't soon become "wealthy" or "affluent" or "well-off" or whatever other pretension they coddled their grasping egos with for the past ten years -- this whole crazy tantrum of denial is one of the great mass delusions of all time.

It's an amazing thing to watch go by. I'm glad I've had enough experience by this point in my life to be able to process it a little and appreciate the historically catastrophic nature of what's going on.

One wonders, what did 1931 look like to the bystanders of the time? Or 1942? Or 1865? Or any other epoch changing moment in human affairs?

"Duck and cover," is what I keep telling myself.

And, "It's only when the year becomes cold that we know how the pine and the cypress are the last to lose their leaves."

[Anonymous]

I'm not sure there is a fundamental oversupply of homes. I suspect there is a fundamental "overpricing" of land that makes housing unaffordable. It's not really overpricing as much as it is the pricing that results when you have a huge disparity in wealth. This disparity allows the wealthy to drive up the price of land to the point that housing is no longer affordable on such land to the vast majority of the public. If you allow your society to have such a vast disparity of wealth, you have to change your society and its housing (i.e., it is unavoidable). If we have CEOs making 300x salary of an average worker, we probably need to house the average worker and his family in a 500 sq ft studio. Everyone seems to recognize the wealth disparity problem, but very few seem to realize what it means to them. It means that the current lifestyles of the average worker will get ever more unaffordable each day as the accumulation of wealth starts to work its way through the market and overwhelm the purchasing power of the average citizen. Once overwhelmed, the average citizen must live in a much smaller and more austere house, with a smaller car and smaller TV. It's very simple. The farther you fall behind, the less purchasing power you have. This is the country **you** voted to have by electing the current slate of politicians. Good luck to you all.

[Drew]

There may be an oversupply of housing nationally and especially in new developments in far-flung suburbs -- but there is a shortage of housing in places where people actually want to live (as opposed to where they have to live because they can't afford where they really want to be).

[Giacomo]

I think it misses the point to try to make partisan political points here: members of both parties are culpable. It's fair to criticise the Bush administration, but you're being intellectually dishonest if you don't acknowledge the Clinton administration's efforts to shortcut the path to home ownership, or the complicity of a Democratic-dominated Congress.

I think it's more accurate to say that none of these leaders had that political courage to be a naysayer while everyone was making piles of money -- including the voters who were watching the apparent value of their homes go through the roof.

I don't think there was a grand conspiracy (except maybe, board-room level conspiracies to make loads of money and escape with it). Perhaps it was something more like the Madness of Crowds.

[Fourth Generation]

Oversupply of housing. Now that is a very funny statement coming out of Mr. Preston's mouth. If you want to resolve this situation to a more manageable level just stop dreaming of overpriced houses and lower the price to "affordable" levels. Let's say just like dclogang, lower to the area median income and the oversupply will reduce substancially. Heck I make more than double the median and could/would not buy at those ridiculous prices. Bye bye bubble.

[Giacomo]

I think it misses the point to try to make partisan political points here: members of both parties are culpable. It's fair to criticise the Bush administration, but you're being intellectually dishonest if you don't acknowledge the Clinton administration's efforts to shortcut the path to home ownership, or the complicity of a Democratic-dominated Congress.

I think it's more accurate to say that none of these leaders had that political courage to be a naysayer while everyone was making piles of money -- including the voters who were watching the apparent value of their homes go through the roof.

I don't think there was a grand conspiracy (except maybe, board-room level conspiracies to make loads of money and escape with it). Perhaps it was something more like the Madness of Crowds.

[Bubblewatcher]

I found myself fixated on this line:
"We are starting with the belief that if there are people in troubled mortgages that want to stay in their homes and can afford to do so with the right mortgage, we should work to help them do so.

First and foremost, it's good for the families "

Somebody needs to define affordable in a way that makes bailing out of these overpriced, underwater houses as much of a "family-friendly" option as staying. I'm working with a guy who's entire monthly paycheck is going to a payment on his (interest-only, negatively amortizing) mortgage every month. The house is worth 30% less than he paid for it (if that), he isn't setting aside a dime for his retirement, and I'm just praying he sees the light before he finds out that that promised refinance is no longer an option and gets into a nice rental somewhere much closer to work.

In other words, sometimes the most family-friendly option is to convince people that bailing out is better than staying put.

[tew]

Wonderful. A HUD secretary who says our problem is too much housing. So I guess he'll be handing in his resignation and advocating the elimination of HUD.

[JP in USA]

The United States Government is capitalizing on a comprehensional failure of the human mind – the inability to fully grasp the magnitude of large numbers. Upon hearing numbers beyond a few thousand our brains interpret it as, “Wow, that’s a big number!” with no tangible image to relay exactly how big. So, let’s start with a One Dollar Bill. We can understand $1.00, right?

According to the United States treasury, a One Dollar Bill has a thickness of 0.0043 inches. One thousand One Dollar Bills would be one thousand times thicker -- 4.3 inches.

One million is one thousand thousands, so the thickness of $1,000,000 is 4300 inches. Converting to feet and this becomes 358.3 feet, an American football field.

One billion -- $1,000,000,000 is one thousand times thicker still or 358,333.3 feet. This is 67.866 miles, the driving distance from New York City to Milford CT.

One Trillion is one thousand billions – one trillion One Dollar Bills stacked one on top of another is 67,866 miles. This would circumnavigate the globe 2.73 times.

The proposed 700 Billion Dollar bailout alone would be a stack of One Dollar Bills stretching 47,506.2 miles, or 1.90 times around the globe.

A stack of One Dollar Bills totaling the current national debt cap of 10.6 trillion dollars would go around the equator 28.93 times. The proposed cap of 11.3 trillion dollars would go around 30.85 times.

Is creating a debt that is the equivalent of a stack of One Dollar Bills rounding planet 31 times a responsible act?