Forty Million Houses in the US That No One Needs?

[mick silver]

Forty Million Houses in the US That No One Needs?Monday, June 25, 2012 – by Staff Report
http://gold-silver.us/images/library/bubble150.jpg


40 million houses too many ... one explanation for falling prices ... America has too many big houses – 40 million, to be exact – because consumers are shifting preferences to condos, apartments and small homes, experts told the New Partners for Smart Growth Thursday, holding its 11th annual conference in San Diego through Sunday. Relying on developers' surveys, Chris Nelson, who heads the Metropolitan Research Center at the University of Utah, said 43 percent of Americans prefer traditional big, suburban homes but the rest don't. "That means we are out of balance in terms of where the market is right now, let alone trending toward the future," he said. He estimated that this demand suggests a need for 10 million more attached homes and 30 million more small homes on 4,000-square-foot lots or less. By contrast, demand for large-lot homes is 40 million less than currently available. "Is it any wonder that suburban homes are plummeting in price, because there is far less demand of those homes than in the past," he said. – UT San Diego
Dominant Social Theme: Another day, another market failure.
Free-Market Analysis: This article originally appeared in early February but is still being picked up around the web – and it certainly provides us with a shocking observation.
In fact, it is worth commenting on here because it is a kind of dominant social theme (javascript:showWindow(500,800,'/floatWindow.cfm?id=652');): Market failure provides us with these kinds of distortions. They are worth mentioning in passing but nothing can be done about them because that's the way the world works, or maybe not ...
In fact, if you multiply 40 million houses by about US$ 250,000 (the approximate average of US home prices in 2011, per US Census figures) you end up with a fairly frightening number – in the area of multiple trillions. About US$ 10 trillion, to be exact.
But McMansions are not ordinary houses. They're supersized with 3,000 to 4,000 feet of living space. And during the boom years of the mid-2000s many sold for upwards of US$ 500,000, especially on the East and West Coast. Add up the figures and that's a whopping US$ 20 trillion not US$ 10 trillion (bad enough).
That's right. Wipe US$ 20 trillion or so off the gross national product, which is somewhere in the area of US$ 12 trillion per year and you're looking at a serious market impact. Twenty trillion is no one's "small change." Here's some more from the article:
Shyam Kannan, director of the economic development practice at the Robert Charles Lesser & Co. consulting firm, said his company made its money in recent decades in advising builders of suburban master-planned communities. But that emphasis is shifting with consumer patterns.
"Many master-plan developers realize golf courses are dead and the town center is in, and they're working as hard as they can to deliver it," he said. "Unfortunately, they're bumping up against entitlement problems on the public side more often than not... We need to push public policy to keep up with the builders."
Joe Molinaro, who heads the smart growth program at the National Association of Realtors, shared the results of 2004 and 2011 consumer surveys to explain why preferences are changing.
Factors include a desire for shorter commutes, walkable neighborhoods, economic considerations and, in the case of Generations X and Y, born between 1965 and 2000, they want the non-car mobility they did not get as youngsters.
"Having the freedom not to be tied down to a vehicle all the time is a big plus to that generation," Molinaro said.
"Smart growth," loosely defined as nonsprawling developments that minimize distances, maximize public infrastructure investment returns and promote environmental sustainability, has been a buzzword in planning circles since the 1990s.
You see how matter-of-factly this disaster is being treated? We are simply supposed to accept that the market itself misjudged US$ 10-20 trillion worth of houses.
Of course, those who subscribe to Austrian economics (javascript:showWindow(500,800,'/floatWindow.cfm?id=1918');) have a different perspective. The theory of the business cycle (javascript:showWindow(500,800,'/floatWindow.cfm?id=634');) market distortion starts with the overprinting of money and ends with greatly distorted economies.
But now we have a number – a helluva large number. It certainly puts things in perspective. When we speak of monopoly fiat distorting the economy it sometimes seems removed from reality. But US$ 10 - $ 20 trillion provides us with a fairly succinct viewpoint. An economy that has to write off this kind of figure is an economy that is not going to see "recovery" for a while.
Now, we should also point out that this number comes from a "smart growth" conference that attracts public planning types that would be biased against McMansions for a number of reasons, starting with the idea of "ostentatious consumerism."
Sometimes it seems public planning types won't be satisfied until everybody is sitting in cardboard boxes, shivering in the dark. Still, we've read enough articles about this sort of housing to know a goodly percentage probably was either marked down or destroyed.
At the top of the boom, houses were built too far from cities and the combination of taxes and costly gas made such developments unrealistic. Developers were blinded by dollar signs ... the kind of easy money that was pouring off Fed (javascript:showWindow(500,800,'/floatWindow.cfm?id=1855');)printing presses and circulating with considerable velocity.
But all that is changed now. Money is not circulating and houses in the US (and Europe, too) are not selling quickly or at top price. Many are still not selling at any price.
You would think the money men in charge of the expansion of currency would have learned their lesson. Not at all. Ben Bernanke (javascript:showWindow(500,800,'/floatWindow.cfm?id=2008');) has been printing money day and night ... and weekends, too. Congress is obviously on board as well, as the Fed can't print without congressional approval.
The same over-printing of money that caused this incredible waste is still ongoing. In fact, it is seen by the powers-that-be as the solution to the current economic crisis.
Conclusion: It is NOT the solution. It's the problem.

[slowbell]

Could it be the only thing keeping another housing collapse is the fact that all these banks are sitting on most of the foreclosures, and not letting the price fall down enough for your average working person to afford them. That is what seems to be happening here. Add to that, any houses that are allowed to be sold cheap, are now being grabbed up by investment groups, who turn around and flip them for a profit.

This is where a true collapse in the market would be a good thing. It would hit the banks hard, and your average person could actually afford to buy a home.

[madfranks]

It's really quite simple once you understand the distortive effects of government meddling in the housing market. When gov't artificially lowers interest rates to attract more home buyers than the actual market can sustain, more people will buy homes and more people will build homes than would have occurred if the gov't let the market work. This distortion was forced back to reality as millions of people who never could afford homes couldn't pay for their homes, and the artificial demand for homes disappeared, lowering home prices. The only reason there are 40 million homes too many on the market is because the gov't instituted policies that encouraged overbuilding.

[slowbell]

It's really quite simple once you understand the distortive effects of government meddling in the housing market. When gov't artificially lowers interest rates to attract more home buyers than the actual market can sustain, more people will buy homes and more people will build homes than would have occurred if the gov't let the market work. This distortion was forced back to reality as millions of people who never could afford homes couldn't pay for their homes, and the artificial demand for homes disappeared, lowering home prices. The only reason there are 40 million homes too many on the market is because the gov't instituted policies that encouraged overbuilding.

So, what happens next? What's the fix for this situation?

I've always thought that the price of homes in a given area should be a direct factor of the average person's salary in that area. For example, say the average person makes 50K a year. The average home should be about 3 times that, 150K. That's affordable and creates a healthy housing situation.

Peter Schiff once said that these houses are already paid for. The labor to build them has been paid, the materials, etc. So now, there's all these vacant homes that really cost nothing, because they've already been paid for.

[Skirnir_]

I've always thought that the price of homes in a given area should be a direct factor of the average person's salary in that area. For example, say the average person makes 50K a year. The average home should be about 3 times that, 150K. That's affordable and creates a healthy housing situation.

Everything is worth what the buyer will pay for it.

[slowbell]

Everything is worth what the buyer will pay for it.

Ideally, yes. However the buyer obviously can't pay for it....hence, why all these homes are stuck in foreclosure and vacant. People can't pay for it, that's the big problem. This whole article is about 40 million vacant homes that people can't pay for.

[Skirnir_]

Ideally, yes. However the buyer obviously can't pay for it....hence, why all these homes are stuck in foreclosure and vacant. People can't pay for it, that's the big problem. This whole article is about 40 million vacant homes that people can't pay for.

If the seller doesn't want to sell, that's their business; they are under no obligation to do so.

[FreeEnergy]

When we speak of monopoly fiat distorting the economy it sometimes seems removed from reality. But US$ 10 - $ 20 trillion provides us with a fairly succinct viewpoint. An economy that has to write off this kind of figure is an economy that is not going to see "recovery" for a while.


WHO needs to write what off? is this on the balance of the GOV? Why?


So, what happens next? What's the fix for this situation?

I've always thought that the price of homes in a given area should be a direct factor of the average person's salary in that area. For example, say the average person makes 50K a year. The average home should be about 3 times that, 150K. That's affordable and creates a healthy housing situation.

Peter Schiff once said that these houses are already paid for. The labor to build them has been paid, the materials, etc. So now, there's all these vacant homes that really cost nothing, because they've already been paid for.

IMHO what Peter Schiff said. These houses are paid for and built as far as labor and materials cost. THe only thing that may be on them would be paper, financial paper.

If tomorrow you bulldoze all these 40 million homes, what happens? Answer me (and yourselves).



What happens, is most likely some banks go bankrupt. Good riddance.
Some clueless municipalities and big money pools may also be affected, well that's an investment into phantom assets, tough luck, cut the police pensions from $80K to $50K or some number that makes sense.

[beefsteak]

I recall from my earlier, classical training that the ramping up house building sector and ramping up the war machine are basically the 2 quick fixes in economic downturns.

I also recall back in the early 80s when the military were finally counted as part of the "employed" for statistical purposes by the BLS.

We are informed the US has military personnel in significant numbers in 147 of the 165-ish nations around the world. However, with the birth/death rate of viable pools of future conscriptable males severely diminished since the 1980s...

....and the "comps rigging" by corrupt RE appraisers coupled with
"you fog a mirror? YOU get a mortgage",

...well, Peter Schiff is right, once again.

The old "blood, sweat, tears" mantra comes to mind....

The war mongering ramp has most definitely provided the blood,
the labor pool for a quick economic booster shot ramp provided the sweat,
....and now, yours truly belives we're in the tears economic phase.


beefsteak

[beefsteak]

....tough luck, cut the police pensions from $80K to $50K or some number that makes sense.


You at the head of the "here, reduce my pension" line? I understand it's really a short one.

Oh, that's right...you don't even live here by your own prior proud admissions on this forum.

You have no skin in the American RE market...

Jis' sayin'.....


beefsteak

[FreeEnergy]

beefsteak, I live here and own RE. I also have 401K which I don't count on anymore, and I have paid years of Social Security that I am not counting on anymore either.


I've been around a few countries. I also have lived through a crisis or two, and have seen an RE collapse in one country (no skin in that one).
Once RE is paid for , it is the most stable investment, unless of course it is built somewhere where it is not needed.


I think that eventually you'll see a re-collapsing of population closer and closer to the cities, as that's were activity, food, gas and jobs are going to be. Hence you are going to see lots of empty RE in the far suburbia, and also lots of dying malls (which is already happened). Since lots of it is privately owned, owners will just go bankrupt (if being let to), which is mentioned in the OP's article:


At the top of the boom, houses were built too far from cities and the combination of taxes and costly gas made such developments unrealistic.



The same over-printing of money that caused this incredible waste is still ongoing. In fact, it is seen by the powers-that-be as the solution to the current economic crisis.
Conclusion: It is NOT the solution. It's the problem.

I don't think the article author understands the problem. Overprinting is required. If you want to please all parties involved (i.e. don't let RE prices collapse, keep the same salaries , pensions and mortgage payments to banksters, etc.) the only way out of a problem is to inflate money supply, i.e. mad over-printing. Which is what the "Feds" are doing.


Unless, of course, you want to drop the banks and the FED, and do some sort of mortgage abatement. But this gov has no balls to do it.

[Cebu_4_2]

40 million vacant houses because no one can get a loan. If you get foreclosed on say... while working on a re-mod tough shit, no mortgage for you for 7 years! No loans... even though the bank will still own that house and they wont let you buy it. It sits, look around on Zillo there are hundreds of houses withing 5 miles of me that are selling for 1/2 the estimated value yet no one can get a loan to buy them. I think the housing market has not even gone half way to where it bottoms.

[madfranks]

So, what happens next? What's the fix for this situation?

I've always thought that the price of homes in a given area should be a direct factor of the average person's salary in that area. For example, say the average person makes 50K a year. The average home should be about 3 times that, 150K. That's affordable and creates a healthy housing situation.

Peter Schiff once said that these houses are already paid for. The labor to build them has been paid, the materials, etc. So now, there's all these vacant homes that really cost nothing, because they've already been paid for.

The whole housing market could be settled, all those homes sold, but here's the kicker: at some price. I don't know what the price is, but I certainly know it's much less than those holding the notes to the homes are willing to sell them for. So as long as the holders of the notes don't want to sell them at their open market value, they'll stay vacant. If a national auction were held to sell off all the homes and everyone was able to bid on them, they'd all sell, but 40 million homes selling for bargain prices would bring the nominal value of the rest of the occupied homes down drastically.

[FreeEnergy]

Noone can get a loan why?

Because everyone who could and was ABLE to pay for it already did. There's only so many people who can afford a $400,000 house, period. Doesn't matter if one builds 40 million more of them, there just isn't enough buyers.

IMHO it is even worse, because there are lots of people who didn't really want a house but it was all oh so bubbly, or just plain regret purchasing one. So there's a group of people who wants to get out and can't.

I agree , we haven't seen half the bottom.

[Silver Rocket Bitches!]

If you ask the average sheep they will tell you that "now is the time to buy." What they fail to realize is that the shadow inventory being kept off the books of every mortgage provider could crash the market in an instant. They are attempting to manipulate the perspective of the people and create a false bottom that will draw people in. They just lowered mortgage rates again today. They will stop at nothing to keep this shell game going.

[Skirnir_]

What has not been mentioned are the myriads of laws regulating the construction of houses, adding untold thousands to the cost. How convenient that this must be borrowed. I will never own a house, at least not in this country; I would rather sleep in a tent.

[beefsteak]

beefsteak, I live here and own RE. I also have 401K which I don't count on anymore, and I have paid years of Social Security that I am not counting on anymore either.


You'll have to excuse my confusion, F.E., as your recent postings since you re-emerged lately, seems to indicate an allotment of resentment and irritation at this America of mine.

Allow me?


http://gold-silver.us/forum/showthread.php?62168-yet-another-reason-to-check-the-labels-when-you-buy-groceries&p=556605&viewfull=1#post556605
Ok, explain to my non-american ignorance why would you want to buy canned food.


================================================== ====



What strikes me as a bit odd is that you guys think that in event of serious SHTF you are going to survive on your own.
That's a typical american individualistic attitude.
http://gold-silver.us/forum/showthread.php?62168-yet-another-reason-to-check-the-labels-when-you-buy-groceries&p=556707&viewfull=1#post556707

========================================
then there's this one.....



http://gold-silver.us/forum/showthread.php?62148-Romney-CAUGHT-CHEATING-Campaign-Over-Paul-vs-Obama&p=556312&viewfull=1#post556312
With Obamney twins, this* country is going square to the shitter.

not "my country," nor "our country"


===================

Then you slip in this one? ? ? ?

http://gold-silver.us/forum/showthread.php?62168-yet-another-reason-to-check-the-labels-when-you-buy-groceries&p=556707&viewfull=1#post556707
My two next door neighboors - one is a retired policeman

================
Does your policeman/neighbor know that you value your pension/401K-S/S entitlements more than you value HIS earned public service pension--which according to you should be reduced from $80K to $50K--to make things all 'bedder in your current country of residence as a NON-American? ? ?

Why are you criticizing us, and benefitting from all we as your host, have to offer, and then begrude other American's their hard earned pensions who in this instance of your specific attention/reference to above, had the unenviable job as a policeman and lived long enough to receive his pension?

Again,
yours truly reminds you of the outstanding rhetorical question yours truly posed earlier...

ARE YOU standing at the head of the SHORT LINE of voluntarily reducing your visitor pension in order to address the overbuilding glut in this nation you are "parked in" regardless of how long you've parked here/mooched off the American Tit....

By your own multiple admissions, America is a geographical residence choice you've made that has obviously been very good to you and hasn't imprisoned you for your displayed bad manners vis a vis your most recent badmouthing of those of us born and raised here and what WE'RE working with currently, and WE inherited from our ancestors and their bad political/economic choices which we've perpetuated?

Again, you have NO PIGSKIN in this game...all I'm hearing is just pig squeal.


offended American beefsteak

[beefsteak]

madfranks,
you of course are spot on with your "price will clear the market" observation.

I must confess that one of my concerns and immediate thought/responses was concern that part of the solution is what Detroit central planners have implemented...
...bulldozing and shutting off street lighting in order to hasten neighborhood demise so that great swaths of lower priced (outlier) homes can be bulldozed.

I had to do a double take when I read one of the thread posters posit that $50K income should qualify one for a 3x annual for housing price point maximum, and that could be part of the solution to this overbuild situation.

2 thoughts came to mind:
1) 30 Fixed will guarantee the mortgage holder will pay in neighborhood of $450K in those 30 years, PLUS TAXES AND MAINTENANCE...

2) Helen and I went the other way...we took our annual income 10 years ago, and divided it by 3 and when shopping for THAT price point, and found it. A fixer upper, paid off in 6 years. And in 10 years, we've only spent $15K to get it like we want it...and we're STILL under our annual income, plus it's all paid for. :)

So there's another tack.

American solutions will come by incorporating several types of combined thinking as we pull together to solve this 40Mil housing overbuild problem.


beefsteak

[madfranks]

Noone can get a loan why?

Because everyone who could and was ABLE to pay for it already did. There's only so many people who can afford a $400,000 house, period. Doesn't matter if one builds 40 million more of them, there just isn't enough buyers.

There aren't enough buyers at that price. All the homes could and would be sold at the right price. If market forces were allowed to act instead of the horribly distorted system in place, supply and demand would be very neatly balanced.

[FreeEnergy]

You'll have to excuse my confusion

beef, no problemo. Don't get offended. I am not an american-born. I've lived outside US more than half of my life. But I do live in US now.

Does that explain my quotes?



Does your policeman/neighbor know that you value your pension/401K-S/S entitlements more than you value HIS earned public service pension--which according to you should be reduced from $80K to $50K--to make things all 'bedder in your current country of residence as a NON-American?

well, the one out of two neighbors you didn't mention is the guy who sold a business to retire, he's well off.

the policeman? i don't know. whenever I see him he schools me on something that I don't care enough to comment on. he also teaches in school and has his house paid off, so with a pension that almost full retiring salary, and a paycheck from school don't be in a doubt for a second that he's not better off than me. yeah, and indeed he lived to be 45 to retire. That was hard in all-white neighborhood.

But seriously, let's not look into the guy's pocket. THe reason I am bringing police up is that in a large city right next to me (beef: US city) police budget is THE largest expense they have. So to get their bloated bugdet straight, it is either to cut most expensive items, or extort more from taxpayers. Extort more is the name of the game, which you obviously somehow dislike me bringing up.


ARE YOU standing at the head of the SHORT LINE of voluntarily reducing your visitor pension in order to address the overbuilding glut in this nation

Did you read what I posted? Apparently not, because if you did, my future pension's in US Real Estate, 401K and (unfortunately) Social Security, which is being stolen by the government I did not elect (and neither did you).

Then again, why am I on the gold and silver forum? probably because not ALL of my future pension is exposed.


beef, don't get offended. That's a matter of speech.

[gunDriller]

the builders built houses - even when nobody needed houses.


it reminds me of a Korean start-up i worked at. one of the phycisists got a few $ Million from his Korean buddies, and announced to the world, "i'm going to make vacuum tube !"

like for radar, high power amplifiers.

of course, then he needed a VP of Engineering, etc. all the equipment for metallizing ceramics, etc.

i remember the Korean manufacturing manager spending the weekend driving his staff HARD to do a limited production run to make some high voltagte power supplies.

just one thing - the design hadn't been proven. come Monday morning, one of the Senior EE's walks and says, "we can't use those, that design doesn't work."


of course, in Startup-Land, where it is the venture capital $ that is being spent, a Korean production manager can earn serious brownie points by driving his team to build power supplies no one will ever use.

this sort of reminds me of the over-build that went on in the US with houses. the whole thing was based on the assumption that house prices would go up forever.

both cases of over-production to satisfy consumption/demand that was sort of like a mirage.

[Twisted Titan]

Everything is worth what the buyer will pay for it.

Until the Gubbermint tries to "fix it"

[beefsteak]

madfranks,
did you happen to catch this phrase in ZERO's offerings today, "borrower fatigue?" Wonder if it is a subset of "chronic fatigue......"



Everyone To Bank of America: "We Don't Want You Steenkin' Free Cash"

http://www.zerohedge.com/sites/default/files/pictures/picture-5.jpg (http://www.zerohedge.com/users/tyler-durden)
Submitted by Tyler Durden (http://www.zerohedge.com/users/tyler-durden) on 07/12/2012 14:54 -0400


The venerable Bank of America recently sent letters to 60,000 struggling homeowners with the caveat-ridden generous offer of slicing an average $150,000 off their loans; the response was - silence. It seems the total and utter 'borrower fatigue', as Bloomberg puts it (http://www.bloomberg.com/news/2012-07-11/bofa-give-away-has-few-takers-among-homeowners-mortgages.html), that leaves homeowners relying on the very same banks that committed loan servicing abuses to avert foreclosures. Yet another program, that BofA specifically accounts for almost half of the fines of, ends up helping far fewer people than intended. Simply put, borrowers have lost faith in the process.......

http://www.zerohedge.com/news/everyone-bank-america-we-dont-want-you-steenkin-free-cash

Borrower fatigue is cropping up in many places, not just in the mortgage market. Just think about the difficulty in convincing a couple generations of studen loan fatigued young folks who the bankers wish to entice into vaccinating with mortgage fatigue so that the game continues.....


beefsteak