Maybe falling home sales aren’t a bad thing for the economy

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According to data released earlier this week, home prices fell by as much as five percent across the country in the month of July, and existing home sales fell 27%. Open your local paper or flip on “Good Morning America,” and the experts will tell you that the data coming from the real estate sector is bleak news. Terrible, horrible, no good, very bad news.

Falling home prices “would certainly help to hold back the recovery,” economist Paul Dales of Capital Economics told the Wall Street Journal. “You end up in a home-price-depreciation death spiral,” chimed in Amherst Securities Group’s Laurie Goodman.

In other words, according to the experts, slow housing sales are a bad thing, cheaper housing could be even worse.

Jim Klinge, America’s most realistic realtor, begs to differ.

“There’s a rampant brush of ignorance going around,” Klinge told The Daily Caller from his home base in northern San Diego. “The current sellers are priced higher than they should be; higher than they were in April.”

Klinge has been selling homes in California since the early 1990s, and is famous among California real estate types for his video series, “Jim the Realtor,” in which Klinge videotapes the crazier aspects of selling houses in the wake of the mortgage crisis.

“The mainstream media is addicted to spewing the most negative spin on everything that happens,” he said.

Here’s Klinge’s take: The bubble may have burst, but sellers and banks are acting like it’s 2006.

“There’s no shortage of buyers today,” he said. But selling a home in 2010 means facing facts: The first time buyer’s tax credit ($8,000) and the repeat home buyers tax credit ($6,500), which were much touted by the White House, and the hair-pulling perpetuated by easily shocked reporters, are simply signs that the country hasn’t adjusted to the post-bubble reality. America’s homes were never actually worth what easy credit and rabid consumerism led us to believe.

“Anybody who puts their house on the market today, for 5-10% less than other people are putting their home for, they’re going to find a buyer,” Klinge said. “Most sellers are 10-20% above where they should be.”

Klinge isn’t alone in his assessment. “Nobody out there complains when the price of gasoline goes down, the price of a computer goes down, or the price of a car goes down,” said Tim Cavanaugh of the Reason Foundation. “Why are we worried when the price of a house goes down?”

The simple answer is that high prices mean homeowners are less likely to default. In turn, this means fewer foreclosures for banks and higher commissions for realtors.

But this kind of wishful thinking could have long-term consequences, Cavanaugh said. “You could see a second bubble where houses don’t return to 2006 prices — so you get houses up to 75% of what they were in 2006 and we find that the market can’t even bear this much.”

Shorter version: For-sale signs on every block and not a buyer in sight.

Congress and federal officials think this scenario demands tax credits and stricter rules regarding the foreclosure process. Klinge says the glut of for-sale homes calls for just the opposite.
,“We don’t need more intervention. We have four-and-a-half percent mortgage rates. We don’t need it,” Klinge said. “Foreclose on everybody, give me something to sell, and get out of my way. It would be a fire sale.”

Klinge’s enthusiasm has its downside. According to Cavanaugh, “If you see another 25% drop in house prices, you’re going to see a lot more underwater people defaulting.” But that’s not necessarily a bad thing. “Foreclosure is absolutely a legitimate way to conclude a business deal that has gone bad for both parties,” he said.

“All the social harms or externalities or ‘impact on the neighborhood’ you hear about? That is all straightup bullshit,” he continued. “Crime rates are lower than they were at the start of the crisis, there is no evidence that houses priced at market-clearing levels are failing to sell, [and] the army of zombie squatters has not materialized. Neighborhoods are managing to ‘heal’ just fine.”

The smartest way to use tax dollars, added Cavanaugh, “would be to encourage both banks and borrowers to wrap up the foreclosure process as quickly as possible. Right now banks are failing to foreclose on defaults because they don’t want to deal with the expense of putting the house back on market and take the loss when it sells at a low price.”

At that point, realtors like Klinge would do what they do best. “I think it’s mostly because I was around in the 90s that I remember what to do when this happens,” the brash Sand Diego realtor said. “You got to lower your price. Most people got into this business in the last 10 years when it was gravy, and what you get is an entire industry of people who have no idea how to sell houses.”

And how exactly would he do that?

“I have a great rule of thumb,” Klinge said. “if people are coming around making offers, the price is about right. If people are coming around, but not making offers, your price is wrong by about 5-10%. If nobody’s coming around, you’re off by more than 10%.”

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