Why The Housing Market Recovery Needs Time

The housing market recovery is not going to occur in the next few years, it is going to take longer before we see the kind of balance that we have come to expect as both property owners and as tenants. While there have been a slew of recent articles pointing to the loosening of lending standards as the "fix" that the market needs, the reality is that many things are needed, and time will be the cure to what ills real estate.

The problem in the housing market has many fronts, but the largest problem is not what many have been writing about in the large US newspapers. Most are blaming a tightened money supply and tougher lending standards, but that is only adding fuel to the fire of the real problem in the housing market. When we look back at the tax credit, all the government stimulus did was motivate “future” first time homebuyers to enter the market to receive $8,000 towards the purchase of a home.

These “future” first time homebuyers of yesterday would have been the “present” first time homebuyers of today. That means our current housing market must rely on current homeowners to account for an even higher percentage of the home sales in the “present.” And this is the real problem with housing.

Many homeowners have no equity and many are upside down in their homes, unable to first make the sale that will let them become buyers. Our current buyers have no ability to sell first, so where will all the buyers come from that are needed to restore the balance in the markets.

Consumption And Use Are Necessary Components To Housing Recovery

Some people believe that investors will be the solution. As values decline, investors will swoop in and "steal" homes at incredibly low values. While this certainly will be occurring, how does that have any affect on the glut of vacant properties that our market is struggling to support? A vacant rental unit owned by "Jones" will become a vacant rental unit owned by "Smith," but how has that changed the supply and demand dynamic?

This misunderstanding is common, and it is the very reason why the homebuyer tax credit failed to do anything but "prop up" the market for an additional year. Converting tenants to owners does nothing to change the occupancy in a market. Every tenant who buys a home in which to live merely changes a vacant "for sale" home to a vacant "for rent" home. The market needs new consumers.

Looking Back To Warren Buffett's Assessment On Housing

A year ago I wrote a summary of Warren Buffett's fix for housing. Here we are a year later, and his sage tips for fixing the housing market still appear to be on point. Here is my interpretation of what Mr. Buffett has advised as the three potential cures for the housing market.

1. We could burn down the excess inventory of homes and create an instant balance in the market. While this might not seem realistic, I suspect the US government would have spent a lot less money on the recovery if it bought the cheapest 1.5M homes in the US and had them destroyed.
2. We could encourage teenagers to move out of their parents homes and live on their own (tongue in cheek) as this would create an instant new breed of home buyers or tenants.
3. We could stop building until our natural growth allows for the consumption of housing units. This is the most realistic solution, but unfortunately our government is looking for ways to stimulate the construction industries as they represent such a large portion of our economy.

So it appears that a combination of points 1. and 3. are the only realistic solutions that we can muster. They can be simply identified as "time." Time will allow population growth to create a larger demand for housing. Time will require the demolition of old and unusable structures. Time will heal the housing market.