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The continuing housing slump


According to a few new analyses, you can expect home prices to remain pretty depressed over the next few years.

The process that begins with a homeowner falling behind on payments and ends with someone else buying the house is long and slow. It includes going into foreclosure and then trying to negotiate out of foreclosure and then failing and then a legal process and all the rest. A lot of homes are in the early stages of that process now, and 5 million of them are estimated to come onto the market in a few years. But that will take years, and in that time existing housing stock will depress demand for new housing stock, and thus demand for all the economic activity associated with building a house.

As you can see in the Calculated Risk graph above (click on it for a larger version), the foreclosures are concentrated in Arizona, California, Florida and Nevada, and will particularly slow their recoveries. And Arizona, California, Florida and Nevada all have competitive -- or potentially competitive -- Senate elections this cycle. This isn't good news for the incumbents.

By Ezra Klein  |  February 16, 2010; 11:29 AM ET
Categories:  Housing Crisis  
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Very good (albeit sad) observaton here.

I have thought from the beginning that one of the worst aspects of the housing bubble (compared to something like the NASDAQ Internet start-up stock bubble) is how long it takes to fully unwind, and how many jobs in the construction and real estate sectors will be completely eliminated because of the enormous time required to fully bottom out and recover.

Posted by: Patrick_M | February 16, 2010 12:46 PM | Report abuse

Erza: I guess it's a slow news day. Of COURSE Arizona, California, Florida and Nevada are going to have depressed home prices. By a not-so-amazing co-incidence, these four states were in the forefront of real estate speculation, with the greatest run-ups.

And since the banks have no wish to SELL their repossessed foreclosed houses at a value less than the original selling price (since the banks would have to book a "loss"), AND since the banks have been bailed out of their greed-induced commission-driven mortgage writing frenzy by no-strings-attached TAXPAYER dollars, AND since the banks can pretend these foreclosed houses are somehow worth whatever they were selling for four years ago, there is no need to.

To give one example of the lunacy of these prices, in 2007 I saw an ad offering a crackhouse in a bad L.A. neighborhood for sale at $500,000. Obviously no one would live there who had $500,000 to throw around. The idea was to buy the house on borrowed money (no money down!) and sell it for more to another speculator. As long as real estate prices went up, up, up forever - it was a no brainer. Everybody made money, either on the commissions or paper equity.

The 2008 bailout just delayed the day of reckoning.

Posted by: shadowmagician | February 16, 2010 12:49 PM | Report abuse

When prices drop another 15 - 20 % to where they should be, things will get better.

Posted by: obrier2 | February 16, 2010 12:59 PM | Report abuse

Prices aren't "depressed" they're "returning to normal".

Posted by: toq999 | February 16, 2010 1:40 PM | Report abuse

Despite recent declines in home prices in many areas, including the Washington DC, San Francisco bay area, Los Angeles, New York city areas, etc., they are still way higher than they were ten years ago. Try finding a decent house in San Francisco or Berkeley for less than about $700,000.

Posted by: Aprogressiveindependent | February 16, 2010 1:50 PM | Report abuse

"This isn't good news for the incumbents."

Boo-freakin'-hoo. They'll still get their taxpayer funded pensions if they lose.

Posted by: NoVAHockey | February 16, 2010 2:00 PM | Report abuse

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