Is it just me? Really?
Is it just me and my mental bruxism, or is something quite amiss with the bureaucratic thought process in Snohomish county?
I'm referring to an article published in the Snohomish Times that mentions a "Building and Development Economic Summit" hosted by Snohomish County Executive Aaron Reardon and the Master Builders Association. This summit presumably intendeds to revive an otherwise stagnant building industry - but doesn't exactly say how it will accomplish this.
The full article can be read here:
http://www.snohomishtimes.com/snohomishNEWS.cfm?inc=story&newsID=322
I'm referring to an article published in the Snohomish Times that mentions a "Building and Development Economic Summit" hosted by Snohomish County Executive Aaron Reardon and the Master Builders Association. This summit presumably intendeds to revive an otherwise stagnant building industry - but doesn't exactly say how it will accomplish this.
"We can't just wait for stimulus dollars from Washington, D.C.," Reardon said. "Jumpstarting the housing industry is one way to open other avenues of economic development in the Puget Sound."
"To get our economy back on track, it is critical that we address housing," Master Builders Association Executive Officer Sam Anderson said. "I welcome the opportunity the Economic Summit will provide to discuss much needed solutions for getting housing moving again and for stimulating our local economy with income, jobs and revenue."
Panelists from throughout the region will include Tom Parsons of Seattle Opus Northwest, Gary Bullington of Cushman & Wakefield, Morgan Llewellyn of Llewellyn Real Estate, Tom Hoban of Coast Real Estate Services, Patrick Mullen of Grubb & Ellis, Carol Nelson of Cascade Financial Corporation, Steve Erickson of Cascade Financial Corporation, Scott Strand of BECU, Lynn Eshleman of Pacific Ridge Homes, Mike Appleby of Chicago Title, Peter Orser of Quadrant Homes, Eric Campbell of Camwest and Nathan Gorton of the Snohomish County Camano Association of REALTORS.
The full article can be read here:
http://www.snohomishtimes.com/snohomishNEWS.cfm?inc=story&newsID=322
Comments
Just as the solution to my fruit tree example is to re-adjust water consumption need to fit the new reality of a lower water supply, a slow-down in building is a GOOD thing for the economy right now, which will begin the process of allowing a new equilibrium to be established. Unfortunately, too many people seem to be hoping that somehow we can re-ignite the bubble and spark excessive demand (i.e. speculation) once again.
I'm going to disagree here, but it's on a technicality.
The way I see it, the economy has no real future until housing prices stabilize. There are too many bad debts on too many books, and so long as those bad debts keep getting worse we won't see any form of economic recovery.
Now, most regular contributors here would agree that the way to fix housing is for a sudden and irrevocable collapse in the price. Rather than every house in the country losing 2% per month for the foreseeable future, it would be better if everything suddenly lost 30% and the logjam were unpacked.
The biggest problem out there is actually starting to be the invisible inventory. People aren't listing houses they really want or need to sell because they know they'd have to list for too low. They are still hoping things will turn around this summer or something. I think when those people move out of the denial stage, this crash will really truly pick up some steam.
The way I see it, the economy has no real future until housing prices stabilize. There are too many bad debts on too many books, and so long as those bad debts keep getting worse we won't see any form of economic recovery.
You are correct it's the debts. People selling for less than what is owed is coming to a halt. Lenders are holding the line on values. As long as that continues the prices will remain inflated.
So how many loans are out there at over value? Millions.
The lenders are dictating the market place as they have for the past ten years. The only solution is to stop generating new loans and pay off the debts that are already there.
Think of it as a game of chicken. Lenders thrive on new loans, new paper, new securities, new money. Lenders buy sell and trade paper. They borrow money, make loans, and trade the paper down to nothing so they can borrow more money to trade more paper. That's as simple as I can make that point.
When you stop generating loans and just pay what's owed you put the lender out of business. The lender is converted to an investor getting interest income only. That's not the lenders business any more than being a land lord is the lenders business. They trade and make money by trading.
If people just paid what is owed, no matter the cost, the lender will get tired, bored, restless, and then maybe, just maybe, they will be willing to make a deal.
What's actually best is if every one just paid when they felt like it, within reason. just enough to keep the property. They can sell to the next person with a wrap around or rent to own.
Having a bunch of badly performing assets would be torture, and what is the alternative for them? More foreclosures? Who's going to buy them and why would they?
This is exactly what has to change. The days where lenders could simply spin off the loans they underwrite are over. The entire financial system has yet to adjust to the new reality that lenders are only going to be able to make their money the hard way- by writing loans they hold to maturity. This isn't just some temporary occurance, but something that is going to last for decades to come.
The consequences of a return to traditional lending practices (i.e. where the lender actually holds the loan) dictates that there is just NO way asset prices can recover to the recent highs for a long long time. You can't make it on volume, it's all about scrupulously minimizing risk and accepting low profitability.
I've been thinking about this, and now wonder if there might be a reasonable bill in the making in there. E.g. it's a flawed system to allow lenders to entirely repackage away risk. What if every middleman in a pipeline like this were required to keep at least 20% of every loan they generate on their books. You keep the "financial innovation" (which I don't believe even exists) that everyone is so hyper about, but you also force lenders (and brokers) to account for some of the risk they are passing on.
It seems like a simple fix to me. What do you guys think?
It's quite irrelevant at this point. The private market for securitized mortgages is completely dead and won't come back for at least a decade. Any laws passed right now will likely be repealed decades from now when people start to think they are immune to downturns again.
The only securitized mortgage market that remains is for government backed loans (either through Fannie or Freddie, or with FHA insurance). However, these government securitizations have MUCH bigger issues than whether lenders keep some skin in the game. The real solution there is for the government to completely get out of mortgages altogether. The government just has too many conflicting interests (i.e. they want to increase lending and home-ownership at the same time they want prudent lending that minimizes risk).
No, it's not irrelevant. New laws won't solve this problem, but it's not unthinkable that they might prevent a few crisis before being stricken from the books in 70 years making it ripe for another crash. I plan on living for quite a while. If there are simple, straight-forward, fair, and wise laws we can create right now that mean we don't have a similar run-up and crash for 80 years instead of just 40 years from now, I'm interested.