The Real Reason Housing Will Not Recover

You can’t find much in the paper, and forget online, about the true nature of the housing market. One month housing reads like it is coming out of the dumper and the next month you read reports that housing will not return to 2008 levels until 2020. Articles abound about why the housing market is in the tank from the Fed starting this whole debacle, which is true, to the mass of foreclosures flooding the market and driving down prices. These are all factors, but it is not what’s happening now.

As a residential builder and investor for more than thirty years I have another view of the housing mess. Government, and not for the reasons I have mentioned, does not want housing to recover and certainly not in the same “urban sprawl” way government and city planners have been fighting against for years.  Now is their “moment” to take control.  It’s the elitist view of the housing market and certainly this administration’s. The words that come to mind are McMansions are out and neo-traditional and european planning in. It’s the eastern establishment’s way of doing things.  Places where the average American owns a home are “fly over country” to them. 

What we are seeing is government control of the housing market. Have you tried to purchase a home lately? It is next to impossible, even with good credit. Down payments are large and burdensome and the bank’s requirements are for owner occupied homes only. You can forget about the residential investor who wants to build for investment. That market is now nonexistent. The FDIC and other regulators have told banks “you have too much real estate in your loan portfolio”.  Therefore the banks have to deny real estate loan requests, especially residential real estate, and call for additional pay-downs of exiting real estate loans.  

The main thing banks are interested in now is making it harder for the investor to meet loan requirements when mortgages come up for renewal on land deals. Forget about the investor’s sterling on-time payment history. The Lender’s rules have changed.  This is 2011 and the investor no longer has a say.  Banks are scraping off land developers and residential builders at huge personal losses, mind you, and taking residential communities back or foreclosing. Good for the bank’s bottom line on the property’s resale, but a destructive game changer for the property’s current owner.  Banks are consciously destroying this type of investing and investor even when the note holder is their best customer.

 Shelia Blair once mentioned, “skin in the game.”  But at what price and how much skin?