A couple of observations: 1. Americans procrastinate, and 2. the danse macabre that has gone on between Wall Street and Capitol Hill policy-makers must stop, if for no other reason than this. Their ludicrous performance is another reason for Americans to procrastinate.
Washington needs to do one thing loud and clear right now in its mission to improve America's jobs outlook, and home builders and developers would do well to demand it from anybody in Washington who seriously plans to keep his or her job after early November.
No more stimulus programs that contain federal tax credit programs for home buyers. Over. Done.
Especially now that financial regulation reform is about to go live, it is precisely the moment for housing's industry leaders to insist that Congress, the administration, and the Fed pipe down and allow the private sector to resume work to clear residential real estate values via the efficiency of market forces.
Author and behavioral economist Dan Ariely discusses procrastination at length in his work. Our human and cultural nature seems to predispose us to need deadlines to act, including in such important decisions as buying a home.
Clearly, after two administrations' housing stimulus policies and the better part of three years of witnessing their impact, here's what we can best tell about where those programs have left us.
- Stimulating demand has--in combination with reduced home building activity--accelerated the reduction of the surplus of new homes. This is positive.
- By the same token, stimulus--in combination with bank bailouts and NOL carryback extensions--stalled real estate markets from behaving as they should have.
- Also, by changing, extending, and expanding the inclusiveness of the home buyer tax credits a number of times, potential home buyers have begun to think that if they go ahead and buy a home with no handout from Uncle Sam, they'll look like a fool when a few months later, Congress passes another round of tax credits they could have qualified for.
After all this, we're left with the exact opposite of pulling buyers forward. Home buyers are confused. They might buy now, but what if Congress concocts yet another tax credit, amounting to thousands of dollars in a handout on a purchase later in the year or next year. Expectation that the "Lost Our Lease Clearance!" sale signs will be plastered across the storefront windows over and over and over again has fed into Americans' habit of procrastination.
What's more, policy--since 2008 at least--has become a genuine barometer of officialized fear. The more policy, the more grim the indications are with respect to the focus of that policy. So we've come to connect policy with "holy moly, things are really much worse than we even knew, so we should probably just sit tight."
Industry leaders should unify and raise their voices in a clear call to action for Capitol Hill and the federal government agencies. That action is simply and forcefully to assert their confidence that the market may be far from strong, but it's strong enough to stand on its own two feet and work as it should.
We only need to look back at how quickly, how badly things went from 2007 to 2008 to 2009 to begin to sense confidence that that kind of devastating destabilization has run its course.
But right now, as Americans procrastinate, the American domestic economic outlook dims. A sequence of events negative to property values, residential investment, consumer spending, corporate earnings, small business viability, and, ultimately, economic recovery goes into motion.
Why are Americans procrastinating now? Home mortgage rates, with a 4.6- handle on an 80% loan-to-value loan, are historically low. No, we mean historically historically low. Prices on new homes, a smidge over $200K median, are low too, especially for what you get in a new home these days.
Now too, supply--especially of new homes--is trending toward scarcity, an unheard of phenomenon for the better part of five years or so.
Let the battle of the theorists and economists rage on as to whether austerity or more stimulus is a better route with respect to influencing the direction of the GDP and its ability to create domestic jobs and ratchet down unemployment.
A third of the way through an earnings season that had been anticipated to be fraught with doubt, uncertainty, and diminishing returns, we've seen resilience in materials with companies like Alcoa, in technology with Intel, and in financial services with JPMorgan.
We're also seeing signs of stabilization and resolve in some of the more worrisome Eurozone states, and calmer heads are now prevailing, essentially as heads of those states do one thing: express confidence by piping down.
Global demand will continue to be a bright spot if not the juggernaut it's been; but it won't redound to enough significant effect in our domestic jobs situation.
Focus needs to be on American jobs. If both Wall Street and Capitol Hill would do what they're supposed to do on job creation and stop their death dance, local market economies would begin to improve.
An issue we don't hear much about is the number of industry sectors that are passing through both cyclical and structural secular shifts in demand.
America became the pilot nation for a society that shifted supply and demand dynamics from what people need to what they want. The economics of meeting needs were subsumed by the algorithmically more glorious economics of meeting people's wants.
We called that our quality of life, which is relatively high if not the highest among nations.
After the insanity, the price tag in real dollars, the capacity, and the demand for what we want are in question. How many things, beyond what we absolutely need, can we afford these days as we deleverage our household balance sheets?
As home builders and developers, the task will be to persuade a procrastinator to stop doing that. You'll want some help from the government though, which would come in the form of a clear, simple statement that no more home buyer tax credits are in the pipeline.
