Minyan Mailbag: Home Is Where the Heart Is
Home is where the heart is... unfortunately.
Below are two emails I received this morning related to housing. I don't have much to add to their comments, but wanted to share their thoughts with the community because they present some thought-provoking ideas.
So two days ago, my mother-in-law closed on a senior condo – downsizing from her larger, more expensive, home in the 'burbs. Paid cash for the condo. I was telling her that I applauded her move, in the presence of my smart-alec assistant U.S. attorney (therefore expert in everything) sister in law. I whip out my go-to stat regarding the coming housing collapse: The Corolla, NC listings that I got from your column. (By the way – that page is better than a magic trick – I've impressed more people with that thing than my famous levitation illusion.) I was even prompted by my wife: "tell 'em about Corolla."
So sis-in-law, who grew up at Topsail Island, NC, offers that those numbers are completely ordinary for a beach resort town, and it's also always been the case in Topsail. I respectfully disagree and we move on. But, as you know, I will never move on from being called out in front of the in-laws. Here is the relevant quote from the May 15th 2006 local paper article:
TOPSAIL ISLAND - "The size of the MLS (Multiple Listing System) book is twice the size it usually is," said Richard Baker of Treasure Realty in Sneads Ferry. "The sales equation has doubled since a year ago in January. The numbers are there. We've got a surge of inventory, no question in my mind."
The point? Other than I am right and she is wrong and my wife refuses to let me call her on it so I have to tell you, practically a complete stranger? No…denial is the point. There is an incredible amount of denial among smart folks – even with the USA Today talking about the collapse.
Yesterday I wrote on the Buzz and Banter that if there is just one helpful thing the normal retail investor and saver could take away from Minyanville, I would hope that it would be that investments are not the same as savings. Well, I take that back. Instead, if there were one helpful thing that anyone could take away from Minyanville I would hope it would be the ability to win an argument against your brother-in-law or sister-in-law in front of your mother-in-law.
Can I try to grind down a little deeper on housing, the consumer and discretionary spending?
Minyanville has been upfront, early and often, with the pay more for what you need and less for what you want thesis. In economic language speak - the price of basic necessities are inelastic(I am not going to acquire one more ply of toilet paper than I need regardless of the price and I am going to buy what I need regardless of the price because there really is no adequate substitute) while the price of the discretionary items is more sensitive to demand, thus elastic.
The ramifications of this in the housing market are being reflected in the absolute crash of speculative real estate investing (there are just no bids on luxury McMansions, vacation homes and luxury condos) while at the same time price is being supported by the more inelastic portion of demand - the I need a place to live buyers, buyers buying necessity, and for what it's worth I believe that demand will be there as long as employment and interest rates are favorable, call it the Toll put - but it does have some historical basis in fact.
I think your comments as to consumer staples are analogous to this.
When the government/fed/bank regulators start to get concerned over housing, they will probably end up asking the wrong question and thus apply the wrong medicine - like increased loan standards and lower interest rates. While I think lower rates help, speculation is not what we should encourage, instead we need to increase access to affordable housing. It would be a sin that the greed of speculative flippers would lead, with our government's help, to a reduction in housing access to first time buyers. FHA/HUD, as well as most state funded housing authorities, have long had no-money-down loan programs - but they came with conditions, i.e. appraisals, inspections of property conditions and credit worthiness. We shouldn't eliminate these programs because others have greedily jumped in and abused them. It would sort of be like enacting a new harsh bankruptcy law just before a debt implosion.
Awesome job, day in day out...I know it ain't easy
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