Lower priceswill help recovery

BY JOE ADAMAITIS

Columnist

Are lower home prices really that bad?

OK, before you all start writing the “hate letters,” give me about five minutes to explain my question. Each day, each week, each month we read a variety of articles that say one of the following: “Prices are falling, prices are stabilizing, or prices are going up.” Each time we receive one of these ever-changing messages, a segment of the population goes into a sort of housing epileptic fit.

Those affected with each housing update consist of people who purchased homes after 2003 who are under water by 20 to 40 percent, depending on the area. We then have those who purchased prior to 2001 who watched their opportunity to cash in on the bubble vanish. Next are those who are ecstatic first-time homebuyers who now see the bottom of the market and an opportunity to receive a huge tax refund while obtaining their dream. Let’s also not forget those “vulture investors” who have cash to burn as they buy and fix up all the prime real estate at rock bottom prices.

Lastly, we have the professionals who earn a living at buying and selling real estate. Realtors and mortgage professionals would do anything to have the market return to normalcy — and, of course, higher prices! All told, a vast group of people are affected by the worst housing crisis in history, which now brings us back to my original thought: whether lower prices are really all that bad.

Let’s consider what many do not consider when they say, “We need prices to go up.” First and foremost is the supply and demand issue. What many fail to discuss is the ever-shrinking “pool of eligible buyers.” A close look would show that due to tightened lending, unemployment, bankruptcy, foreclosure and the looming credit card bubble, this pool of valuable people will shrink by astronomical numbers over the next few years. This factor is the key to any housing recovery. Yes, there will always be cash buyers, but how many are left out there? And they’re purchasing the low end of the market.

We also need to consider the number of homes in inventory. Florida has been designated as “overbuilt” since this debacle began. Sellers must begin to ask the hard questions: How many buyers from up north have lost their jobs, their 401-ks and their homes. How can we depend on buyers if we increase our housing costs to unsustainable highs? Taxes, insurance are not exactly cheap. In essence, how many buyers can afford the $300,000 to $600,000 homes that dominate the area?

What if prices actually fell back to pre-2000 prices when Florida housing was more affordable? How many buyers would reappear with smaller down payments and how fast would our recovery begin? Naturally, this analysis begs the question of why banks are not seeing the same logic and reducing principal in some cases and accepting short sales on others in a more expeditious manner. After all, they did pretty well during the boom and did even better using the bailout monies.

Isn’t it time to reset the housing game and begin rebuilding our economy faster, rather than waiting it out for prices to increase and inventories to decrease? It’s time we all look in the mirror and begin recognizing the reality of our situation. When we still see per-square foot prices at $250, doesn’t this set off alarms to anyone? I do not see lower prices as a tough pill to swallow, but an opportunity to create jobs and resurgence in the Florida economy.

Joe Adamaitis, a registered mortgage broker, can be reached at (800) 700-2007.