The quickest way to clear the inventory of unsold homes is to let prices fall to the market clearing level. If the goal is to get through this as quickly as possible, we shouldn’t do anything that props up prices. That will just extend the time it takes to reach the point where builders can put construction workers back to building houses.
Here’s some evidence that the market is working to do just what we want (via Market Watch):
LOMBARD, Ill. (MarketWatch) — Voices shout dollar amounts across the packed hotel ballroom until the bids stop flowing, the hammer falls and the auctioneer cries, “Sold!”
Backed by applause and the sounds of a live rock band playing “Money (That’s What I Want),” the winner marches through the crowd to claim his prize — the $416,000, three-bedroom condominium unit he’s just bought for $260,000. At the back of the room, a bartender stands poised to serve customers drinks during a brief intermission.
Not your typical home-buying scene.
Yet the bidder moving to the front of the room just became the pending owner of a newly built condo unit in the Chicago suburb of Lombard. The price established, he now had to sign a contract after selecting one of the available apartments.
This happened 18 times on a recent Sunday afternoon, as a crowd of more than 100 competed for the right to buy condominium units that until recently had been languishing on the local market.
At their original listing prices between about $330,000 and $416,000, only nine or 10 units in the building had sold, said Steven Baumann, chief executive of Westar Properties, the firm that organized the auction. But with starting bids between $125,000 and $150,000, these homes suddenly became more interesting to a variety of people.
This developer sold $3 million worth of condos at one auction and while that is probably a lot less than he expected to get when he built them, it’s better than them sitting empty. It’s also probably a bit distressing for those who paid the list price, but they will benefit as well. At least they’ll have neighbors who will pay maintenance fees.
Does this mean we’re near a housing bottom? Probably not; supply is still at roughly 11 months at the current sales pace and we need to get to around 6 months to get back to normal. How quickly will we get there? That depends entirely on the pace of sales and that depends on prices. If the government does anything that keeps prices higher than the market price, it will take longer.