Sunday, August 12, 2007

More bad housing news — defaults getting repoed faster than they can be resold

The result will likely be a downward push in the price of existing homes:

Major lenders are repossessing homes in Southern California much faster than they can sell them, a development that could set off a downward spiral of price cuts and more foreclosures.

At some point — maybe this fall, maybe in 2008 — the lenders’ inventories will grow so large that they will have no choice but to start aggressively cutting prices, many agents and analysts predict.

That, in turn, will put more pressure on individual sellers, who will have to reduce their own prices if they want to find a buyer.

As values fall, more people could lose their homes, which would swell the lenders’ inventories anew.

One thing the LAT story misses is that, if house prices slide enough, all of a sudden, local school districts, cities and counties face budget crunches. That’s the story that hasn’t yet been covered; at some point, local elected officials will have to start making some tough budget decisions.

“Watching Those We Choose” is focused at the federal level, then the state level, of course. But major cities have vast budgets of their own to deal with, and provide many day-to-day services immediately visible to their residents. I have seen what happens when a city has to cut its budget; after the initial layoffs, just like at a private business, a climate of fear sets in, and other people start going to other jobs on their own.