My trusted local realtor, Cathy, presented me with the current conventional wisdom on the question, and answers ranged from extremely optimistic “presently” to extremely pessimistic “the year 2030”. Her answer raised in my mind a few other related questions, most notably, whether the market had yet “bottomed” and what “recovery” actually means. I also wondered about all the factors that would cause each process to occur.
The optimists say the market has already bottomed, and base that conclusion on scant recent data showing a recent up tick in sales activity and prices. Pessimists, however, are less sanguine and think it difficult if not impossible to call a market bottom so long as all the government tinkering with the markets through stimulus programs, such as buyer tax credits, residential loan buying programs, and bank bailouts, continues to gum up the free market clearing process. They think that banks sitting on foreclosed assets are also artificially propping up the market and keeping markets from achieving their true prices. Unless and until those temporary subsidies abate, and all the sellers actually finish selling, calling a market bottom and plotting a recovery trajectory will be premature at best. Eventually, however, even the pessimists believe a bottom will be reached.
Recovery means everything from a modest bounce off the bottom to a return to the all time price highs achieved in 2006. Short term recovery will depend on unemployment rates, currently at an all time high of 12+ percent, wealth levels that ebb and flow with a volatile stock market, and the availability and cost of mortgage financing. With all the talk of a possible double-dip recession, the stock market potentially re-testing March 2009 lows, mortgage interest rates reflecting more stringent underwriting criteria, and Fed interest rate hikes inevitable within the next year, the prospects for recovery seem to be fragile at best.
Longer term recovery will hinge on those factors and some others. Florida population growth has slowed significantly during the past several decades and will continue to slow. In addition, the Obama administration is determined to implement a big government agenda that is pushing public debt and deficits to astronomical levels, and could push interest rates, the US dollar, income taxes and inflation to their most unfavorable levels in ages. None of that will be good for the economy or real estate market recovery, with the possible exception that a weak US dollar may encourage more foreign investment in South Florida real estate.
What is the likely recovery scenario? South Florida’s sky high real estate prices in recent years were part of a national real estate bubble that was borne out of the extraordinary availability of cheap mortgage financing and irresponsibly lax mortgage underwriting standards. Some think those conditions and the extraordinary price level they created are gone forever, but most think they are unlikely to re-emerge for at least a generation. Price recovery to a level three to four times South Florida median income levels would be affordable and sustainable and is probably the most likely price recovery scenario. According to the South Florida residential real estate price index, current median home prices are in an affordable range now and may suggest that indeed a market bottom is imminent. Unfortunately, however, that index may also suggest that further price increases based on local economic dynamics will be slow and modest going forward. (The index shows that South Florida home prices in 2006 reached 170 percent of their year 2000 level, and that even after the dramatic decline in recent years prices are still nearly 50 percent higher than in the year 2000.) What would it take to reach that 2006 high price level? Answer: home price increases would need to average 3 percent yearly for the next two decades in order to reach by 2030 their all time 2006 high.
Friday, March 19, 2010
Wednesday, March 10, 2010
Healthcare Reform: Some is Better than None
The president and democrats have claimed repeatedly that some healthcare reform is better than none, yet they are on track to virtually guarantee that nothing will change in our healthcare system for the next few years. If Obamacare fails, the president and democrats will have no one to blame but themselves. After many debates and presentations designed to garner support, recent polls clearly show that the vast majority of Americans believe Obamacare will substantially add to our national deficit and debt, severely hamper economic growth, and most importantly, it will not improve the affordability or quality of healthcare for the average American.
The president and democrats appear to have backed themselves into a corner with few good options for advancing their vision for a new healthcare system. They can quit now days short of a congressional vote, a la President Clinton in the 1990s, and risk a repeat of democrats losing big in this year’s elections as they did in 1994. More likely, the president and democrat party leaders will pressure congressional democrats to support Obamacare by using draconian and desperate carrot and stick measures. If Obamacare fails, history tells us that democrats will still lose big next fall. If Obamacare passes, democrats may redeem themselves by November’s election, assuming they can dramatically change the voting public's emphatically negative opinion of the plan and the unsavory process that made it law. That would be a long shot at best. Either way, if democrats lose big in 2010's election, republicans will do everything possible to disrupt implementation of Obamacare, even if it becomes law. If republicans establish a majority in congress you can bet they will do their best to repeal it altogether. Either way, Obamacare is unlikely to become a sustainable viable plan for our healthcare system.
Wouldn’t it be better for the president, the democrats, and the nation, for the president to make a deal with republicans, and capitalize on the 80 percent agreement the president claims both parties have for his plan? Wouldn’t it be better for the president to pass that 80 percent, or whatever percentage a bipartisan group can agree upon, and get a resounding bipartisan endorsement for healthcare reform? The president and democrats could claim victory for long awaited healthcare reform, and have bipartisan support that would ensure its future political viability. It may also restore some of the public's faith in government and potentially create enough good will to encourage bipartisan cooperation for tackling other major problems, such as our faltering economy, and burgeoning debt and deficit. That approach would also give the president an opportunity to call the republicans bluff. If republicans don’t cooperate with such a truly bipartisan approach, then they will prove to be the party of “no.” Also, the president claims that republican congressional majorities have always and will continue to do nothing to reform healthcare, so shouldn’t he use his majorities to get something worthwhile done now?
The president has made it easy for his republican critics by giving them nothing to lose by opposing Obamacare. For example, the president’s refusal to make tort reform part of his plan is the most egregious example of partisan democrat politics and makes Americans less sympathetic to democrat claims of republican political obstructionism. Furthermore, in an otherwise often abstruse debate about healthcare reform, tort reform makes intuitive sense as a way to trim the cost of a hopelessly cost bloated healthcare system.
The president’s all or nothing strategy is likely to yield nothing of enduring value to improve our healthcare system. Replacing comprehensive reform that has limited support with some incremental bipartisan changes would allow the president to succeed at real healthcare reform without potentially decimating our economy or the democrat party.
The president and democrats appear to have backed themselves into a corner with few good options for advancing their vision for a new healthcare system. They can quit now days short of a congressional vote, a la President Clinton in the 1990s, and risk a repeat of democrats losing big in this year’s elections as they did in 1994. More likely, the president and democrat party leaders will pressure congressional democrats to support Obamacare by using draconian and desperate carrot and stick measures. If Obamacare fails, history tells us that democrats will still lose big next fall. If Obamacare passes, democrats may redeem themselves by November’s election, assuming they can dramatically change the voting public's emphatically negative opinion of the plan and the unsavory process that made it law. That would be a long shot at best. Either way, if democrats lose big in 2010's election, republicans will do everything possible to disrupt implementation of Obamacare, even if it becomes law. If republicans establish a majority in congress you can bet they will do their best to repeal it altogether. Either way, Obamacare is unlikely to become a sustainable viable plan for our healthcare system.
Wouldn’t it be better for the president, the democrats, and the nation, for the president to make a deal with republicans, and capitalize on the 80 percent agreement the president claims both parties have for his plan? Wouldn’t it be better for the president to pass that 80 percent, or whatever percentage a bipartisan group can agree upon, and get a resounding bipartisan endorsement for healthcare reform? The president and democrats could claim victory for long awaited healthcare reform, and have bipartisan support that would ensure its future political viability. It may also restore some of the public's faith in government and potentially create enough good will to encourage bipartisan cooperation for tackling other major problems, such as our faltering economy, and burgeoning debt and deficit. That approach would also give the president an opportunity to call the republicans bluff. If republicans don’t cooperate with such a truly bipartisan approach, then they will prove to be the party of “no.” Also, the president claims that republican congressional majorities have always and will continue to do nothing to reform healthcare, so shouldn’t he use his majorities to get something worthwhile done now?
The president has made it easy for his republican critics by giving them nothing to lose by opposing Obamacare. For example, the president’s refusal to make tort reform part of his plan is the most egregious example of partisan democrat politics and makes Americans less sympathetic to democrat claims of republican political obstructionism. Furthermore, in an otherwise often abstruse debate about healthcare reform, tort reform makes intuitive sense as a way to trim the cost of a hopelessly cost bloated healthcare system.
The president’s all or nothing strategy is likely to yield nothing of enduring value to improve our healthcare system. Replacing comprehensive reform that has limited support with some incremental bipartisan changes would allow the president to succeed at real healthcare reform without potentially decimating our economy or the democrat party.
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