I'm surprised the Wall Street Journal printed such an amateurish piece. There are numerous inaccuracies and false assumptions in the article. Let's take just a few:
"Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst." According to Freddie Mac: "However, over the past few years, investor and second-home purchases have gradually increased. In 1999, investor and second-home mortgages comprised about 8.5 percent of purchase-money loans in the prime, conforming market. This share had doubled by the first quarter of 2005 to about 17.6 percent." http://www.freddiemac.com/news/finance/commentary/sp-comm_08
So while the percent of homes purchased as second homes and purchased by investors rose to 17.6%, that's a far, far cry from the article's claim that people who intended to live in their homes "stopped buying." Approximately 83% of the buyers, even at the top of the market, intended to live in their purchased home as their primary residence.
Or consider this statement from the article: "More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure."
No. Not true. First, any price decline, no matter how small, will put more people "underwater" on their mortgages. Maybe the author is linking the two, suggesting that more home sales at lower prices with more downpayment (which he neglects to mention) will outweigh the owners becoming upside down due to declining prices. Sure, the new home buyer who's putting 10%-20% down and getting a fixed rate mortgage will be better off than someone who bought a year or two ago with 100% financing. But the point is, those people are still out there and they're still filing for bankruptcy. They're still going into foreclosure. They're still seeking short sales. And that'll continue. Further, almost anyone who tries to sell within a couple of years of purchase, even in a decent market, is upside down. Transaction costs chew up roughly 10% of the property's market value. Now, if values are going up 5% a year, someone may break even after 2 years. But what if values go down 5% a year for the next 2 years, then are flat for a year, then rise 5% a year. It'll take 5 years to break even. As long as prices are declining, a growing number of people will find themselves upside down.
Those are just a few of the obvious errors in that article.
Finally, for a real laugh, consider this statement from the article: "Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now." Read that again: "Housing led us into this credit crisis." Huh? I think our friend at Traxis Partners is confused. I'd suggest--and most rational observers would suggest--that the credit market (lenders making loans they shouldn't have, the 100% financing, stated income loans, the ARMs, the negative amortization loans) was largely responsible for the housing problems. The lenders were making billions lending money to people who had no way of repaying those loans. Housing didn't lead to the credit crisis. Housing is a victim of the credit market that existed a few years back.
The guy who wrote that article is either a naive simpleton or a clever...umm, well, fill in your own words. But, to give him credit, I don't think he's a simpleton.
Nah, the article isn't worthy to wrap day-old fish in.