As Henry Paulson and the rest of the Bush administration push forward with "the new kapitalism," there are yet examples of a free market working, providing at least some fuel for the argument that says the market must eventually clear itself. The Washington Post took an in-depth look at Prince William County in Northern Virginia, one of the harder hit areas in the state during the housing crunch. What they found is an area flush with investors looking to pick up deals amidst the wreckage, even in the midst of a historic credit crunch:
The epicenter of the boom is Prince William County, where enterprising investors are scavenging the wreckage of the housing bust at a furious pace. Last month, 1,116 homes were sold in the county, a 235 percent increase from the same period last year and more than in any other September on record, according to the Northern Virginia Association of Realtors. The buying frenzy is the silver lining of a staggering decline in home values. With banks choking on a glut of empty, foreclosed properties, the median sale price for detached single-family houses in Prince William plunged 41 percent in the past year, from $405,000 to $239,900. In September, 118 homes in the county sold for less than $100,000, and many foreclosed townhouses sold for less than $70,000. One three-bedroom Manassas townhouse recently sold for $43,500, even though it was assessed at $273,100 in 2007. "Prince William County is a fire sale," said Joey Remondino, a "ridiculously busy" real estate agent with StoneHouse Realty in Manassas. "People are looking for amazing deals, and I'm writing offers as fast as I can," he said.
Similar stories are playing out in other areas, where free market forces are leading home buyers to look for deals amidst a growing set of foreclosures; I've heard from agents in California that specialize in listing REOs that properties are actually moving -- it's just that the prices aren't anywhere near what they used to be, even last month. Note that in Prince William, prices fell a median of 41 percent for SFRs over the past year. For foreclosed properties, that number is likely to be much higher; those properties are bringing the overall median down. Similar stories are playing out elsewhere -- even in pristine Northern California. In the Bay Area, prices fell a whopping 10.5 percent between August and September alone as foreclosed properties in inland areas began moving. Nearly 42 percent of all existing homes sold across the Bay Area last month had been foreclosed on at some point in the prior 12 months, up from 36.1 percent in August and 6.9 percent a year ago. In other words, we're nowhere near the bottom, but -- surprise! -- the market actually works if we just let it. The need to push out tax credits, change conforming limits, push in cramdowns in bankruptcy, etc....all are essentially a crutch designed to fight what may end up proving to be something akin to gravity. Eventually, home prices will fall in line with rents, and buyers will return. That's not to say, by the way, that all markets are the same. There are larger issues surrounding local economies and job loss that likely deserve our attention -- Detroit, for example, is largely reeling from a distinct set of factors relative to the Bay Area in California. But jobs and mortgages have always had a long-standing relationship, and that's an issue for a separate post.