And crash went the housing market....

Dean Baker thinks that the big news is the popping of the housing bubble, not the credit crunch. Megan McCardle seems to think he is denying the existence of the credit crunch, which isn't how I read it. I think his point is that the bursting of the housing bubble caused it - and that there hasn't been a whole lot of reporting on just how bad housing prices are, despite the fact that they are getting much worse.

I spoke to a coworker a few weeks back whose wife is a Realtor. He recently bought a new house, and commented that selling his old one is going to be hard, since only 10 houses were sold in Howard County that month - and one was the one he bought.

In my own anecdotal research, using my subdivision as a microcosm, the housing market is screwed, and I'm screwed with it.

Yesterday, I decided to engage in something I do every now and then, possibly because I'm a masochist. I looked up what homes were for sale in my subdivision - a 94-unit townhouse community built in the late 70's and early 80's in Baltimore County, in an area most people would call White Marsh, although it is technically Nottingham.

There are currently 7 houses for sale. That means about 13% of the houses in the development are for sale. Asking prices range from $189k to $249k.

The disturbing part of that: That $189k house has been on the market for about 40 days. They dropped the price from $199k. They bought the house for $198k in 2005.

Why is that disturbing? Because madanthony bought his house in 2006 for 215k. And my house has one less bedroom and a non-updated kitchen, compared to the cheapest house currently on the market. And since that house has been on the market as long as it has and hasn't sold, it suggests that the market-clearing price for a house in madanthony's development is well below $190k. Which means that madanthony's house is probably worth about $40,000 or so less than he paid for it, and that he's considerably upside-down in his house.

In the day-to-day, this doesn't matter a whole lot. I'm not planning on selling anytime soon. While I have toyed with the idea of making a dramatic career change, I doubt I ever would - it's just a panecea and wouldn't fix the actual things in my life that I'm unhappy with. So my loss, is, right now, just on paper.

Still, it's immensely frustrating. I did what was supposedly the economically prudent thing to do - I worked a ton of overtime, lived like a roach, and squirreled away a ton of money for a downpayment so I could buy a house as quickly as possible. In doing so, I managed to buy at the exact top of the market. All those Saturdays of overtime, all those brown-bag lunches and foregone purchases were a waste - money paid out that is gone. I could put my money in a pile and set it on fire and I would be in the same position.

Of course, hindsight is 20/20. Lots of other smart people bought houses at the wrong time. But what is most annoying is that the people who bought really dumb - subprime loans, balloon mortgages, Interest Only, Adjustable Rate, ect - will probably come out the best. They can walk away without worrying about trashing their credit, because it already sucks, or losing their down payment, because they didn't have one. Bailouts and principle/interest reductions are all targeted at the people who have missed payments, not the people who are sacrificing in other areas of their lives to make sure they don't. I can't decide if I was stupid to buy a house in 2006 because I should have waited until 2009, or because I should have tried to buy it with no money down in 2004.

So - getting away from the my individual situation and back to the big picture - what does this mean for the economy as a whole? If my development reflects the housing market as a whole - and I have no reason to suspect it doesn't - housing prices have decreased more than people realize, because the stats only reflect the homes that have sold, not the huge amount sitting on the market. If Dean is correct and housing prices cause a decrease in spending - due to both an inability to get HELOC'S (home equity line of credit) and lack of confidence in general - the economy may be getting a whole lot worse before it gets better.