In today’s New York Times, Vikas Bajaj and David Leonhardt offered a creative explanation for how home sales could be slowing and inventories building while home prices continued to nudge upwards:  incentives.  They report that in a weakening market sellers are giving rebates on prices, either in goods, services or outright cash.  In other words, the records may show that the house sold for $350,000, but the effective price was $343,000. 

The reasons for this ruse are partly psychological (individual sellers who think: "I don’t want to lower the price!") and partly economic (builders who think:  "I don’t want the people who already signed contracts for homes in this subdivision to know that the new guys can get in for lower prices.") 

Back in the day (say, 1972) when the median first-time home buyer coughed up an 18% downpayment, a few bucks of incentives probably wouldn’t have mattered.  But with the median first time homebuyer today making a ZERO down payment, a little rebate means the mortgage starts out in the red.  Bajaj and Leonhardt note at the end of the article that the mortgage companies try to police the rebates, but c’mon, does anyone think that really happens?  Besides, by keeping the prices high, the comparables stay high as well, giving everyone an inflated appraisal on which to base that 100% financing. 

Here’s one more little piece of evidence why everyone on this list should be selling their mortgage-backed securities (if anyone on this list ever had any mortgage-backed securities):  The valuation numbers are phony.  Maybe just a little phony in this case, but at 100% financing, a even a little bit phony is going to come out of the investor’s hide. 

As housing values continue to deflate, those of us who teach mortgage foreclosure law will have many attentive students.