The opening graph from the Associated Press story is pretty damn scary–and, what’s worse, possibly true.
“The recovery in the housing market is at risk of collapsing.”
Well, that pretty much says it all, doesn’t it? Though I would argue that we haven’t really had much in the way of a recover to begin with!
The evidence the A.P. gives for its conclusions: Home sales, down; prices not really going anywhere; and, of course, foreclosures still on the way up.
Says the A.P., “The trend could threaten the broader economy, economists warn.”
While it may be months before we can really test how accurate the A.P.’s headline, “Housing market’s recovery appears at risk,” will prove to be, the fact is it doesn’t take a brain surgeon (or a real estate agent?) to know that until the employment picture brightens, we are simply not going to see any meaningful improvement in the housing market.
We will see ups and downs, yes, but nothing that we’ll be able to label a true recovery until the job market takes off.
The problem is, it is not at all clear when or even if this will happen anytime soon—or even later?
In past recessions, manufacturing is what helped pep up the employment market. But nowadays, manufacturing jobs are dwindling in this country as they continue their migration elsewhere.
Service industry jobs, while certainly better than nothing, simply don’t provide enough income to light a fire under the real estate market.
Bank of America has announced it will actually lower the principal on some mortgages (mostly so-called Opt-Adjustable Rate Mortgages), but it is not expected to impact all that many people.
For the real estate market to really recover, as I have said for a long time, the law needs to be changed to allow bankruptcy judges to lower the principal when needed in order to restore the homeowner’s equity.
Leaving that to the bank to decide is a recipe for nothing!
At the end of this month, the Fed is expected, as promised, to stop buying up mortgage backed securities…some believe this will result in higher mortgage loan rates; others do not. We’ll soon know.
Also still to come, the end of the government one time special tax credit for the purchase of a new home. Another dark cloud to watch on the horizon?
Related posts:
- The U.S. Run Housing Market: The Nation’s New Landlord
- 7 Creative Ways to Market Your Property in a Cold Housing Market
- Where is The US Housing Market Going?
- Is The Housing Market Overheating . . . Again?
- Greenspan Gives Guidance on Housing Market
Article Author: Charles FeldmanCharles has written 179 articles for us.
Visit Charles's Website: http://www.thefeldmanblog.com
Charles is currently reporting for KNX Radio in Los Angeles, is the co-author of the book No Time To Think, and can be found commenting about the news on his blog, The Feldman Blog, as well as on The Huffington Post.
Joshua Dorkin
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Holy Cow…It’s like listening to myself talk! I have been blogging about the recipe you mentioned for some time now. The other ingedience that are being added to the bowl this year are of course the “Shadow Inventory” of Foreclosed homes that will soon be hitting this bewildered market. And, one thing few are talking about…yet, ARM’s set to adjust later this year! At the Pacific Northwest Housing Summit last week, one of the panelist put up this quote, “The housing market will begin to recover once the job market improves and the job market will not improve until they start building houses.”
It’s amazing, isn’t it, that mortgages are one of the very few contracts bankruptcy judges cannot modify. Can you say “high power lobbying?”
If a bankruptcy judge can’t modify a mortgage contract, how can the current administration with their upcoming plan to modify the mortgages of the unemployed?
Robert Shiller, creator of the Case Shiller index, was on NPR the other night talking about homeowner sentiment and how powerful it can be, good or bad. He mentioned that a few years ago homeowners were polled and about 70% felt they had a moral obligation to repay their loans. A recent poll showed that number closer to 30% and it keeps dropping every time we hear about another bank executive who got a $30 million yearly bonus.
As more people walk away, rather than pay, investors lose more money and more banks fold, which makes it harder for people to get funding. It will eventually force the interest rates back through the roof. It’s in everyone’s best interest, at least right now, if the mortgage loans are reset closer to the property values, so that people can continue to make timely paymetns and stay in their homes.
They government can’t force anything, at least not yet. The government is hoping that investors will participate in the plan by using an FHA insurance gty and showing them how lowering the mortgage balance will encourage a longer term of payments, as opposed to buyers just defaulting or walking away. Keep in mind, the new legislation is for underwater homes, not just those already in default or eminent default.
What BofA is doing is very smart. I have no doubt they have a room full of analysts working on statistical calculations regarding the current number of defaults, how much it costs them, how many defaults are likely to incur in the near future and long term, and how much that will cost them too. They’re most likely picking between the lesser of the two evils, so to say.
I only hope other banks and investors follow suit soon.
A recipe for nothing is an understatement. I call it a recipe for disaster. I doubt that BoA would disregard their own welfare over those of the borrowers. Presently, the forecast of recovery is dim and many homeowners would still undergo foreclosure. The government’s future housing programs need to address unresolved issues fast.
The economy will begin to recover when housing becomes affordable again. When every household dollar goes towards a mortgage, nothing is left to put into the economy. There is no saving this mess, we need to move through it and take the losses. The banks and the homeowners need to take the losses. Period. It’s ironic that trying to keep these asset priced higher in the name of saving us only hurts us in the long run.