How to Fix the U.S. Housing Market
If this week's economic reports showed us anything, it's the fact that two years into what's supposed to be an economic recovery, the U.S. housing market remains on life support.
But here's what those reports didn't tell you: If the housing market isn't fixed soon, it's going to drag the rest of the economy down into a hellish bottom that will take years, if not decades, to crawl out of.
The housing market is our single-most important generator of gross domestic product (GDP) and, ultimately, national wealth.
It's time we fixed what's broken and implemented new financing and tax strategies to stabilize prices.
Contrary to the naysayers – and in spite of political pandering and procrastination – we can almost immediately execute a simple two-pronged plan to fix mortgage financing and stabilize U.S. housing prices.
I call it a not-so-modest proposal.
The Worst Since the Great Depression
The facts are frightening: We are in a bad place. The plunge in housing prices we've seen during the current downturn is on par with the horrific freefall the U.S. housing market experienced during the Great Depression.
And without an effective plan to arrest the double-dip in housing, there's no bottom in sight.
Hope Now, an alliance of lenders, investors and non-profits formed at the behest of the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, counts 3.45 million homes being foreclosed from 2007 through 2010. Current estimates of pending and potential foreclosures range from another 4 million to as many as 14 million.
According to RealtyTrac, a real-estate data provider, the country's biggest banks and mortgage lenders are sitting on 872,000 repossessed homes. If you add in the rest of the nation's banks, lenders and mortgage-servicers, the true number of these REO (real-estate owned) homes is closer to 1.9 million.
These shocking statistics illustrate just how large the current overhang of bank-owned properties actually is (at current sales levels, REO properties would take three years to unload). And they help us to understand how the staggering number of yet to-be-foreclosed, repossessed, and sold homes will depress U.S. housing market prices for years to come.
With a Weak U.S. Housing Market, Is Home Ownership Still a Good Investment?
Owning a home has long been a goal for many Americans, but now more people consider U.S. homeownership a poor investment choice and are kissing that plan goodbye.
Since the housing market collapsed in 2008, forcing millions of underwater homeowners out of their houses, real estate has become a scary and unreliable investment option.
"The emotional scars left by the collapse are changing the American psyche," Pete Flint, chief executive of real estate Website Trulia.com, told The New York Times. "There was a time when owning a home was a symbol you had made it. Now it's OK not to own."
Employment Numbers Not Good News For Housing
(West Palm Beach) A clear and direct relationship has existed between employment and house prices in the US over the past 9 years. In order for housing prices to turn up, a necessary condition would be a sustained upturn in total employment. Although the widely reported seasonally adjusted employment data seems to indicate that such [...]
Double-Dip in Home Prices Could Restrain Economic Recovery
With the latest data pointing to a double-dip in home prices, it has become increasingly clear that the wobbly economic recovery won't be getting any help from the housing sector.
Existing home sales in February sank 9.6% from the previous month, while prices fell 5.2% to a median of $156,000, the lowest since April 2002. Existing homes comprise 90% of the housing market.
Meanwhile, new homes sales in February plummeted to an annual rate of 250,000, far below the norm of 700,000 and a level half that of 1963, when the United States had 120 million fewer residents than its current population of 310 million. The median sales price plunged 8.9% year-over-year.
What the Looming Inflation Tsunami Means for the U.S. Housing Market and Commodities
A few weeks ago, Money Morning Contributing Editor Martin Hutchinson warned readers about the looming inflation tsunami threatening the United States.
Easy money policies like those of the U.S. Federal Reserve and other central banks have helped raise prices in emerging markets, as well as the United States, and sent the commodities sector surging.
"[W]e can expect inflation to be with us for several years, too," said Hutchinson. "In fact, expect it to get worse for the next three to four years, while Ben S. Bernanke remains at the helm of the nation's central bank."
As inflation threatens to eat away at the value of stocks and bonds and cut into investors' returns, Hutchinson said one of the best investments to make ahead of rising prices actually is a house.
The housing market is at or near its bottom and rates on 30-year mortgages are desirable for buyers. Investors who find the right neighborhood, strike a good deal and don't financially overextend themselves could find a sound housing investment as the best store for their money.
Obama Proposes Fannie & Freddie Reforms as Housing Market Continues to Languish
Three years after the housing market collapsed, efforts to clean up the financial mess created by Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC) – the government agencies that largely inflated the bubble – remain stuck in limbo as Washington policymakers bicker over the details.
Meanwhile, the market continues to suffer through the aftermath.
The total value of U.S. single-family homes plummeted by roughly $798 billion in the final three months of 2010. For the year, values fell by more than $2 trillion to $22.3 trillion, according to Zillow.com.
More than 27% of all homeowners are now underwater and mortgage rates are swiftly starting to move up – threatening to kill any chance the market has to rebound from the worst disaster in its history.
Continued U.S. Housing Price Decline Won’t Derail the U.S. Economic Rebound
U.S. housing prices still have further to fall -perhaps a lot further.
In fact, depending upon the circumstances, the additional price declines could be quite steep.
But here's the shocker: That decline won't necessarily cause a "double-dip" recession.
In fact, it probably won't even derail the U.S. economic recovery.
Let me explain.
No Rebound in 2011: The Housing Market Continues to Rot
The year 2010 brought very little improvement in the U.S. housing sector. And that's not likely to change in 2011.
The industry's weaknesses – high unemployment, tight credit, ineffectual government programs, soaring inventories, plunging prices, and so on – are simply too gaping to be resolved within the year.
Even the normally ultra-optimistic National Association of Realtors (NAR) came out of its annual conference in New Orleans in early November with a frown on its face, predicting that, "nationwide, homeowners can expect little, if any, increase in home values in 2011."
The real estate research and online brokerage firm Zillow agreed. It recently issued a report noting that U.S. home values fell by 4.3% in the third quarter of 2010, and chances for improvement over the winter are slim.
"The unceasing declines in home values signal that we're in for a long, bleak winter of continued troubles for the housing market," said Zillow Chief Economist Stan Humphries. "The length and depth of the current housing recession is rivaling the Great Depression's real estate downturn and, with encouraging signs fading, will easily eclipse it in the coming months."
Read this full report to see why you don't need to avoid the housing industry altogether…
The "Mortgagegate" Scandal: Congratulations America, You're Now in the Title-Insurance Business
U.S. taxpayers already own pieces of such problem-plagued companies as General Motors Corp., Chrysler LLC, American International Group Inc. (NYSE: AIG), Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC). Now the increasingly problematic "Mortgagegate" saga could land American taxpayers in the trouble-ridden title-insurance business.
On Oct. 8, Bank of America Corp. (NYSE: BAC) indemnified Fidelity National Financial Inc. (NYSE: FNF) against any losses that Fidelity might sustain in litigation over title insurance it writes on foreclosed homes – the same homes, coincidentally, that Bank of America wants to sell to new buyers.
This arrangement amounts to U.S. taxpayers, who are the ultimate backers of the Federal Deposit Insurance Corp. (FDIC), backstopping a giant, publicly held title-insurance company, which is backstopping a huge commercial bank, so that the bank can sell properties that it might not have proper title to.
We Want to Hear From You: Will "Mortgagegate" Affect You?
A potentially crippling crisis is flashing through the banking industry and threatening to derail the already struggling housing market and U.S. economic recovery.
Dubbed "Mortgagegate" – a nod to the earlier scandal-ridden crisis touched off by Watergate – this latest crisis involves such big lenders as Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and GMAC LLC (NYSE: GMA), which are alleged to have conducted negligent foreclosure practices.
Money Morning Contributing Editor Shah Gilani reported last week about the allegedly fraudulent business practices employed by lenders and their hired "robo-signers" that led to thousands of questionably reviewed foreclosure documents.
But Gilani warned that the headlines aren't telling the full story.