Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
Experts fear that the already-battered U.S. housing market is getting ready to stall again, leaving the Obama administration to decide what - if anything - it should do next.
Standard & Poor's Case-Shiller Home Price Indices yesterday (Tuesday) reported that home prices rose 3.6% in the second quarter from a year earlier - but the boost came from the homebuyer tax credit that expired in April. And that doesn't bode well for the housing market's near-term outlook.
"The numbers were inflated by the homebuyer tax credit," David Sloan, a senior economist at 4Cast Inc. in New York, told Bloomberg. "The numbers will be going down in the coming months. We could see some significant declines."
Prices rose a seasonally adjusted 0.3% in June from the month before, but then plunged in July and are expected to keep falling. The National Association of Realtors said that existing home sales in July plunged 27% from the month before - a record decline that dropped home sales to their slowest pace in a decade.
The housing market is typically viewed as a vehicle that can pull the economy out of a recession, because the interest rates that are lowered to help jump-start the economy also encourage housing purchases. This time around, however, that scenario failed to play out: High unemployment and continued uncertainty about the broader economy has undermined the economy.
Other housing-related reports are just as gloomy, and are helping to nurture the uncertainty that's hamstrung economic growth.
RealtyTrac Inc. reported that 269,962 homes were taken from delinquent owners in the second quarter - putting the country on pace to have 1 million homes be seized by the end of the year.
The U.S. Labor Department reported that 61,000 construction jobs were lost from May to July, and another 56,000 positions were trimmed in related areas like furniture, financial services for property, and building supplies. Job creation in housing-related-employment areas slowed to 51,000 a month in the May-to-July period from 153,000 a month in the February - April period, according to a Financial Times report.
Without housing stability, it will be tough for the administration to engineer a successful economic recovery - especially since U.S. consumers are already worried about a "double-dip" recession.
"If foreclosures continue to mount and depress home prices, that could send the economy back into a recession," Celia Chen, an economist who tracks the industry for Moody's Analytics Inc., told Bloomberg. "The housing market and the broader economy are closely intertwined."
To reverse the painful housing decline, the government on Sunday announced more efforts to help financially strapped homeowners stay afloat. It will launch a Federal Housing Authority program to help borrowers who are struggling to pay their mortgages refinance their loans. It will also start an emergency homeowners' loan program for unemployed borrowers so they can stay in their homes, according to Housing and Urban Development Secretary Shaun Donovan.
"We're going to continue to make sure folks have access to home ownership," he said in an interview with CNN.
There's even talk of another tax credit - something not all construction companies and economists are supporting.
"I don't want the tax credit to be re-enacted or be recreated or extended," Donald Tomnitz, chief executive officer of U.S. homebuilder D.R. Horton Inc.(NYSE: DHI) said Aug. 3 to investors. "We want to get back to a normalized market."
But the government is ready to intervene - the question is if it can find something that will actually help.
"All I can tell you is that we are watching very carefully," Donovan said. "We're going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers."
This brings us to next week's Money Morning "Question of the Week:" Should the U.S. government implement more programs to help stabilize the housing market? Have the programs they have used helped or done more harm than good? Do we just need to let the housing market adjust itself and wait for a return to "normalcy," or will the domino effect of more mortgage defaults and housing price declines hurt the rest of the economic recovery too much to ignore?
Send your thoughts, questions and concerns to mailbag@moneymappress.com.
[Editor's Note: Is there a topic you want to see covered as a "Question of the Week" feature? Then let us know by e-mailing Money Morning at mailbag@moneymappress.com. Make sure to reference "question of the week suggestion" in the subject line.
We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate - via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- Bloomberg:
Home Prices in 20 U.S. Cities Rise More Than Forecast - Financial Times:
US housing woes compound job fears - Money Morning:
Moribund Housing Market Threatens to Kill Economic Recovery - Money Morning:
Can the Obama Administration's New Stimulus Plan Revive the Housing Market? - CNN.com:
State of the Union with Candy Crowley - Money Morning News Archive:
Question of the Week Feature
Wow! The Keynesian's are feverishly trying to plug every hole in the dam that is breaking up, and to no avail (duh!). Common sense says that 1 million homeless American families are not going to be contributing a whole lot to this recovery. Common sense also says that nobody trusts banks enough to be applying for a mortgage – even IF the credit was available! Sound bites like "this Administration is committed to ensuring that all Americans have access to home ownership" may make HR departments feel queasy in awe for such carefully written language, but these sort of folks are the only dipshits Obummer & Crew are making an impact on.
P.S. Credit agencies are frauds, and e-Notes are illegal!
In answer to the question it must be no. Markets should regulate themeselves. I certainly wont invest any savings in a property market that is artificially propped up. I simply dont want to be exposed to the downside risk. Let the market bottom out, banks should foreclose on all bad mortgages and people should be held responsible for declaring themselves bankcrupt. When that takes place watch how people with cash invest.
I don't think Obama and his hand picked cabinet can stimulate the economy properly.
Mostly because of their point of view. The whole white house staff does not have enough
experience, and there must be some kind of bias going on that colors their thoughts.
Many people I've talked to have said, did you see,or did you hear what Obama said, or did?
It doesn;t make sence, or common sence, or not logical. Just listen with a little common sence.
There is no question that the tax incentives given in the past worked to prop up home sales for short time. But it didn't really change the longer term housing markets, i.e. home pricies, the amount of available and shadow inventory, the availability of repriced land for builders to continue to build with at new, low market prices, or the increasing costs of materials. In addition, it did nothing for unemployment, the availability of credit to purchase or refinance homes or to help consumer confidence.
For a longer term look I think the Obama adminstration should look into setting up the Resolution Trust Corporation (RTC) again, or something similar. This worked to help save the S&Ls, it re-priced large amounts of land that builders and developers could buy and compete at the new prices and the public got affordable prices. Force the banks to sell to the RTC their under and non-performing assets, cleaning up and monetizing their balance sheets. As the banks get healthy, credit will become available to purchase the homes built on the re-priced land purchased from the RTC by builders and the builders can provide jobs in the process.
Without a job, you can't buy a house. If your employer is doing poorly and/or you feel like your job might go away you won't buy a house. Without a loan, you can't buy a house. If you can't sell the house you already own, you won't buy another one- pretty simple stuff.
Yes they should help. And the biggest help they can offer is to allow the system to work. By taking tax dollars from the rest of us, they are undermining the stability of a huge financial system. We are already taxed to extinction without paying our neighbors mortgage too. Besides, if they can't meet some common sense guidelines when applying for a home loan, they can rent awhile longer. It's not the end of their world.
Low interest rates and easy-qualify loans, combined with generous tax-write-offs for mortgage and real estate payments made home ownership desireable and profitable for decades and for the most part it was a good thing for most of us. But even good things can be destructive when carried to extremes. When they started pressuring banks and S&L's to loan to folks who were not ready and able to carry out their end of the bargain, and when some genius decided these iffty loans could be sliced into "investments" that would be sold all over the world the entire structure crashed. Now it's clear that not everyone is a qualified home buyer. Many of us are actually renters.
Such a total mess we have. Let's say the US Government did not push affordable housing for everyone. What would have happened? All of the industries tied to housing would have proceeded on a more sustainable path at best. At worst, all these related industries would have scraped along, many of them failing or maybe not even coming into exixtence. A true capitalist view would maintain that there would have been another outlet somewhere, maybe not as robust and bubbliscious. But we are where we are. Many decent hardworking Americans are taking it in the shorts as a result. If the US Government was part of the problem, then it should be part of the solution. Only one big reality here, anytime the US government gets inolved things get all messed up. But in the end if there is help, real help to be offered then make it happen. Place a timeline on it. If there are still nasty situations out there. Do an RTC style bailout. Tell the floundering ones it is over. Banks tand loan servie companies take possesion of the properties, let them write off the losses, give them time to amortize the losses, tell the floundering masses that they are relieved of their obligation legally and get it overwith.