Everything that the government has done so far, with a few minor detours, has been almost exclusively focused on maintaining home prices high, by tweaking either the supply or the demand side of the housing equation. As the bulk of consumer net wealth is concentrated in the housing sector, and a wealthy and confident consumer, much more so than the banking system, is critical to the recovery of America’s economy, the Administration will do everything in its power to achieve its goal of artificially manipulating the housing market...the continued pursuit of such flawed policies by the Fed and President Obama merely pulls the market ever further away from its equilibrium, thereby making the anticipated second dip so much more likely and not that far off in the distant future...After being extended once by the Obama Administration, the tax credit will expire at the end of April—putting downward pressure on demand for existing home sales. That prospect will make it more difficult to clear out the next wave of foreclosures, prompting another down leg in US house prices.
I have blogged about the "shadow" inventory before...it is spoken about amongst real estate agents and mortgage professionals...but they don't report about it in depth on CNBC, MSNBC or the like...take a look at the chart below:
In Florida, almost 49% of all homes with mortgages are in a "negative equity" position...on top of that, about 1 in 4 Florida homeowners with a mortgage is 30 or more days delinquent.
I don't know the actual (or make believe) lender figures...but common sense tells me that someone who is unemployed, upside-down on their mortgage and is behind on their mortgage payments, is NOT going to ravage their IRA or borrow from their mother-in-law to pay all of the banks penalty fees, late fees, interest fees and lawyer fees to get caught up with the bank ...but that's just my opinion.
In a recent post, I spoke about one of the major roadblocks to a housing recover being the "real" unemployment rate. And this issue is a driving factor in the "strategic default" wave. A record 15 million Americans are unemployed and another 9 million are underemployed. However, just as significant is the roughly 10 million households in a negative home equity position of worse than -20%, for whom strategic default - failing to pay when one could - is a very real option.
Now for the elephant in the room: Interest rates...this was one prong of the two pronged lightening rod for the housing crisis blame...the other being lax lending standards. "They" blame artifcially low mortgage rates as the first major contributing factor. Then WHY is no one saying the same thing now? The Fed is buying MBS in the open market in an effort to KEEP the mortgage rates (artificially) low. Aggressive central banks’ rate cuts along with large amounts of agency MBS purchases by the Federal Reserve have lowered mortgage rates by over 100 bps since the height of the financial crisis.
As stated by the writer of the original article: "And there you have it: the best that the government can hope for is to extend and pretend, and to avoid presenting the sad but very simple reality to the American public. Because lack of knowledge is half the battle."
I couldn't have said it better myself!
Thanks for reading...Steve Jackson
