Home market isn’t on rebound yetBy John F. Wasik
Are we there yet? Is the U.S. home market on the upswing?
As Alan Greenspan would say, “there are shoots,” although a true spring in housing is still hampered by a chilly economic climate throughout most of the country.
One positive sign came from new mortgage applications, which jumped to the highest level in three months last week, according to the Mortgage Bankers Association.
As Congress and state attorneys general wrangle with a number of reforms to seed a housing rescue, most of the country is not out of the woods. Yale Economist Robert Shiller warned recently that housing prices could “slip another 15 to 25 percent”.
Foreclosures and defaults are continuing unabated. Most of the news concerning housing is still frosty. The S&P Case-Shiller Index (for the fourth quarter of last year), showed prices in 19 out of 20 markets surveyed down for December over November. Washington, D.C. was the only major market that rose.
Cities gob-smacked by the bust — Las Vegas, Miami, Phoenix and Tampa — all hit new lows in December. Even markets that weren’t inflated as much in the bubble saw new lows (Atlanta, Charlotte, Seattle and Portland, Oregon).
Although the percentage of distressed sales is still alarmingly high at more than one-third of all sales, according to CoreLogic, they are down from their peak in January of 2009.
Why would I be remotely optimistic that we’re not in a sustained double-dip housing recession? Unemployment has been improving of late. That’s always a plus for housing and figured in the meager spurt in mortgage applications.
The other hopeful sign is that Congress slowly seems to be moving to fix what’s broken in the housing market. The Obama’s Administration main housing aid program, known as “HAMP,” is targeted for elimination.
Good riddance. HAMP has been so ineffective that Elizabeth Warren, the new consumer financial bureau adviser, likened it “bailing out the boat with a teaspoon as it takes on gallons of water.”
An even more aggressive — and potentially helpful — proposal is being discussed by major banks and state attorneys general trying to settle over alleged “robo-signing” mortgage abuses.
The states’ proposal would allow homeowners to write down principal balances while renegotiating mortgage terms. Although it’s too early to tell, this one measure could prevent a large number of foreclosures. It’s only fair since homeowners attempting to refinance were unable to negotiate lower payments based on home values that crashed. Congress has failed to allow mortgage holders to write down balances in bankruptcy court, so this could provide some buoyancy for the ever-sinking housing market.
There are millions of foreclosures in the pipeline that create a shadow inventory of homes. Banks can still dump these properties on the market, which will further depress housing prices.
Only keeping people in their homes and stimulating sales could forestall a full double dip. Back in Washington, policymakers are sluggishly attempting to restructure the debt-besotted mortgage insurers Fannie Mae and Freddie Mac, which were seized by the Treasury Department in late 2008. The companies now account for more than 80 percent of the U.S. mortgage market.
One item that the Fannie/Freddie reconstructive surgery team needs to consider: Softening the rule that credit scores be nearly perfect for home buyers.
In recent years, the mortgage insurers have raised the standards so high that only a few qualify for loans now. One mortgage broker friend of mine says her business is so dismal (citing the credit score problem) that she’s getting out of it.
If the states and Feds can get on the same page, maybe they’ll figure out that keeping people in their homes is still a good idea — and one way to buoy the market. Otherwise, expect the long winter in U.S. housing to continue. Better to be a hedgehog than a groundhog.
First time home buyers would be well advised to take advantage of readily available resources such as the internet, recommendations from trusted peers, co-workers and family to research a mortgage agent, brokerage, or banking institution. Since this is likely to be their largest single investment, in addition to the place they will reside and raise their family, quotes on mortgage rates and terms are imperative. A trusted mortgage professional will help to explain to you the costs that are associated with purchasing a home and the requirements which must be met to qualify for a mortgage, sometimes even assisting in recommending a reputable and reliable real estate agent or lawyer.
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