The forecasting cycle that drives the market is low on fodder since the earnings season is under way and the latest unemployment numbers are tucked neatly into the bed of economic prediction models. But, housing is an evergreen topic and a ready harbor for those who have no other numbers to obsess over.
The Administration's theory is that the numbers on mortgages and home values are bound to get better. Its defense is simple. Enough money is being put into the economy to drive job creation, which drives income, which creates a larger pool of people who can afford homes. In addition to that, the government is going to make financial aid readily available to individuals of good character with strong references so that they can make their mortgage payments. To paint the picture even rosier, the Fed will buy up paper in the open market and that paper will bear a close enough relationship to bank rates for real estate lending that it will push mortgage costs down. (See "Four Steps to Ending the Foreclosure Crisis.")
The system for saving housing is so perfectly built that it cannot not possibly fail. It has powerful dynamics to create demand which will meet a supply of homes available at prices which must be in the process of bottoming. The reasoning here becomes circular. Housing prices are finding a floor because of the government's help to create demand. The actual issue of whether people will buy homes is left out of the equation.
Also left to the side in the government's calculus is the fact that people who have homes now may not pay their mortgages on time, and, in some cases, will not pay them at all. Those numbers are rising and not falling, which undermines the premise that the federal government can control anything that it wants to control.
According to Reuters, "Dan Adams, president of U.S. Information Systems for Equifax Inc, reported that 7 percent of homeowners with mortgages were at least 30 days late on their loans in February, an increase of more than 50 percent from a year earlier." And, nearly 40% of subprime borrowers are behind by a month, which is also up significantly from 2008.
The government's predictions have trouble taking panic and turning it into a number or a digit, so its calculations will always be well off the mark. (See pictures of the Top 10 scared traders.)
The government is not alone in having trouble finding the key to the housing disaster. Almost all of the arguments and forecasts about residential real estate run in circles which may be why it is so hard to tease out what the real issues are. Only three things are certain. The first is that housing prices are still falling. The second is that mortgage rates are at remarkably low levels. And, the third is that delinquencies are rising.
What cannot be known but can be inferred from the information available now is that the perception of potential home buyers is that prices will go lower. Home buyers are not jumping into the market the way stock traders did a month ago when they were convinced that the S&P was as low as it would go.
About six or seven years ago, many people stopped buying houses as places to live in for ten or twenty years and began to look at them as investments. When that started to happen, what a house was worth went from becoming a number people looked at when they burned their mortgages after being in their homes for thirty years to a figure that they checked with their realtor or online once a week. At that point, the comfort of owning a home began to disappear and the instability of the housing market entered the system.
Douglas A. McIntyre
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