By Mike Colpitts
The bottom of the housing market isn’t close. In fact, Housing Predictor is backing up our forecast for the bottom to hit all the way to 2010, and it may be longer than that. Fortunately or unfortunately our foreclosure forecast is coming all too true. Now 1 in 10 homes are delinquent or in the foreclosure process and another four out of 10 are upside down on their home equity.
As the government tries to figure out how to fix the worst economy since the Great Depression, job losses increase and the economy falls further into a tailspin. The bailouts will continue until consumer confidence returns. As more and more people lose their jobs, people buy less. Consumer sales going into the holidays are down. When people buy less in this consumer driven economy, we fall into a deeper recession.
Since we manufacture fewer products any more in this country, the consumer driven economy is the bulk or 70% of our economy. It’s sad to say but the same society that invented junk food invented junk mortgages, and now we’re eating the crap that goes with them and we will for a long time.
America’s real estate crisis has transformed into America’s Great Recession, and who really knows how close we are to another economic depression? As a country we have been through 6 economic depressions since 1818. You don’t hear or read much about that. The U.S.A. survived them all. So it’s not like a Captain at sea lost in the fog adrift in uncharted territory. As a nation we have been here before. All 6 were caused by real estate depressions.
The daily news reports that foreclosures are climbing. We know. After all, we were the first research company to forecast the foreclosure epidemic. Some 9,000 homes are foreclosed each day in this country. We’re in a lot of trouble, and it’s going to get a lot worse before it gets better. Times will be tough and the lean times will get leaner.
New investment products introduced on Wall Street and new creative mortgages got us into this mess with overly creative maneuvers. The deregulation Congress and the White House approved is also to blame and plenty of crooked dealings. That’s old news. Now we need to fix the problem.
When President-elect Barack Obama is sworn into office the weight of the World is on him. Obama has already announced his plans for a sweeping economic stimulus package, a job program that will help to rebuild the infrastructure of the country and build out broadband coverage for the Internet. Whether Obama wants to or not he’s going to have to do some things that are also unpopular. He’s going to have to stop foreclosures to get us out of this mess.
New legislation would re-write mortgages to lower amounts affordable to consumers. The change would act to stop deflation in housing markets and eventually trigger more home purchases. The mortgage companies and bankers who caused the crisis are already suing with their investors to halt similar mortgage modifications by bankruptcy judges. But unprecedented times take unprecedented actions to resolve.
For every foreclosure the nation’s economy is damaged an average of $225,000, the average U.S. mortgage. You do the math. Housing Predictor has forecast since last August when our latest update was issued on foreclosures that a total of 6.4 million foreclosures will occur. We’re already more than halfway into the foreclosure epidemic. More than 3-million adjustable rate mortgages are due to be readjusted in 2009, and a large percentage of those will not be able to be refinanced under current guidelines due to falling home values, triggering more foreclosures.
The country’s housing market is in such dire straits that Fannie Mae and Freddie Mac, the mortgage giants seized by the government, are considering forgoing new appraisals to refinance loans.
Both entities own $5.3 trillion of the U.S. home loan market, nearly half. Doing away with appraisals would be another blow to the economy unless the two insurers of home mortgages already figure more homes will go into foreclosure anyway, and the government is willing to pay for the additional losses. The government needs to force lenders to take part of the losses and of course the U.S. tax payer will be footing the bill on that too. The TARP money should be used for that. Like it or hate it there’s no other way out of this mess.