There is no end in sight for the bottom of the declining housing market, despite efforts by the new Obama Administration to aid the ailing markets, according to the latest Housing Predictor forecast.
Lack of a coherent plan to stem the epidemic of foreclosures has continued to erode housing values, which are falling in the over-whelming majority of the country. The $75-billion Obama effort to modify mortgages is only a drop in the bucket to slow the onslaught of foreclosures, according to Housing Predictor analysts.
The crisis, which has already set a new record for the sheer volume of foreclosed properties could reach another 7-million homeowners through 2012 if Congress and the Obama Administration don’t step up to the plate to resolve the crisis. At least $500-billion would have to be allotted from rescue funds to help remedy the crisis, blamed for being the culprit of the nation’s economic woes.
The real estate crisis is at the heart of the nation’s worsening economy as homeowners borrowed against their homes in record numbers, and bought mortgages that were as creative as monopoly money. The crisis has left more than 4-million homeowners foreclosed, and millions more that could be impacted unless government officials intervene.
A Housing Predictor survey last October before the new president was elected to office showed consumers are pessimistic about the way things are going. More than 2 out of 3 surveyed or 67% said they believed the nation’s economy is moving into an economic depression. The same poll just completed showed nearly identical results with 68% saying they believe the economy is headed into a depression.
An economic depression is defined as a long lasting period during which business, employment, and stock-market values decline severely or remain at a very low level of activity. There have been six economic depressions since the early 1800’s in the U.S.
Growing unemployment, a new all-time high number of applicants for food stamps and growing doubts about the economy are sending shivers from Wall Street to Main Street. Policy makers in Washington, D.C. seem at a loss to comprehend the depth of the crisis, which Housing Predictor forecast nearly three years ago.
Housing markets will only begin to form bottoms in each area of the country when stability is injected into the marketplace, and the only entity that could possibly stabilize the credit markets with large enough injections of cash is the U.S. government. Attempts by Congress to do so under the new Obama Administration’s plan will assist in the stabilization. However, the funds will only act to aid the money markets after months of testing and implementation.
The crisis started in the real estate market, where homeowners and investors took out mortgages that were unhealthy for the overall economy. The root of the nation’s economic problems will remain in real estate until the markets are stabilized by government intervention. A temporary nationalization of at least some banks may be part of the answer.
The FDIC has taken over 17 banks so far and is expected to take over many more in efforts to stem the tide of economic pain. Confidence in the system and the economy would be strengthened if a bottom was put under housing. Until there is a clearly defined plan to place a bottom under housing, markets will continue to deflate.