By Mike Colpitts
More than four years after beginning its downturn, many housing markets are stabilizing. Stabilization is key and the first step in the recovery process as markets settle from the worst housing crash since the Great Depression.
The long-running housing depression is far from over, but there are more indications that stabilization is developing on a wide scale nationally than at any other time since the downturn started.
However troubling the process may be, markets in the hardest hit areas of California, Florida, Michigan, Ohio and a handful of other states that have suffered the highest numbers of foreclosures have seen housing values drop as much as 75%.
The foreclosure epidemic is the most severe economic challenge the U.S. faces, and only the federal government has the ability to improve conditions, while millions of Americans wait.
Home sales have improved in California, Florida, Michigan, Arizona, Nevada and Ohio markets, where investors flocked to purchase bargain priced foreclosures. San Francisco real estate agents report more sales activity, including higher priced homes. Seattle has seen pending home sales rise for the first time in three years. Evidence suggests that in some neighborhoods prices are moving upward. The first time home buyers’ federal tax credit, lower mortgage rates and lower home prices have begun to create improving consumer confidence in relationship to making home purchase decisions.
The lowest mortgage rates in three months triggered a soaring number of mortgage loan applications last week, according to the Mortgage Bankers Association. However, the Federal Reserve said they still expect millions of more foreclosures as Housing Predictor forecast.
The Treasury Department now concedes that only 12% of homeowners are eligible for loan modifications under the current Obama administration housing rescue plan.
Increasing home sales are providing some stabilization in conditions. But a back-log of foreclosures could prolong stabilization in many markets. The Treasury said 360,165 homeowners have had mortgage modifications through July, demonstrating a small increase of efforts by lenders.
The Fed said half of Federal Reserve districts saw evidence the national economy was improving. Housing Predictor has found that slightly less than half of all housing markets, including many U.S. major urban areas are seeing improvement in housing stabilization.
The data illustrates a mixed view of markets with growing unemployment and flat retail sale reports. An economic recovery without employment growth would hurt housing markets as more homeowners, who become unemployed miss payments, possibly sending the economy into another downward cycle.
Flaws in the Obama plan allowing bankers to deal with mortgage holders without imposing strict guidelines to require modifications are at the center of the failing mortgage rescue plan.
Speaking before the Congressional economic committee, Treasury Secretary Tim Geithner defended the administration’s plan, saying the federal tax credit is “just one part” of the program. Efforts by the Fed have also been made to buy up billions of dollars in toxic mortgage-backed securities, which in turn provide funds to bankers in exchange. The process is intended to loosen lending, and provide a larger supply of money for refinancing, new home buyers and businesses. Fannie Mae and Freddie Mac guidelines have been expanded to include refinancing on homes up to 125% of current market value, allowing more than 2.1-million homeowners to refinance.
Stabilizing housing markets from their record tumble has been anything but easy. Talk of renewing efforts in Congress to resurrect a bill that would give bankruptcy judges authority to modify millions of home mortgages is growing. Big banks benefited from more than $2 trillion in loans through the Treasury and Fed’s efforts.
In order for markets to maintain improving the government would have to extend the first time buyers tax credit, perhaps even expanding it to a wider range of buyers, and slash the volume of properties being foreclosed. Should leaders fail to act, it is clear a worsening of the foreclosure epidemic will develop and millions of more homeowners, already under water on their mortgages, will walk away from their homes.
Mike Colpitts is a real estate analyst and the Editor of Housing Predictor.