Apparently, we’ve so much money in the government today, that we’re intent on fixing something that isn’t broken. Yes, I know, that’s a shocker. But, this is beyond stupid.
Reuters, among others, has a story out.
NEW YORK (Reuters) – Single-family home prices rose in October for nine months in a row, reinforcing the view the domestic real estate market is improving and should bolster the economy in 2013, a closely watched survey showed on Wednesday.
The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.7 percent in October on a seasonally adjusted basis, stronger than the 0.5 percent rise forecast by economists polled by Reuters.
“Looking over this report, and considering other data on housing starts and sales, it is clear that the housing recovery is gathering strength,” David Blitzer, chairman of the index committee at Standard & Poor’s, said in a statement.
While record low mortgage rates and modest job growth should keep the housing recovery on track, analysts cautioned home prices face downward pressure from a likely pickup in the sales of foreclosed and distressed properties and reduced buying investors and speculators.
Prices in the 20 cities rose 4.3 percent year over year, beating expectations for a rise of 4.0 percent.
Housing contributed 10 percent to the overall U.S. economic growth in the third quarter, while the sector represented less than 3 percent of gross domestic product, he said.
I haven’t written much about the housing market lately because there really hasn’t been much to write about. It’s growth has been slow but steady. This is exactly what one wants in a major economic sector. As the article rightly points out, there is downward pressure because of people like me. There are a lot of distressed properties still. What needs to happen is these properties need to bottom out. Yes, some people and banks will take a bath on this. But, that’s how the markets work. I won’t dwell on the part about making wrong decisions, that’s a huge part of how the markets work, instead, I’ll just point out that if the homes are sold at a very discounted price, then it is very likely the next sale of the property will be significantly increased. In other words, a very short term hurt, for a significant long term gain. The bottom part of the housing market is what keeps the housing market healthy. As we saw in the early part of the last decade, when there is no bottom part of the market, a bubble quickly ensues, and then an inevitable crash. But, still, even with the downward pressure, we see that housing has been a positive factor in our GDP. There are some troubling spots in housing, which I’ll get to in a moment.
So, what’s feds’ reaction to this lonely bright spot in the US economy?
(Reuters) – The U.S. government is considering expanding its mortgage refinancing program to include borrowers whose mortgages are not backed by Fannie Mae and Freddie Mac, the Wall Street Journal reported, citing people familiar with the discussions.
The refinancing program now being considered also seeks to include “underwater” borrowers who owe more than their homes are worth, the Journal said.
About 22 percent of all homes with a mortgage, or around 10.8 million homes, down from 12.1 million last year, were worth less than the outstanding balance at the end of June, the Journal said, citing data from CoreLogic.
Combined with Fannie Mae and Freddie Mac, which buy loans and repackage them as securities for investors, Washington’s footprint in the market has grown to account for nearly nine of every 10 mortgages.
This proposal isn’t so much a bailout proposal as it is a proposal to monopolize a market sector. Of course, the problem with that is that the feds are complete imbeciles and can’t run an ink pen, much less the housing market. But, like the infomercial says, “but, wait, there’s more”!
Townhall’s Kevin Glass reports the Federal Housing Administration (FHA), hit hard by the collapse of the housing bubble, is still making risky loans on the taxpayers’ dime, and may need a bailout in 2013. Writing in the Wall Street Journal, Nick Timiraos reports that the FHA will be facing a $16.3 billion shortfall at the end of September, forcing the government to direct taxpayer money to the agency.
Further reporting from Timiraos is that the agency will be suspending its most popular reverse-mortgage program. The federal government itself, despite the home bubble collapse in 2008, has added fuel to the fire.
In 2009, as home values plunged, Congress boosted the maximum home value that seniors could borrow against, fueling more demand for reverse mortgages. Private offerings of reverse mortgages disappeared as the housing bust deepened.
So, what happens when the feds pump billions into an otherwise healthy market? We’ll have another bubble directly if the feds get their way.
A final thought on being upside down on a mortgage. Unless one scrapes to lower part of the market, looking for a bargain, then nearly all mortgages start being upside down. Given the long term financing, and the interest rates people with poor credit ratings pay, they stay that way for quite some time. 22% is probably a higher percentage one would like to see, but the trend is getting better. We’ve continued to spend $billions to fix something that is self-correcting. And, we’re going to spend $billions more even the problem has already been resolved. I just can’t figure out why the government is broke!