Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Feeble New U.S. Housing Market Rescue Plan Not Enough

Housing-Market / US Housing Mar 29, 2010 - 09:23 AM GMT

By: Sy_Harding

Housing-Market

Best Financial Markets Analysis ArticleHistorically, the two main driving forces for the economy have been the housing and auto industries. Whether the problems were rising interest rates that affected their sales, or bursting bubbles that scared consumers, economic slowdowns usually began with problems in the housing and auto industries, and the first signs of recovery were usually seen in the same two industries. The historical pattern has continued this time around.


The government program of $8,000 rebates to first-time home-buyers worked well last year to ignite home sales, while the ‘cash for clunkers’ program sparked the recovery in auto sales, the two combining to launch the current economic recovery.

There was some concern that both programs would only work for the short-term and be a drag at some point due to possibly stealing sales from future quarters. That may now be happening in the housing industry since home sales have been declining sharply again in recent months. The most disappointing reports were that the inventory of unsold homes jumped 9.2% in February and is back to its level of last September, even though new home construction fell 5.9% in February, now at a level of activity not seen since 1963.

On Friday the government announced a new program, this one aimed at preventing foreclosures. Its aim is to keep more people in their homes, another way of tackling the troubling level of unsold homes that keeps the real estate market depressed.

The statistics are dismal. Roughly 30% of home-owners with mortgages are ‘underwater’. That is, they owe more on their mortgages than their homes are now worth - and home values continue to decline. Meanwhile, not only have foreclosures continued to rise even as the economy recovers, but there is a large backlog of pending foreclosures in the pipeline, backed up due to the paperwork logjam at banks.

The new housing rescue plan announced Friday looks feeble in contrast to the size of the problem it’s tackling.

The new plan would allow lenders to provide ‘qualified’ home-owners who owe more on their mortgages than their homes are worth, and who are in default on their mortgage, with a new loan insured by the Federal Housing Authority, removing the lender’s risk.

However, the lender would have to take certain upfront losses, like cutting the principle amount owed on the mortgage to compensate for the decline in home values. The ‘rescue’ will not be available for home-owners who are underwater on their home values but are still making their payments.

The new program will also provide assistance to home-owners who are unemployed, in the form of having their monthly mortgage payments cut to just 31% of their monthly unemployment benefits for a period of three to six months.

The reasons the program can have only limited success are quite obvious.

For one thing, for more than a year the government has been putting pressure on lenders to modify ‘underwater’ and defaulting mortgages to help home-owners remain in their homes. Banks have been reluctant to respond, but yet there have been enough mortgages modified to give a pretty clear picture that it is not a long-term cure, only a short-term band-aid. Although involving only ‘qualified’ borrowers the banks believed could successfully make the lower modified payments, more than 40% of such modified mortgages, on which monthly payments were cut more than 20%, were back in default within 12 months.

And three to six months of assistance to unemployed home-owners is not a program with long-range chances of success, given the length of time that workers are remaining unemployed, unable to find new jobs after being unemployed for a year or two.

Meanwhile, the two programs that have had the best success in reviving the housing industry, or at least prevented it from dropping further into a black hole, have been the $8,000 rebates to first-time home-buyers, and the Federal Reserve’s program of buying mortgage-backed securities to help hold mortgage rates down.

The rebate program is due to expire April 30, and the Fed has announced it will halt its purchases of mortgage-backed securities this month.

I predict neither program will be allowed to expire, unless the government is willing to see the housing industry lead the economy back into recession.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in