U.S. government’s housing hangover may last years

June 3, 2011

The U.S. government is already up to its neck in housing. Fannie Mae, Freddie Mac and the Federal Housing Administration, all wards of Uncle Sam, now have a combined 290,000 foreclosed homes they need to unload. That doesn’t even count the million-plus that could end up on their books.

The government effectively owns more foreclosed homes than private-sector banks, thrifts and credit unions combined. That’s even after spending trillions of dollars trying to shore up the housing market since the dawn of the financial crisis. Data released earlier this week showed home prices plumbing new post-crunch lows, suggesting the housing hole could still get deeper.

The government’s role as a distressed seller raises more problems than it does, say, for private banks. Policymakers have broad social responsibilities and face political pressures to avoid making things worse for homeowners. Yet sales out of foreclosure tend to weigh on the residential market since they’re priced to sell quickly.

If the market can absorb 125,000 distressed sales a month, as Barclays Capital estimates, the government’s troubled property portfolio doesn’t look like a terrible overhang even after adding another 250,000 homes on the private sector’s books. But the so-called shadow inventory — foreclosed homes available for sale plus those in the foreclosure process and those where the owner is seriously behind on mortgage payments — stands at 4.3 million, equivalent to some 8.5 percent of all single-family homes with mortgages. Federal agencies could end up owning about half that. Other things being equal, it would take nearly three years to burn off the entire inventory.

A lot can happen in that time. But even optimists only expect home prices to hold steady for the next year. That’s hardly anything to cheer about, and any worse result could put more properties in danger of ending up owned by Uncle Sam. According to Freddie Mac, the time from a borrower’s last timely payment to foreclosure has increased to 456 days. For stressed borrowers worried their homes might fall further in value, it could be tempting to stop paying and see what happens.

The government’s expensive efforts so far seem to have prolonged the suffering rather than bringing release. With a double-dipping housing market, the growing overhang of properties it needs to sell can only make the clearout process longer and more painful.

Comments

Simple solution — open immigration to the first 300,000 families on the condition that they buy a house.

Overhang dries up overnight, and the immigrants bring needed savings and job skills to the US.

Posted by TFF | Report as abusive
 

Either allow a free fall so that the scrap is unloaded and fresh start from the lows will begin. US is doing the same mistake done by Japan, which is continuing the recession hangovers for decades for it tried to reign in recession and the hangover continues. Let the fall happen and there is fresh start from lows and economy grows bigger and better. Opening immigration is also a good idea as US is lowly populated compared to the land size and resources it holds….

Posted by AshokPats | Report as abusive
 

Santa Rosa Ca was supposed to see a 6% increase from last year but never materialized. We are looking for home prices to stabilize in our Real Estate Market and level off for a few years. Statistics and local MLS can be found at http://www.esonomacounty.com

Posted by sonoma-realtor | Report as abusive
 

ROFL,

more illegal aliens to live off welfare here in the US

the only two answers to housing problem

a) let housing prices fall to about $30,000 on average for a house (that way half of Americans who make less than $26,500 a year could afford to buy them).

b) have a massive building of manufacturing plants in America like we did in the build up to W.W.II and during the war to put Americans back to work so they can afford to buy houses again.

Side note: I do not think we won the war with Nazi Germany by importing all our goods from China. I am not a history major but I think China at the time was under the control of Japan.

Posted by JEYF | Report as abusive
 

Without jobs and easy credit, the problems will only get worse in the housing market.

Posted by M.C.McBride | Report as abusive
 

:) The immigration thing has been done already, hence we got the house bubble. On top we got Latin-american drug traffickers legally became Americans :).

Posted by Ananke | Report as abusive
 

Simpler solution — bulldoze the houses and repudiate any Federal guarantee for residential real estate of all types for 50 years. Overhang disappears. True cost of pumping billions into the construction industry becomes visible.

Posted by txgadfly | Report as abusive
 

“that they buy a house”… for cash only… I would add…:)

Posted by robb1 | Report as abusive
 

Mr. Simple Solution: most folks where I live, in an almost developed country that isn’t even considered to be “emerging” anymore…. make excellent wages, even if their actual purchasing power isn’t so hot in real term because of the overwhelmingly still overvalued US dollar. Those wages in the countryside stand at about $3 a day, although college grads can get as much as $5 an hour. As for the cream of the crop earners, they are doing just fine NOT immigrating to the US thank you. No, it’s time to smell the coffee dude.

Posted by threeRivers | Report as abusive
 

@TFF

Simple solution; naive thinking.

If you had the means to migrate to the U.S., you most probably don’t want to be living in a hell-hole filled with foreclosed properties.
And if you need a mortgage, you won’t qualify for immigration.

Posted by doctorjay317 | Report as abusive
 

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