Another dip in U.S. housing looks likely, bringing with it difficulties for banks and for their government guarantors.
What is perhaps worse: having chucked money at supporting asset markets in order to support banks the past two years, the policy options for handling another housing downturn and banking crisis would be greatly circumscribed.
If you think the debate about more fiscal stimulus is heated, wait until you see the venom which the prospect of another housing and banking bailout brings.
Despite absolutely massive official support, via the FHA, Fannie Mae, Freddie Mac, a now expired housing credit and other initiatives, air now appears to be leaking out of the housing market faster than it is being pumped in.
The recent run of data in the aftermath of the expiration of the housing credit has been terrible. Existing home sales fell 27 percent in July to an annual rate of 3.83 million, the lowest figure in the 11-year history of the data, leaving inventories above a year’s worth of sales even before you account for the shadow inventory of foreclosures and would-be short sales. Nearly 15 percent of all loans are past-due or in foreclosure and 23 percent of properties encumbered by a loan are in negative equity, meaning they have very good reason to default if they haven’t already. Another 5 percent of mortgaged homes have 5 percent equity or less.