Home market isn’t on rebound yet

March 11, 2011

A vacant house for sale is pictured at the Green Valley Ranch neighborhood in Denver, Colorado July 26, 2007.  REUTERS/Rick Wilking Are we there yet? Is the U.S. home market on the upswing?

As Alan Greenspan would say, “there are shoots,” although a true spring in housing is still hampered by a chilly economic climate throughout most of the country.

One positive sign came from new mortgage applications, which jumped to the highest level in three months last week, according to the Mortgage Bankers Association.

As Congress and state attorneys general wrangle with a number of reforms to seed a housing rescue, most of the country is not out of the woods. Yale Economist Robert Shiller warned recently that housing prices could “slip another 15 to 25 percent”.

Foreclosures and defaults are continuing unabated. Most of the news concerning housing is still frosty. The S&P Case-Shiller Index (for the fourth quarter of last year), showed prices in 19 out of 20 markets surveyed down for December over November. Washington, D.C. was the only major market that rose.

Cities gob-smacked by the bust — Las Vegas, Miami, Phoenix and Tampa — all hit new lows in December. Even markets that weren’t inflated as much in the bubble saw new lows (Atlanta, Charlotte, Seattle and Portland, Oregon).

Although the percentage of distressed sales is still alarmingly high at more than one-third of all sales, according to CoreLogic, they are down from their peak in January of 2009.

Why would I be remotely optimistic that we’re not in a sustained double-dip housing recession? Unemployment has been improving of late. That’s always a plus for housing and figured in the meager spurt in mortgage applications.

The other hopeful sign is that Congress slowly seems to be moving to fix what’s broken in the housing market. The Obama’s Administration main housing aid program, known as “HAMP,” is targeted for elimination.

Good riddance. HAMP has been so ineffective that Elizabeth Warren, the new consumer financial bureau adviser, likened it “bailing out the boat with a teaspoon as it takes on gallons of water.”

An even more aggressive — and potentially helpful — proposal is being discussed by major banks and state attorneys general trying to settle over alleged “robo-signing” mortgage abuses.

The states’ proposal would allow homeowners to write down principal balances while renegotiating mortgage terms. Although it’s too early to tell, this one measure could prevent a large number of foreclosures. It’s only fair since homeowners attempting to refinance were unable to negotiate lower payments based on home values that crashed. Congress has failed to allow mortgage holders to write down balances in bankruptcy court, so this could provide some buoyancy for the ever-sinking housing market.

There are millions of foreclosures in the pipeline that create a shadow inventory of homes. Banks can still dump these properties on the market, which will further depress housing prices.

Only keeping people in their homes and stimulating sales could forestall a full double dip. Back in Washington, policymakers are sluggishly attempting to restructure the debt-besotted mortgage insurers Fannie Mae and Freddie Mac, which were seized by the Treasury Department in late 2008. The companies now account for more than 80 percent of the U.S. mortgage market.

One item that the Fannie/Freddie reconstructive surgery team needs to consider: Softening the rule that credit scores be nearly perfect for home buyers.

In recent years, the mortgage insurers have raised the standards so high that only a few qualify for loans now. One mortgage broker friend of mine says her business is so dismal (citing the credit score problem) that she’s getting out of it.

If the states and Feds can get on the same page, maybe they’ll figure out that keeping people in their homes is still a good idea — and one way to buoy the market. Otherwise, expect the long winter in U.S. housing to continue. Better to be a hedgehog than a groundhog.


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So “it’s only fair” to allow people who took on mortgages they couldn’t afford in the first place to lop, say $100k off the balance, because after all, their home is worth that much less than when they bought it, right?

Gee, I think I’ll go out and buy a million-dollar house. Because values will probably slide another 20 percent, and when that happens I’ll just have my Uncle Sam slash $200 grand off my mortgage. Let the hardworking taxpayers who’ve kept up payments on homes they could afford pick up the tab. Assuming there are any left.

You talk about the government “keeping people in their homes,” as though people were little government pets to be sheltered and fed instead of being responsible for their own lives.

Ask yourself this: Are we as a nation better off or worse off with government programs like bankrupt Fannie and Freddie (you could call their function “getting people into homes”) and the money-printing machinery behind them? What does the future hold for these programs? And for our national balance sheet?

Are government housing programs really the solution? Or would we be better off without them?

Posted by NewsLady | Report as abusive

I would offer that anyone who would be able to “Lop $100k” off their balance, to come in line with current market value, would not have been one of those poor people who purchased more home than they could afford.

Posted by Laster | Report as abusive

A lot of people had mortgages they could afford, but when they were suddenly worth much less than the remaining balance it just didn’t make sense to keep on paying for it.

Posted by breezinthru | Report as abusive

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Posted by Home market isn’t on rebound yet | Prism Money | Analysis & Opinion | Reuters.com | Slinking Toward Retirement | Report as abusive

As I’ve noted in earlier columns, corporations are allowed to write down values of depreciated assets all the time. Why not homeowners? I think HAMP is a failure, but doesn’t mean that Fannie and Freddie should be entirely eliminated. Maybe downsized. It’s hard to tell what the right course is with the market so dismal.

Posted by johnwasik | Report as abusive

The article states: The states’ proposal would allow homeowners to write down principal balances while renegotiating mortgage terms. ………….

and then the article states:

Congress has failed to allow mortgage holders to write down balances in bankruptcy court, so this could provide some buoyancy for the ever-sinking housing market.

This article makes an assumption that letting a group of underwater homewaters write down principle will then create a bottom and add buoyancy. What I don’t understand is why so few “official” and folks who sound like experts never explain the other assumption. That is once a few homeowners get principle write downs then the remaining 15 million underwater homes will want and deserve the same principle write down and if they don’t get it will all walk away. The power of the internet will allow all 15 million to share information and a time and date to stop paying their mortgage.

I am so tired of congress wasting this precious time considering principle write downs. It is a no go option.

Any option needs to be fair to all in America or just let the things fall as they are now. The only thing the government should be doing today is making it OK and even supporting homeowners to walk away before they spend their last dollars including retirement, children’s education savings etc. before doing the inevitable anyway.

Posted by LeePutnam | Report as abusive

johnwasik, corporations write down the value of their *assets*. For a homeowner, the mortgage is a *liability*.

It is pretty rare for a corporation to reduce the value of its liabilities. That is known as “default” and typically only happens in “bankruptcy”, at which point the creditors seize control of the corporation.

You are welcome to write down the value of your house in Quicken, but you still owe the original balance on the mortgage.

Posted by TFF | Report as abusive

“The first is to allow immigration to any otherwise qualified person if they purchase a home meeting certain standards, provided they purchase it entirely for cash.”

An interesting idea — very different from our present system in which we have effectively unlimited illicit immigration, but mostly individuals with no education or money.

“Second, allow a single residence to be exempt from all taxation (e.g., real estate taxes), provided that the contiguous land area is below a specified size.”

Property taxes are the primary funding source for schools and local services. Can you think of a fairer way of raising that money? (I can think of several, but there is huge momentum behind the present system.)

Demand isn’t going to rise until prices fall substantially. You can reasonably afford to buy a home that costs 3x your annual salary, but many people were stretching for 5x, 8x, or even 10x… That’s when you get into trouble.

In some countries, real estate is largely cash-transfer. I do appreciate the societal value of being able to take a low-interest mortgage, though I agree with you that this principle was taken WAY too far. There really is no need to offer anything greater than 80% LTV. Don’t have the downpayment? Rent for a few more years…

Posted by TFF | Report as abusive