The government has done all it can to try and help the housing market recover – from tax credits to low interest rates to mortgage refinancing to government-backed loans. Even so, the market is still crashing, with July of this year seeing the deepest plunge in home sales. This has led some economists and analysts to cry at the government and urge them to choose whether it will not be better to think of future homeowners rather than current ones.
The government has done everything it can to keep the housing prices up and to keep homeowners from foreclosing – market stabilization was the goal, to ensure that economy resurges. Why then, is July housing sales down by 26% from last year’s? Exhaustion from government intervention is what analysts and economists have come up with – this is why they are now suggesting something else, like letting the market crash.
The suggestion, though drastic, may lead to still lower prices but more home buyers. This, in turn, will stabilize the market, without the government having to add to the already billions of dollars spent on economy stabilization. As George Mason University real estate finance professor Anthony B. Sanders said, “Housing needs to go back to reasonable levels. If we keep trying to stimulate the market, that’s the definition of insanity.”
As the housing market further descends, more homeowners are seeing their home values drop to an average of 30%. Letting the market stand and supporting it may only lead to more decline in value. If this happens, these homeowners might be tempted to default and will be less likely to indulge in consumer spending, which the economy also needs for a more significant boost.
The government, though, is caught in the middle, having bet everything on the fact that everything will be okay once the economy gets better. As former Clinton administration housing official Howard Glaser shared, “They are deeply worried and don’t really know what to do.”
This may well be true. Last week, secretary of housing and urban development Shaun Donovan said that another credit – much like the one that expired in April, where first-time home buyers are credited $8,000 and repeat buyers $6,500 – may be in the horizon. Administration press officers, though, denied this, saying a new tax credit is ‘either highly unlikely or flat-out impossible’.
And for a good reason: the last tax credit took out $30 billion from the taxpayers, only to give the money to those who would have bought homes even without the tax credit. And with the ending of the tax credit, the market slumped deeper and deeper.
Homeowners, mortgage lenders, and builders alike are getting hit. Compared to the early 1980’s recession, when mortgage rates are even higher than what they are nowadays, today’s home sales are even lower.
This is also why more and more are clamoring for a ‘do nothing’ attitude: ‘extend and pretend’ and ‘delay or pray’ – phrases that have been used on the current government attitude – are long exhausted. Analysts say the free market should be left to do its thing for now.
The government, who has set the hopes of many home buyers up by giving the impression that an economic turnaround has begun through the numerous housing market program, is having a hard time giving in. With the housing market seemingly on its way to another decline, it is unlikely for the government to just abandon ship.
There are still those who believe that the prospect of further market crash should mean more government intervention; and there are those who believe otherwise. How the government will act, though, is still to be determined.
The economy and the world will NEVER be the same again.
No matter how much those from the Golden Age try.
You have been weighed and found wanting.
You did not fulfill THE LAW.
You will be removed from your seats of power and royal thrones..once and for all.
How about just finding a way for the underwater mortgages to be refinanced at the new, lower rates?
I think Mr Obama needs to read the FAIR HOUSING ACT before he makes these statemets about lenders releasing 10% of the principal balance of any secured mortgage. If the FHA ask the banks to do this it simply cannot be done based on appraised home values verses mortgage balance. The banks will be forced to do this for every mortagae loan they hold. The FAIR HOUSING ACT prohibits this kind of action. One might think that a Prisident would have someone on his cabinet that knows that?
GUESS NOT
Too much government debt is the problem! And how do you repair too much debt? Austerity measures through out the Western Hemisphere. Reduce the size of governments, cut taxes across the board, consolidate, reduce all governmental services at all levels, cut many services, review outrageous salaries and pension plans past and present, get the unions out of government. This will help all Western Nations compete with this new globalization world we live in today!
The government has spent trillions of dollars to keep the housing market unaffordable for young families. They have created another bubble in the housing market with artificially low interest rates, direct subsidies and taxpayer guarantees.
Homes are at least 20% overvalued compared to historical standards compared to rents and household income.
Our government is borrowing money from our kids to push young families into buying overpricing real estate in the most unsound economy in our nation’s history.
We are destroying the free market to loot from our children to reward wild speculation in the housing market.
How about just finding a way for the underwater mortgages to be refinanced at the new, lower rates?
Sounds like you’re underwater and you want ME to bail you out. Do you know how many homes iv’e financed and how cars I bought through the clunker program. I’m a renter and would like to buy but I’ll wait for the other 30% drop.
I am not a very smart man yet I knew asking for 700k for a small 2 bedroom in NW in 2007 was a joke – how could it be taking so long for folks to let things get back to normal? The other night, I played pool with 6 college friends, we are all in our mid-thirties now, one of five lives with his parents, the rest of us rent, we all make over 6 figures, this is absurd. Let the market correct itself, when I take a loss on investments no one has ever bailed me out, why should real-estate be any different? If I was to take a loan, and I might cause money is so cheap, I will be skipping the house and buying a franchise – this is a much more responsible use of a loan.
Sadly, as much fun as the ride was from 2000 to 2005, the trip down may be way more painful. The US economy simply had an unsustainable level of economic activity that was overheated not by earnings and production, but by new debt and liquidation of savings. Now people’s savings are exhausted, demand has slacked off, and overall debt is higher than ever. The excess debt includes all three major economic segments – governments, individuals, and businesses. The government has “the gas pedal on full” (e.g. record low interest rates, bailouts & subsidies, etc.) and STILL demand is low (look at home sales for one). All those jobs created in real estate related industries and all the “ripple effect” jobs created therefrom are just not needed any longer. Anyone waiting for “recovery” (what does that MEAN) such as a general level of sales increases, escalating home prices, significantly improved unemployment data, etc. will, at BEST, have a long wait. What’s going to make it happen? Will tax credits make businesses who are seeing slower sales, losing money, and cutting overhead to bare-bones hire more people or buy new equipment? It is going to take time and there’ll be a lot more players go our before this downturn is over!
the rip off days of the housing market is over and now theyre moving on to bigger and better things, the stock market for one. its rigged. But people are so broke (no more credit avail) some are willing to take the risk. Just like people were in denial about the housing prices. But as far as housing, theyve got something up their sleeves and you can bet it aint good. chase bank is hiring mortgage specialists that must be “experienced” so all those former mcdonalds employees turned “mortgage specialists” can reapply…are they expecting a boom in mortgage business? whats up? and what happened to all those forecasts of inflation?? are they just around the corner? under the guise of CORPORATE (GREED) profits.?? some millionaires from Italy and china are buying up all those condos in NY. do you think our govt care who buys them? or that they care if you have a home or not? dont kid yourself.
Was seeking for new SEO improvements once I located that one. Fascinating, but do you think it has a long shelf lifestyle?