housing
This morning's front page New York Times article follows two days of Wall Street buzz that another Administration housing refinance program will be forthcoming soon. The road is littered with past failures as cited in this CRS testimony last spring. Nonetheless, President Obama's intense fundraising, opening of the Strategic Petroleum Reserve, and upcoming Labor Day speech on jobs all share single focus: get reelected by lowering the unemployment rate and reviving the housing market within the next year. I thought all of those afternoon meetings President Obama had with Treasury Secretary Geithner a few weeks ago were about the S&P downgrade and the Euro, but they may have been to explore new domestic policy initiatives. To the extent that homeowner fears are behind the weak housing market, another trumpet blast from President Obama might help.
The latest Case-Shiller data are out, and the news is not pretty. From The Washington Post yesterday:
The Standard & Poor’s Case-Shiller index shows that single-family home prices fell 4.2 percent nationally in the first quarter from the previous quarter, leading analysts to conclude that prices have fallen by more than they did during the Great Depression.
The article goes on to discuss that a rebound might come, eventually, when the backlog of foreclosures are worked through the system. I am more pessimistic -- we are seeing these housing price declines in an interest rate environment that is designed to prop up prices through low mortgage rates. Mechanically, when those rates begin to rise, there will be even further downward pressure on prices. This ride is far from over.
Yale Professor Robert J. Shiller spoke to the National Economists Club at lunch today in Washington, D.C. He expressed concern of slow growth until the next recession, his definition of a double-dip. His 20-city Case-Shiller real home price index declined 35% from its 2006 peak until early 2009, when Fed mortgage backed securities purchases and the homebuyer tax credit pushed it back up just over half as much, but he expects further housing price declines with the expiration of those government interventions on March 31 and April 30 respectively.
That's the headline on David Kocieniewski's article on the front page of the business section of this morning's New York Times. Successful is defined as giving $12.6 billion to 1.8 million taxpayers who have enough income and a high enough credit score in this economy to buy a house. Most of them would have bought that house without the credit, but its very difficult to prove because we'll never know how many homes would have been purchased if the credit had not been enacted. We do know that the Treasury Inspector General chided the IRS last September for allowing many taxpayers to claim the credit without having to prove they purchased a home. We also know that housing prices have stabilized in many markets where the credit seems to have been used by many purchasers, and we'll soon find out whether those prices start sliding again when the credit expires at midnight Friday, April 30.
That's what Laurie Goodman told the National Economists Club today in D.C. 7.2 million are already in the delinquency pipeline, and 250,000 are going delinquent each month bringing the total to 12 million. "Once you're 60 days delinquent, a foreclosure is highly probable," she said. Goodman is a Senior Managing Director of Amherst Securities and is widely recognized as the best housing finance economist on Wall Street.
