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August 24, 2010

Recovery Summer! Bottom Drops Out Of Housing Market (Again)

Oof.

Sales of previously occupied homes plunged last month to the lowest level in 15 years, despite the lowest mortgage rates in decades and bargain prices in many areas.

July's sales fell by more than 27 percent to a seasonally adjusted annual rate of 3.83 million, the National Association of Realtors said Tuesday. It was the largest monthly drop on records dating back to 1968, and sharp declines were recorded in all regions of the country.

Sales were particularly weak among homes priced in the lower to middle ranges. For example, in the Midwest, homes priced between $100,000 and $250,000 tumbled nearly 47 percent.

Robert Samuelson had a good rundown of the problems in the housing market yesterday. Naturally it boils down in good measure to idiotic government policies.

The irony is that, in failure, the GSEs (Fannie Mae and Freddie MAC) have become more important than ever. Private lenders, which once regarded a mortgage secured by a home as a highly safe investment, now see it as highly risky. Few new mortgages are made without government guarantees. The GSEs continue to operate and, along with other government agencies, guaranteed about 95 percent of new mortgages made in 2009, reports Inside Mortgage Finance, an industry newsletter. Since 1990, the government guarantee share had fluctuated between 30 and 50 percent.

This means that sudden withdrawals of support might deepen housing's depression. Economists Phillip Swagel of Georgetown University and Donald Marron of the Tax Policy Center, among others, have made sensible proposals to scale back Fannie and Freddie. But done too quickly, they could backfire.

"This is not a good time to make permanent solutions for housing," says Guy Cecala, publisher of Inside Mortgage Finance. The single-minded promotion of homeownership failed and, paradoxically, undermined the American dream. It contributed to the housing "bubble" and favors housing investment over new industries and technologies. But to end it, we need to make haste slowly.

So the government tries to level the playing field and make it fairer for people to have access to homes they can't afford and they wind up screwing it up for everyone...socializing misery.

At least we've learned our lesson and would never expand government into something as basic and important as health care. Oh, right.


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posted by DrewM. at 10:59 AM

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