Another Leg Down For Housing?
Readers suggested a topic on government finances and housing. “A question which I am sure is on the minds of many die-hard HBB U.S. housing market watchers is that of what the recent stock market route portends for the ongoing housing bust. A simple but plausible prediction is for the stock market dip to herald the second dip of a double-dip recession, dashing all hopes for a near-term housing recovery, and leading to ‘lower than expected’ U.S. home prices over the next five years, at least compared to MSM-favored ‘expert predictions.’”
“Once lenders and investors sitting on shadow inventory capitulate and put their homes on the market, further efforts to prop up housing prices will prove futile (not to suggest they have worked very well thus far…). No small part of future housing price declines will stem from U.S. federal government policy moving on to larger concerns than propping up home prices, such as ensuring that Uncle Sam can continue to pay his bills over the coming decades.”
A reply, “Definitely another leg down for housing. A doozy this time. The widespread acceptance of even a little drop will cause the banks who have been holding massive inventory waiting for prices to go up to throw in the towel and try to sell before the other one does. A REAL race to the bottom…”
One said, “I’ve reported all along the only period where our local ‘lower than median Northeast housing price’ prices seemed to substantially drop was when there was a loss of confidence in job stability. If the market volatility does not provide a bounce from this correction but instead turns into the 20% off previous heights bear market indicator, the layoffs will accelerate again. However, the government backed meds/eds/feds infrastructure is the base of the economy here so it will be gov budget cuts that break the dam.”
“When that happens, I expect to finally revisit the home prices we were seeing in 2008/early ‘09. I think we’ll still see the price stickiness for a bit* and then if the layoffs are real bad, a big drop down.”
To which was said, “You’d think the Tea Party people would shine a bright light upon the vast amounts of federal tax dollars wasted on the futile attempt to keep the housing bubble from continuing to collapse, wouldn’t you?”
A reply, “Not until talk radio starts beating that drum. Note: HBBers are excepted from this statement. The general populace gets their news from people who tell them what they want to hear.”
The Associated Press. “Standard & Poor’s, one of the world’s three major credit rating agencies, cited ‘difficulties in bridging the gulf between political parties’ as a major reason for the downgrade from U.S.’s top shelf AAA status to AA+, the next level down. The rating agency has essentially lost faith in Washington’s ability to work together to address its debt.”
“The downgrade, hours after markets closed on Friday, is a first for the U.S. since it was granted an AAA rating in 1917. The downgrade is a psychological blow to an economy that has struggled to recover from the financial tumult of 2008.”
The Street. “The fragile housing market may attract the attention of the Congressional committee charged with finding ways to cut the growing U.S. deficit. The Joint Select Committee on Deficit Reduction won’t be able to put much of a dent in the deficit by going after housing subsidies, but the subsidies are nonetheless thought to be relatively easy pickings.”
“The biggest savings from housing would come from cutting tax deductions on mortgage interest. Estimates vary widely, but the numbers–whether $80 billion per year or $200 billion are enormous. ‘Killing the mortgage interest deduction would be huge,’ wrote Robert Litan, a former associate director of the Office of Management and Budget, in an email exchange with TheStreet, though he is convinced it won’t happen as it is too popular with middle class Americans.”
“‘Instead, the idea in Simpson-Bowles of putting an overall cap on personal deductions - including home mortgage - is an ideal that may have legs,’ he says.”
“Another less talked about issue the committee may take up is fees charged by Fannie Mae and Freddie Mac. As part of a white paper published earlier this year, the Treasury Department has already proposed gradually raising fees the mortgage giants charge for guaranteeing mortgage backed securities, known as ‘g-fees.’ The idea would be to offset the government sponsored enterprises’ debts to the Treasury, while allowing the government to gradually withdraw from the mortgage market, which it currently backstops almost singlehandedly.”
“‘It’s inevitable that some g-fee increase will be part of deficit reduction,’ says Rob Zimmer, a former Freddie Mac lobbyist who now represents Community Mortgage Lenders of America. ‘It’s a relatively easy thing to do versus cutting other social programs for Dems or, in the case of Republicans, cutting defense spending or raising taxes.’”
“Over the long term, such a move would likely benefit big mortgage lenders like Bank of America, Wells Fargo and JPMorgan Chase says Ed Mills, policy analyst with FBR Capital Markets. That’s because they would no longer have to compete with Fannie and Freddie, whose fees are below what the market would dictate. However, raising the g-fee too quickly could further weaken the housing market, Mills says. ‘In the short term it could be viewed as a tax by some because they have no other options, and the only thing that changes is it is more expensive to make a mortgage.’”
