On Thursday of this week government officials and five large U.S. banks came to a 25 billion dollar settlement over alleged foreclosure abuse practices. On Friday, Ben Bernanke, the Chairman of The Federal Reserve was pushing for new policies to help the battered housing market. In reality, the housing market has taken a beating since 2006 and the numbers are the worst since the Great Depression with homeowners losing somewhere between 6 to10 trillion dollars of net worth since the peak. While some government officials proclaimed Thursday’s 25 billion dollar settlement as very important, it is really almost meaningless in the overall scope of things. The truth of the matter is that Mr. Bernanke is one person in government who is not sugarcoating the housing crisis. Real-estate is still on shaky ground, and Washington may have to be more proactive to keep things from getting worse.
Real Numbers
For my money, The Standard & Poor's Case-Shiller Home Price Index is the best place to look at how housing prices have performed over the last 10 years. Mature housing markets like San Francisco are down approximately 40%, while “Boom Cities” like Las Vegas are down over 50%. Other than Boston, New York City, and Washington D.C., the housing market has not done well on a national level. For example, Florida and New Jersey have been pummeled in the East, while California can be viewed as a good example of over leveraging gone bad in the West. To check out the local numbers web sites like www.trulia.com and www.dqnews.com are also quite helpful. Bottom line, we are down nearly 33% off the peak, and about 25% of homeowners owe more on their homes than they are currently worth.
How to Stabilize the Housing Market – Part One
The prime focus for the public and private sector “Movers and Shakers” should not be to garner the greatest number of photo opportunities, but finding ways to slow down the practice of sending jobs offshore, while simultaneously formulating a logical plan to lower the unemployment rate by creating well paying long-term jobs. Over the last 24 months state and local governments have shed jobs, so they cannot be counted on as employment drivers. As a result, the private sector will be given the task of directly hiring people to help lower the unemployment rate. This event can only happen with the help of Washington. President Obama must be commended for signing The Tax Relief, Unemployment insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853), which for one year (2011) lowered payroll taxes. However much more needs to be done. It is up to Washington to craft laws that will spur job growth. It could be in the form of tax credits and, or other incentives that would make it compelling for the private sector to hire on a mass scale or a targeted approach that would attract businesses into depressed areas.
How to Stabilize the Housing Market – Part Two
Let’s look at the facts. The Federal Reserve will likely keep interest rates near zero for the next 24 months because America has a current unemployment rate of over 8% with somewhere around 15 million unemployed, and a weak housing market. With initiatives like Quantitative Easing 2 (QE2) and Twist, the Federal Reserve has not been laying idle. Late last week Mr. Bernanke brought-up some other options that include putting bank owned foreclosed properties back on the market as rentals, with the goal of raising the profile of the neighborhood in question. This type of action would no doubt help states like California, Florida, and Nevada, which suffer from a high foreclosure rate. As a result, low interest rates and the aforementioned rental scenario could augment a well defined job creation program to not only create a bottom, but help prices rise.
The housing market is still trying to find a bottom, and is currently a drag on the overall economy, which is an acute observation made by Mr. Bernanke, who seems to get it. This is the worst housing market since the Great Depression and Washington may have to “Have-Gun's-A-Blazing” mindset to improve matters regarding this key economic sector. It could be in the form of holding rates steady for the next two years, or establishing a true job creation program. Bottom line, Washington needs to be creative and push through measures that will help stabilize residential real-estate prices. Until then, we will hit many air pockets on the road to recovery in the residential real-estate sector.
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