Since the crash of the housing market 18 months ago, financial institutions have been falling left and right with Washington Mutual looking to be the next victim. It has turned into a waiting game of the most epic proportions. Just trying to stay afloat at this point, banks are waiting for some kind of inclination as to where the bottom of this market is. Once a stabilization point is established Banks can get a firmer grip on their total losses and start once again to build credit. In this article from Tuesday’s Financial Times, things seems to be pointing up as Americans are perceived to be getting back into the housing markets. Price declines have fallen from 2.2% in February to .5% in June. In addition, the recent government backing of Fannie Mae and Freddie Mac has given markets a boost, and should help keep mortgage prices down and encourage Americans to purchase homes. All this however is but a small bright spot on what is an ugly U.S. housing market.
Though these signs point to the Housing market finally starting to, if not rebound, at least starting to stabilize, there are many very worrying signs that suggest that the market will not bottom out until well into 2009. The biggest worry is the rising foreclosure rate, which is up 183% in 2008 alone. Until this rate plateaus, it will be exceedingly difficult for Banks to predict the bottom of this crisis. A major concern came last week when the Fitch Rating announced that 92 billion in flexible payment loans would be subject to more stringent policies, thus making in harder on those borrowers and likely causing more foreclosures. This trend has been a common one as banks are desperate to sure up their capital with their borrowers. Amongst internal problems, the housing market is also facing serious external economic problems, the first of which being unemployment.
With eight consecutive months of job losses, the U.S. unemployment rate has jumped from 4.9% to 6.1%. Compound this with higher gas prices and the rising cost of foods, and it is not hard to see how the housing market could continue its downward spiral. Gas prices are hitting especially hard, as many of the foreclosures are coming from rural residential suburbs, where commuting via cars is much more common. OPEC isn’t helping the situation either as they just cut production as crude finally dropped below 100 dollars a barrel. As it stands now almost 1 in every 400 homes are being foreclosed.
The road ahead, though less rocky than what has already been traversed, seems to be long and enduring. Alan Greenspan said last month that housing prices could continue to slide through 2009 and some predict that we should be looking at a 2010 stabilization point. Either way we can only hope that what traction financial institutions have gained will be enough to hold them. Should unemployment continue to rise with inflation, the housing market could be in for a much-prolonged battle.
1 comment:
I think you've done a nice job of looking at a more broad picture of different economic views on the housing situation. It is difficult to see how foreclosure rates can decline if they have already caused so much disturbance for employment rates, oil prices, etc. Isn't it possible that the drop in the rate of price decline in the housing market is due to people not being able to afford to lose more money on reducing the price of their home? I am currently interning at a local, capitol-area real estate agency where professionals in this field are concerned that all of these economic pressures will impact the markets for far longer than expected. As we've seen in the last few days, even since you've written this post, more financial institutions are failing. I'm still not convinced that the dust will clear just yet.
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