Housing Market Blues

by MIKE WHITNEY

The collapse in housing prices is gaining pace proving that the Fed’s bond purchasing program (QE2) has been an utter failure. While liquidity sloshes around in the equities markets, the distress on Main Street is more excruciating than ever. The release of the Case-Shiller index of property values on Tuesday, confirmed analysts worst fears, that the decline in prices is accelerating on the downside further weakening household balance sheets, wiping out precious home equity, and thrusting working class families back into the red.

According to Bloomberg:

"Residential real estate prices dropped in January by the most in more than a year, raising the risk that U.S. home sales will keep slowing. The S&P/Case-Shiller index of property values in 20 cities fell 3.1 percent from January 2010, the biggest year-over-year decrease since December 2009….

Rising foreclosures are swelling the number of houses on the market, which may put additional pressure on prices in coming months. At the same time, a further decline in home values may keep potential buyers on the sidelines as they foresee better deals, hurting construction and consumer spending as owners’ equity evaporates." (Bloomberg)

Who will buy a house in this market knowing that the same house might be cheaper tomorrow by tens of thousands of dollars? So, why has Fed chairman Ben Bernanke focused all his energy on the financial markets? Indeed, $600 billion in monetary stimulus has sent stocks into the stratosphere rising nearly 15 percent in just 3 months, but what about the underlying economy where wages are frozen, 14 million people are out of work, food stamp usage is at record highs, and the housing market is crashing? Bernanke is like the man who tries to fix his car by digging a hole in the back yard. It can’t be done, because the two things are entirely unrelated. QE2 has been a bust for everyone excluding the bank Mafia that torched the financial system with their pernicious flimflam.

So now prices will likely overshoot their historic trend due to growing pessimism and uncertainty about the overall health of the economy. Does Bernanke really believe that the financial markets can detach themselves from the real economy and float freely on a wave of overleveraged paper assets traded between charlatans?

Be serious. Housing needs a lifeline, pronto. Every downtick in prices means more lost equity, more foreclosures, more backlog, more red ink for the banks, and more years of scraping the bottom. Owning a home is no longer a vital part of the American dream; it’s a sinkhole that devours everything and leaves its owner drowning in debt.

More from Bloomberg: "Foreclosure filings may climb about 20 percent in 2011, reaching a peak for the housing crisis, according to RealtyTrac Inc….

The median price of existing homes, which make up more than 95 percent of the market, slid 5.2 percent from a year earlier, erasing all gains made after February 2002, according to the National Association of Realtors."

So, we’re back to 2002 and counting. How much carnage can Bernanke and Obama endure before they lend a hand?

Prices are tumbling, inventory is mushrooming, and foreclosures are off-the-chart. Yes, the market can fix this problem by adjusting prices according to supply and demand, but that wasn’t the standard Bernanke used with the banks. Oh, no. Bernanke purchased $1.7 trillion in garbage mortgage backed securities (MBS) to keep his shifty buddies from taking the hit. (And that was AFTER the $700 billion TARP) It just goes to show that "free market" solutions are always jettisoned when they don’t meet the needs of the rich and powerful. The free market is just a stick that’s used to beat up on little guys.

According to Case-Schiller, housing prices are now off by 31.4% from their peak, a measly 2.2% above May 2009 the post-bubble bottom. So, when do we hit bottom; 35%, 40%, 50%?

Bank of America has already seen the light and started a pilot-program for making principal reductions on existing mortgages, in other words, lowering the face-value of the loan. This is a step in the right direction and could help eliminate negative equity leading to additional "walk aways" and foreclosures. According to Housingwire:

"The program will be funded from the $699.6 million the California Housing Finance Agency received from Treasury Department’s Hardest Hit Fund last year. A spokesperson for the CalHFA said there is no set amount of loans BofA is targeting, but the bank will be soliciting eligible homeowners soon." (Housingwire)

The Obama administration should abandon its limp-wristed attempts at mortgage modification (HAMP) and establish Federal guidelines for "forced" cramdowns (mortgage reductions) as soon as possible. That will keep millions of people in their homes and quickly stabilize the market. There’s been enough devastation and bloodletting already. Housing needs government support and a policy that’s crafted in Washington not Wall Street.

MIKE WHITNEY lives in Washington state. He can be reached at: fergiewhitney@msn.com.

 

 

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

Like What You’ve Read? Support CounterPunch
Weekend Edition
July 31-33, 2015
Jeffrey St. Clair
Bernie and the Sandernistas
John Pilger
Julian Assange: the Untold Story of an Epic Struggle for Justice
Roberto J. González – David Price
Remaking the Human Terrain: The US Military’s Continuing Quest to Commandeer Culture
Lawrence Ware
Bernie Sanders’ Race Problem
Andrew Levine
The Logic of Illlogic: Narrow Self-Interest Keeps Israel’s “Existential Threats” Alive
ANDRE VLTCHEK
Kos, Bodrum, Desperate Refugees and a Dying Child
Paul Street
“That’s Politics”: the Sandernistas on the Master’s Schedule
Ted Rall
How the LAPD Conspired to Get Me Fired from the LA Times
Mike Whitney
Power-Mad Erdogan Launches War in Attempt to Become Turkey’s Supreme Leader
Ellen Brown
The Greek Coup: Liquidity as a Weapon of Coercion
Stephen Lendman
Russia Challenges America’s Orwellian NED
Will Parrish
The Politics of California’s Water System
John Wight
The Murder of Ali Saad Dawabsha, a Palestinian Infant Burned Alive by Israeli Terrorists
Jeffrey Blankfort
Leading Bibi’s Army in the War for Washington
Geoffrey McDonald
Obama’s Overtime Tweak: What is the Fair Price of a Missed Life?
Brian Cloughley
Hypocrisy, Obama-Style
Robert Fantina
Israeli Missteps Take a Toll
Pete Dolack
Speculators Circling Puerto Rico Latest Mode of Colonialism
Ron Jacobs
Spying on Black Writers: the FB Eye Blues
Paul Buhle
The Leftwing Seventies?
Binoy Kampmark
The TPP Trade Deal: of Sovereignty and Secrecy
David Swanson
Vietnam, Fifty Years After Defeating the US
Robert Hunziker
Human-Made Evolution
Shamus Cooke
Why Obama’s “Safe Zone” in Syria Will Inflame the War Zone
David Rosen
Hillary Clinton: Learn From Your Sisters
Sam Husseini
How #AllLivesMatter and #BlackLivesMatter Can Devalue Life
Shepherd Bliss
Why I Support Bernie Sanders for President
Louis Proyect
Manufacturing Denial
Howard Lisnoff
The Wrong Argument
Tracey Harris
Living Tiny: a Richer and More Sustainable Future
Kollibri terre Sonnenblume
A Day of Tears: Report from the “sHell No!” Action in Portland
Tom Clifford
Guns of August: the Gulf War Revisited
Renee Lovelace
I Dream of Ghana
Colin Todhunter
GMOs: Where Does Science Begin and Lobbying End?
Ben Debney
Modern Newspeak Dictionary, pt. II
Christopher Brauchli
Guns Don’t Kill People, Immigrants Do and Other Congressional Words of Wisdom
S. Mubashir Noor
India’s UNSC Endgame
Ellen Taylor
The Voyage of the Golden Rule
Norman Ball
Ten Questions for Lee Drutman: Author of “The Business of America is Lobbying”
Franklin Lamb
Return to Ma’loula, Syria
Masturah Alatas
Six Critics in Search of an Author
Mark Hand
Cinéma Engagé: Filmmaker Chronicles Texas Fracking Wars
Mary Lou Singleton
Gender, Patriarchy, and All That Jazz
Patrick Hiller
The Icebreaker and #ShellNo: How Activists Determine the Course
Charles Larson
Tango Bends Its Gender: Carolina De Robertis’s “The Gods of Tango”