Have you noticed that many fellow Americans still have that look on their face?
You may even ask them, “Why such a sad look on your face my friend?”
Last week, Corelogic, a national data aggregator, reported that rising home values helped 1.3 million homeowners get out from "underwater" in the first half of the year, and another 2 million would get equity if national home prices increase by another 5 percent. Negative equity mortgages declined in 2012’s second quarter, falling from 11.4 million properties to 10.8 million, in all since the start of 2012, more than 1.3 million borrowers have moved in to positive equity.
Also, in the Wall Street Journal the Commerce Department reported that single-family housing starts in August rose by 5.5% from July to their highest level in 28 months. In August, builders started construction on 535,000 homes at a seasonally adjusted annual rate, up 26.8% from one year ago. Overall housing starts were up by 2.3%, amid a small drop in the more volatile multifamily sector.Meanwhile, sales of previously owned homes in August rose by 7.8% from July to their highest level in 27 months, the National Association of Realtors said. Sales climbed 9.3% from a year ago, marking the 14th straight year-over-year sales increase, even as the inventory declined.
So, once again, it would seem that since the housing market is bouncing back based on all this information and optimism in the industry and in the general public should be high.
Yet, for those in touch with reality, upon looking around are asking, “Why such a sad look on your face my friend?”
As previously noted, the path on which many home owners walk, and the path that many current renters would like to walk, is filled with challenging hurdles in an uncertain economic environment. No, not the type of hurdles that you have to clear to set a world-record time in an Olympic event, but the type that serve as real obstacles to becoming a homeowner. Compared to a few years ago, the mortgage-qualification process is rigorous, meticulous, and restrictive. Not to say that this is bad or wrong, just to note that the change in qualifications and approval process is curtailing many potential borrowers due to too much debt to qualify for a loan, too little down payment or too little home-equity to sell their current homes. Have you recently tried to compete in the Olympic hurdles event and drag a two-story home along with you while doing it? For many existing homeowners, that is exactly what they are dealing with. They are burdened.
Granted, our country has not only come out of the deepest recession in over 50 years, it is undergoing structural changes to the economy due to substantially greater use of technology in the workplace whichy reduces worker demand and competition from a global field of competitors. Yes, for every product you, the American consumer, buy at Walmart that was imported from China, or every piece of clothing you buy at Forever 21 that was imported from Malaysia, or the toys you buy at ToysRUs that came from a country outside the United States, you, the American consumer are saying yes to employees in other countries and No to employment here in this country, our country, the United States of America. Don’t get me wrong, I am not a proponent of protectionism, but I am a proponent of ‘consumer awareness’. So, if you are not consciously choosing where and how you are spending your money, then don’t whine about the state of our economy and housing market. You vote with your dollars and you live the life that you dollars have purchased.
So if you want the employment market to rebound, you ultimately need to vote for employment of your fellow Americans, your neighbors, your fellow PTA members, etc., by purchasing products that result in Americans getting back to work and you need to reinvest in your own skills to contribute to a future America which does not resemble the horse and buggy world of the prior century.
The Federal Government can only keep interest rates at historical lows for a limited period of time before we are going to be facing significant inflation problems, akin to the barbs tossed at Alan Greenspan for the last monetary bubble.
The government has been trying hard to encourage financial institutions to lend money by providing incentives but many of those very financial institutions lost their shirts (and went bankrupt / got taken over by the FDIC) and now they’re being asked to go back into the very lion’s den where they nearly went bankrupt? Not sure about you, but that is a brave request. Granted, they went into the lion’s den without armor and without battle preparation and got mauled, as well they likely should have for blindly originating and selling mortgages with no skin in the game, but it is still brave to return to the very arena where such catastrophic losses were incurred.
As reported by the Associated Press, a Federal Reserve analysis released Tuesday said that lenders made 7.1 million mortgage loans in 2011, the lowest annual number since 1995.
To combat this, in addition to the historically low interest rates, The Federal Reserve announced in September that it would continue to buy mortgage bonds with a goal of up to $40 billion a month for as long as necessary. Also, The Federal Housing Finance Agency released a little-noticed rule last week that makes it harder for Fannie Mae and Freddie Mac to hold lenders accountable when mortgages go bad. Under the new regulations, for loans insured by Freddie Mac and Fannie Mae, if a borrower makes payments for 36 consecutive months, banks cannot be asked to buy them back due to underwriting or appraisal problems. So if the borrower did not have enough income to qualify for a loan to begin with but paid on the loan for three years, the bank could not be pressed to buy back the loan. While there are critics who believe that this practice is in line with the practices that led to the housing crisis, there are those who hope that this new regulation could jump start the lending process again.
All I know at this point is that the good news oxygen being pumped into the media about housing getting better will not fully take hold in the lungs of American consumers and property owners until they feel a sense of confidence in their employment and in their community. So, be aware of your purchasing activities for it leads to employment which leads to economic recovery or not. The government cannot dramatically change employment, but you can. So help out your fellow American with a sad look on their face and be part of the solution and not part of the problem!
Michael Hobbs, SRA, LEED GA, PahRoo Appraisal & Consultancy