The Unsustainable US Economy

The Unsustainable US Economy

The US economy is not sustainable. It is like a house built on an unstable foundation. I will make this a short bullet point post.

• Nearly the entire US economy was and still is based on consumer spending (think credit cards, car loans, etc.) and real estate, which was fueled largely by debt.
• The reason so much of the economy was based on consumer spending and real estate is that we do not make anything in the US any more. Real estate, in particular, is still something that has to be "made" in the US.
• Too much money (really debt) flowed into real estate and prices reached levels that could not be supported by personal incomes (the real historic driver of real estate prices - at least if you want a sustainable market).
• Now, our government want to artificially prop the price of real estate back up with more debt via the tax credit, expanded FHA (and other low/no down payment government loan programs), increased loan purchases by Fannie Mae, Freddie Mac and Ginnie Mae and bank bailouts (i.e. TARP). In addition to these taxpayer subsidies (more debt), the government instituted new FASB accounting rules which allow financial institutions (banks) to value their loans at debt value (i.e. the amount they are owed) despite the fact that many of their assets (think 2nd and 3rd mortgage loans, HELOC's etc) are worth 0-10% of that amount due to property value declines.
• The whole premise of this government plan is that if we give money to financial institutions (banks) and allow them to "cook their books", they will start lending to consumers and on real estate again.
• The government's desired result is that real estate will start increasing in value again which will in turn make the financial institutions (banks) healthy again (by virtue of eliminating the need to "pretend" their assets are worth something close to their actual debt values), bring back the construction industry and jump start other industries that feed off of real estate.

Below are my major issues with the plan above:

• Who will make these debt payments that are artificially high due to inflated real estate prices and increased consumer debt particularly in a time when unemployment is over 10%?
• The problems that started this entire mess in the first place were too much debt and inflated real estate prices (i.e. beyond what personal incomes could support).  These two causes operated hand in hand. Now, the government wants to start it all over again. This is insanity.
• The result of these government actions will be that the US economy will go up and crash again (due to another debt bubble, asset bubble and real estate bubble) and/or the US economy will be stuck in a low/no growth state for an extended period of time (think Japan).  Either result will cause more short sales, foreclosures and bankruptcies.
• The US economy will not enjoy sustainable growth until the real problems are addressed - jobs and debt (public and private).  In order to do this, we need to correct the economic and regulatory issues causing jobs to leave the US and we need to reduce public sector debt and encourage people to reduce their individual debt.

If you are a Middle TN homeowner, property owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I primarily help sellers (homeowners, property owners, real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in and around Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN).  If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Underwater Homeowners Walking Away From Their Homes

Underwater Homeowners Walking Away From Their Homes

According to this New York Times article, Homeowners Walking Away, a study produced by the Financial Trust Index (a financial and economic research group formed by the Kellogg School of Management at Northwestern University and The University of Chicago Booth School of Business) states that more than 25% of foreclosures are actually strategic defaults where the homeowners walk away from their homes and mortgages even though they can afford to pay their mortgages. The Press Release, When Homeowners Walk Away: New Research Reveals More than 25 Percent of Mortgage Loan Defaults are Strategic, and Study, Moral and Social Constraints to Strategic Default on Mortgages, show that while most homeowners generally believe that walking away from a home is immoral, many will still do it if their negative home equity situation reaches a certain threshold. According to the Press Release "17 percent of households would default, even if they can afford to pay their mortgage, when the equity shortfall reaches 50 percent of the value of the house." Given that information and the fact that a Deutsche Bank report published this past summer (See my blog post on the subject - SCARY STUFF: About half of U.S. mortgages seen underwater by 2011) predicts that about 50% of all US mortgages will be underwater by 2011, it is highly probable that the foreclosure crisis could actually accelerate in the near future rather then settling down as several organizations have suggested. I predict that there will be record numbers of loan modifications, short sales and foreclosures over the next 3 years.

According to the Press Release "People under the age of 35 and over the age of 65 were less likely to say it was morally wrong to default compared to middle-aged respondents." I guess that younger people and older people view the strategic default decision more as a business decision than a moral one. There are in fact consequences of walking away from your home and mortgage including damaged credit, which will make it very difficult to borrow money in the future, get credit of any kind, obtain insurance (insurance companies frequently check credit as part of the insurance underwriting process) and even get a job (employers frequently check credit as part of the job application process). Another pitfall of the strategic default is that you are open to a potential deficiency judgment where the mortgage lender could pursue you for their losses not recouped by selling your foreclosed home. For these reasons, I highly recommend trying a short sale instead of a strategic default.

If you are a homeowner in Middle Tennessee who cannot pay your mortgage (due to losing your job, having your income reduced, illness, health problems, etc.), or your home is already in foreclosure, or you owe more than your home is worth, please contact me to discuss your options including loan modifications or short sales. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN. If you do need to short sell your home (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Housing Market Problems Persist Despite Government Intervention

Housing Market Problems Persist Despite Government Intervention

According to this REUTERS article, Housing risks still lurk even as buyers return, the US housing market will likely decline further due to continued pressure from adverse economic forces. The article proposes that the most significant economic forces which will hurt the real estate market in the near and mid term future are:

• Expiration of the first time home buyer tax credit on Novermber 30, 2009.
• Continued job losses.
• High rates of foreclosures.
  

The article states "On the surface, a glimmer of confidence is returning to the battered U.S. housing market, after more than three years of gut-wrenching defaults, price slumps and foreclosures. But investors and homeowners in California, the most populous U.S. state and a benchmark for housing across the country, are bracing for another fall as emergency government support measures fall short or expire." The quotes Mark Jacques, a mortgage broker in Corona Del Mar, California as saying "All that has been achieved is to put off the real pain until later on. I'm hunkering down for the storm." I agree with this comment. The real problem with the real estate market is that housing prices still exceed the historical ratios of incomes to housing prices - in short houses are still too expensive when compared to the incomes people actually earn.

The article states "California led the United States when housing prices soared early this decade, spurred by an array of public policy incentives to encourage home ownership. The boom fueled a frenzy of lending and spending that drove the U.S. economy. But California proved to be the epicenter of reckless lending that pushed housing throughout most of the United States over a cliff in 2007, triggering a credit crisis that plunged the world economy into recession. The sobering view now from ground zero of the U.S. property market underscores the problems faced by President Barack Obama as he tries to fix the U.S. economy. Washington is trying to stem rising numbers of homeowners who cannot afford their mortgages as job losses mount. Housing prices have fallen to levels not seen since 2003. But even investors pouring millions of dollars back into real estate say it may take up to four more years for California's housing market to settle. The reasons why -- rising foreclosures, joblessness and tight credit -- are not unique to the state and may have already slowed a recent recovery in places like Florida."

Tax Credit Threat

The article describes how the potential housing rebound will be challenged by the expiration of the $8,000 first time home buyer tax credit on November, 30, 2009. According to the article, the "(tax credit) plan has resulted in 357,000 home sales so far in 2009, out of a total 3.88 million, according to a survey of realtors by research firm Campbell Communications Inc." The article quotes John Burns Real Estate Consulting in Irvine, California as saying that ending the tax credit "will likely cause a drop-off in buyers, or a "false peak" of the budding housing recovery."

Recent rumblings in Washington indicate that the government is considering extending and/or expanding the home buyer tax credit due to their concern that the housing market is still not stable. I have to say that the housing market is definitely not stable.

According to article, "Helped by government measures and a sense that the worst of the price slump is over, U.S. home prices have risen nearly 4 percent from their low point in April. But the bounce was preceded by a 33 percent slide since the peak in July 2006. The nascent housing recovery has combined with stronger data in other sectors to suggest the U.S. recession is over. This has helped thaw credit markets that are the lifeblood of the economy. Bidding wars are breaking out in some areas. Sales are now routinely above asking prices in California, from wealthy Orange County towns like Irvine to harder-hit San Bernardino County in the high desert east of Los Angeles." Apparently foreclosed houses are selling for 25-30% less than their 2007 market peaks, but still about 40% more than their original new construction prices of 2002. To me, those prices are still too high. Ask yourself, did incomes of the buyers for these types of homes increase 40% from 2002 to 2009? The answer is "No". Therefore, those homes are still priced too high.

Job Loss Threat

According to the article, "Efforts by the government and by banks to help struggling homeowners cut payments and stay in their homes are outpaced by mortgages going bad. The mortgage-modification programs risk being swamped by rising unemployment." A recent mass loan modification event in Los Angeles "drew 50,000 people over five days, hoping for mortgage-reduction deals to help keep them in their homes." The article quotes JC Ferebee, manager of Wells Fargo's team at the mass loan modification event, as saying "When you look at the whole culture right now and the economy with the jobs situation, it's a domino effect." We already know that the September 2009 US unemployment rate hit a "26-year high of 9.8 percent and is likely to head into the double-digit levels already suffered in California. The jobless rate is usually considered to be a lagging economic indicator because employers are slow to hire after a recession as they wait to be sure a recovery is for real. Economists fear that a protracted and high unemployment rate this time will deter Americans from spending more again on houses and goods, raising the prospect of a slow recovery." In short, jobs drive consumer spending and home purchases. With the economy shedding over 500,000 jobs each month there can be no real and meaningful housing market recovery.  What we are seeing now is more mirage than substance.

Foreclosures Threat

In previous blog posts I have stated that the banks are holding back on offering their foreclosures for sale and not taking back homes even when the home owners haven't paid their mortgages for many months. My opinion is that the banks are trying to artificially inflate the market values of their foreclosed assets (i.e. homes). According to the article, "Economists fear a repeat of the flood of foreclosure listings that scared all but vulture buyers -- specialized in assets few others want -- and sped the 2008-09 price slump. More than half of house sales in southern California in late 2008 and early this year involved "distressed" properties, accelerating price drops, according to Thomas Lawler, founder of Lawler Economic & Housing Consulting in Leesburg, Virginia. In response to the slump, banks slowed foreclosure sales to seek other solutions for homeowners and help shore up prices. At the same time, the Federal Reserve's emergency slashing of interest rates to near zero has helped encourage buyers to take advantage of the lowest prices in decades and a rush by the Federal Housing Administration, a U.S. agency, to guarantee more loans is also helping would-be home owners find credit. But the emergency steps by the government and the Fed will be overrun by economic forces, according to many analysts. "We are far from persuaded by a little summer upturn in a sector that the government had endeavored so mightily to support," Deutsche Bank said in a report last month. In California's Inland Empire -- a 27,000 square mile (69,900 square kilometers) region made up of Riverside and San Bernardino counties, prices will likely fall 15 percent from June for a peak-to-trough drop of 66 percent, the most for the biggest 10 U.S. metropolitan areas, Deutsche Bank predicted. Local buyers rely not only the scheduled-to-expire tax credit but almost entirely on funding from the FHA, which in response to rising taxpayer losses may soon tighten access to its credit. One bill would require bigger down-payments."  I discussed this FHA insolvency issue in a previous blog post.  In short, lending irresponsibly is not a solution for a problem that was caused by lending irresponsibly.

Regarding the failure of loan modifications, the article states "Nearly 43 percent of homeowners whose mortgages were modified in the first quarter fell behind on payments within three months, data from the U.S. Office of the Comptroller of Currency shows. For older modifications, the re-default rate is above 50 percent.  Postponed foreclosures have created a backlog that banks may have little alternative but to dump onto the market.  Foreclosures being processed surged nearly 80 percent in the second quarter from a year earlier to nearly 1 million. But completed foreclosures fell nearly 10 percent to 106,007, the OCC says.  Brokers in California bemoan what they say is just a delay in the inevitable pain of people losing their homes and the follow-on boom in sales of cheap properties, something for which there is no shortage of demand today.  Bruce Norris, president of property investment firm The Norris Group, said inventory levels are "completely artificial, completely baloney ... The delinquency rate (in California) has exploded, but inventory levels have gone down. In many of these cases the banks have simply avoided foreclosure."  I have been saying this for months.

According to the article, "Amherst Securities, a broker-dealer specializing in residential mortgage-backed securities, calculated a mountain of 7 million U.S. housing units is likely to end up on the market -- equivalent to 135 percent of a normal year's supply." Fred Arnold, a broker in Stevenson Ranch, California said "It's going to drip on the market.  We don't have the state and federal government that will let the natural supply and demand market occur which is pushing the real estate problem into 2012."  Amen, that is what I have been saying for months now.  The best way to get the housing market to stabilize is to allow the housing market to hit the real bottom, which will be at prices that buyers can actually afford without government subsidies.  Per my previous post, it will take until about 2020 (or longer) for home prices to return to their 2006 peaks.  For homeowners who owe more than their homes are worth and who have lost their jobs or suffered a reduction in their incomes 2020 will probably not come quickly enough.  Many of these homeowners will need to get loan modifications, sell their homes via short sales, or suffer through a foreclosure.

If you are a homeowner in Middle Tennessee who is unemployed or have seen your income decline and your home is worth less than your mortgage balance, please contact me to discuss selling your home via a short sale. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure expert and REALTOR. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN.

If you need to sell your home fast via a short sale you can my request help on my website at Get Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Expert.

Over 6,600 Home Foreclosure Filings Per Day

Over 6,600 Home Foreclosure Filings Per Day

According to this REUTERS article, Foreclosures mark pace of enduring U.S. housing crisis, in the US there is a foreclosure every 13 seconds which translates into "more than 6,600 home foreclosure filings per day, according to the Center for Responsible Lending, a nonpartisan watchdog group based in Durham, North Carolina. With nearly two million already this year, the flood of foreclosures shows no sign of abating any time soon."

According to the article, "the country's worst housing downturn since record-keeping began in the late 19th century may only get worse since foreclosures, which started with subprime borrowers, have now moved on to the much bigger prime loan market on the back of mounting unemployment. In congressional testimony last month Michael Barr, the Treasury Department's assistant secretary for financial institutions, said more than 6 million families could face foreclosure over the next three years."

The article references a September 2009 report from a FL foreclosure task force as finding that people are now defaulting on their mortgages for different reasons. The report states "People are no longer defaulting simply because of a change in the payment structure of their loan. They are defaulting because of lost jobs or reduced hours or pay."

According to the article, "A recent pickup in sales and home prices in some regions has been heralded as a sign that the crisis in residential real estate may be close to bottoming out, after the steepest price decline since at least 1890. But nearly half of recent sales have been attributed to foreclosures or "short sales" at bargain-basement prices. Even as the U.S. economy seems to be recovering from its worst recession since the Great Depression, mortgage delinquencies continue to rise. And that adds risk to any relatively upbeat assessment, since foreclosures depress the value of nearby properties while eroding the net worth of homeowners and the tax base for communities nationwide. The Center for Responsible Lending says foreclosures are on track to wipe out $502 billion in property values this year. That spillover effect from foreclosures is one reason why Celia Chen of Moody's Economy.com says nationwide home prices won't regain the peak levels they reached in 2006 until 2020. In states hardest-hit by the housing bust, like Florida and California, the rebound will take until 2030, Chen predicted."

The article quotes Celia Chen of Moody's as saying "The default rates, the delinquency rates, are still rising. Rising joblessness combined with a large degree of negative equity are going to cause foreclosures to increase. Anyone doubting that the recovery in U.S. real estate prices will be long and hard should take a look at Japan, Chen said. Prices there are still off about 50 percent from the peak they hit 15 years ago."

According to the article, the chief economist for the Mortgage Bankers Association, Jay Brinkmann, thought that foreclosures would peak in the second half of 2010. The problem is that this somewhat rosy prediction is based on unemployment falling in 2010 after reaching a peak "barely in double digits by the middle of next year." As we already know, the US unemployment rate reached 9.8% in September 2009 and show no signs of going down anytime soon.

I think this article provides even more evidence that the US real estate/housing short sale and foreclosure crisis is not going to end anytime soon. As more people lose their jobs, short sales and foreclosures will increase for the next several years since it will take until at least 2011 before the unemployment starts to go back down and even then it will take until at least 2012 or 2013 before the US unemployment reaches a level where people can afford to pay their mortgages. The net effect of all this will be that US real estate and housing prices will continue to decline for the next several years leaving more homeowners underwater.

If you are a homeowner in Middle Tennessee who is unemployed, have seen your income decline, has been turned down for a loan forbearance or loan modification and your home is worth less than your mortgage balance, please contact me to discuss selling your home via a short sale. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure expert and REALTOR. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN.

If you need to sell your home fast via a short sale you can my request help on my website at Get Help and Assistance from a Middle TN Short Sale and Foreclosure Expert and REALTOR.

Experts: More Rough Times Ahead for U.S. Economy

According to this RISMEDIA article, More Rough Times Ahead for U.S. Economy, despite Recent Improvements, several prominent experts in real estate and the economy who attended a recent forum at the Nixon Presidential Library said that despite recent signs of improvement more rough times are ahead for the U.S. economy. The event was organized and moderated by real estate analyst and investor Bruce Norris of The Norris Group in Riverside CA. the event included experts from the California Building Industry Association, the National Association of Realtors, the Mortgage Bankers Association, RealtyTrac, The Appraisal Institute and the National Auctioneers Association.

The RISMEDIA article quotes Christopher Thornberg of Beacon Economics regarding increases in durable goods orders, exports and auto sales as saying "You look at the numbers and everything points to the fact that we not only have bottomed, but things seem to be improving. When you think about the problems we’ve been through and what government has done, in many ways, they have, in fact, stabilized the economy. But you know what? They haven’t actually solved the underlying problems in the economy. The second half of 2010 will be very weak. 2011 will be very grim." According to the article, Thornberg cited real estate as a case in point. The article states that while home sales are up in some areas of the country, 6-7% of residential mortgages across the US are now 60 to 90 days delinquent. According to the aritcle, in California 250,000 mortgages are 60 to 90 days late. Thornberg believed that more economic trouble is coming soon due to rising unemployment and additional waves of foreclosures. If you remember my past blog posts I have been saying this for months (i.s. the coming foreclosures of Option ARM's).

The article noted the following thoughts and comments of the forum panelists:

• All of the panelists agreed that the economy will turn the corner in 2-3 years, but several panelists thought that things would get worse before improving.
• John Young, vice president of the California Building Industry Association, noted that new housing construction starts are at their lowest levels since the early 1950s and that new home sales are being hurt by appraisals coming in lower than the contract sale prices.
• Rick Sharga, senior vice president of RealtyTrac, a leading online marketplaces for foreclosures, noted the nation has had 43 consecutive months of foreclosures.  He said "We’re dealing with foreclosure activity that is six times what it would be in a normal market."  He also said that the legal and legislative efforts aimed at helping consumers modify the terms of their loans “merely delay the inevitable" given that modified loan terms will not help people who lose their jobs.  Sharga said he sees another big wave of foreclosures hitting the market next year as a result of rising unemployment rates, which are expected to peak during the first quarter of 2010, and the resetting of adjustable rate mortgages to higher rates.  Sharga also said that the real estate market is being hurt by a "shadow inventory" of 400,000 to 500,000 homes, which have been taken foreclosed and taken back by lenders, but have not been put back on the market for resale.  I have been saying that the number of REO's far exceeds the number being offered for sale for a while now.  When the Option ARM's start to reset this is going to break the proverbial flood gates wide open.

Of course there was the normal refrain of from a former president of the National Association of REALTORS who wants Congress to expand the home purchase tax credit to $15,000 for all home buyers.  Per my previous blog posts I think this is a bad idea because it will artificially inflate home prices resulting in more bubble bursting when the tax credits are finally stopped.

The forum organizer, Bruce Norris, recommended that Congress take the following actions to help the real estate market:

1. "Increase the number of loans made available to well capitalized investors: Expand Fannie and Freddie loan programs from a maximum of 10 loans per investor to an unlimited number of loans for qualified investors."
2. "Make the 203K FHA loan program available to investors: A 203K loan allows a property needing work to be purchased “as is,” but included in the loan amount is money for repairs. The loan funds both the purchase and rehab of the property. Investors need this loan now, but this loan is currently only available to owner occupants. FHA previously made this loan available to investors, but stopped the practice in 1996 when HUD ran out of lender owned, fixer uppers. Banks could solve the vacant house problem by giving investors back the 203K loan program."
3. "Eliminate the 90-day waiting period before a repaired property can be sold to a buyer using an FHA loan: Investors who purchase fixer uppers can often completely repair the property in a matter of weeks. But the current law prohibits investors from reselling the property within 90 days. The assumption is that fraud must be taking place if a property is resold within 90 days. It’s ridiculous to assume that every investor who purchases a property, improves and resells it is committing fraud. All this policy does is increase investors’ costs of purchasing and rehabbing vacant homes.
4. Allow loans to be taken over by credit-qualified new buyers with no down payment. Through this process, which was successfully used in the 1980s, new buyers simply step in and take over the loan payments. The only stipulation is that the loan has to be made current at the close of escrow. The U.S. currently has about one million owners who will not be capable of keeping their homes without a huge discount on the principle balance. Many of these properties have fixed rates at very favorable rates. Allowing willing and capable buyers to come in and take over these loans would help contain the spread of foreclosures across the country.

I agree with Mr. Norris' first 3 points, but I fail to see how allowing delinquent loans to be "taken over by credit-qualified new buyers with no down payment" will help the market when the real problem is that the loan balances exceed property values.

Thornberg, thought that it is "not realistic to assume that our nation’s economic problems will be solved by increased regulation or by presidential action. The economy simply needs some time to heal itself.  I have tremendous faith in the U.S. economy rebounding again in the future.  When we come out of this in two or three years, we’re going to have cheap housing and a weak dollar, which will be good for exports."

I agree with Mr. Thornberg in that cheap housing is good for the economy. The problem is that the Obama Administration is doing so much to artificially prop up housing values.  Why would they do this?  The answer is that the Obama Administration and their Democrat friends are bailing out their Wall Street and banking buddies such as Fannie Mae, Freddie Mac, AIG and Goldman Sachs.  Don't believe me?  Go find out who the largest campaign contribution recipients from Fannie Mae, Freddie Mac and AIG (hint: Barney Frank, Christopher Dodd and Barack Hussein Obama).

In my market in Middle Tennessee (Rutherford Couny TN in particular) I believe that the effect of all this will be worse than average due to higher than average unemployment rates and foreclosures.  Housing prices in Middle Tennessee will continue to fall well into 2012.

National Association of REALTORS: Existing-Home Sales Decline in August 2009

According to this National Association of REALTORS (NAR) news release, Existing-Home Sales Ease Following Four Monthly Gains, sales of existing homes (includes single-family homes, townhomes, condominiums and co-ops) declined by 2.7% to a seasonally adjusted annual rate of 5.10 million units in August 2009 from a pace of 5.24 million in July 2009. According to NAR, this is 3.4% above the 4.93 million-unit level in August 2008. Over the previous four month span from April 2009 through July 2009, sales had risen a total of 15.2%.

The news release states that according to Lawrence Yun, NAR Chief Economist, the first time home buyer tax credit is working. The release quotes Yun as saying "Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus. The first-time buyer tax credit is having the intended impact of bringing buyers into the market, allowing them to take advantage of very favorable affordability conditions. Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process, but the decline demonstrates we can’t take a housing rebound for granted."

The news release goes on to state that a NAR practitioner survey shows that for August 2009, first-time buyers accounted for 30% of home sales and that distressed homes accounted for 31% of home sales. Both of these figures were unchanged from July 2009.

The release goes on to quote Yun as saying "The recent trend shows broad improvement in most of the country, but with an expected rise in foreclosures over the next 12 months we need to maintain a healthy level of ready buyers to absorb the inventory. An extension of the tax credit is critical to preserve incentives for financially qualified buyers to enter the market. Now that the market is showing some momentum, we have an opportunity to achieve a more rapid and broader stabilization in home prices. Extending and expanding the tax credit also would help to keep other families from becoming upside down in their mortgages or risk foreclosure. When home prices show sustained gains, credit will become more widely available to other sectors because Wall Street will be able to price risks confidently. Stable home values will also allow more families to purchase consumer products and provide a strong boost for the broader economy."

According to the news release, in the Southern US, existing-home sales were down 3.1% to an annual pace of 1.89 million in August, but are 1.6% above August 2008. The median price in the South was $157,400, which is 11.0% lower than the same period in 2008.

While this seems fine and dandy, I have a problems with the "spin" on these statistics.

• Number of Home Sales - Other than for REALTORS and other folks who generate income when homes sell, and as a result, need to turn units, this figure is just not that important unless it reaches extreme levels as it says little about the overall health of the housing market.  For example, if homes were worth $1 there would be a lot of sales, but the market would be devastated.
• Home Prices - The sale prices of homes declined by 10%+ in every region of the US.  This is further evidence that the market has not hit bottom yet.
• Tax Credit - I find Yun's comments including "An extension of the tax credit is critical to preserve incentives for financially qualified buyers to enter the market." to be laughable.  First, qualified buyers do not need a government subsidy to "enter the market" buy a home. What they need are AFFORDABLE HOMES, which the market is giving us as only a free market can!  We do not need an artificial government subsidy that will temporarily inflate home prices only to see those prices fall when the subsidy is discontinued. Yun says he want to have home prices "show sustained gains" so that "credit will become more widely available." Given that this whole financial mess was caused by credit being too widely available it is utterly foolish to try to expand credit further.  All we need to save the economy is to have homes reach prices that are sustainable based on people's incomes, not debt.

Nashville Business Journal: Greater Nashville unemployment hits 9.8%

According to this Nashville Business Journal article, Greater Nashville unemployment hits 9.8%, the Nashville Tennessee Metropolitan Unemployment Rate reached 9.8% in August 2009, which is up from 9.6% in July 2009. The article noted the following unemployment statistics for the following counties in the greater Nashville TN area:

• Davidson County TN Unemployment - The unemployment rate increased to 9.6% in August 2009, which is up from 9.2% in July 2009.
• Williamson County TN Unemployment - The unemployment rate decreased to 7.7% in August 2009, which is down from 8.3% in July 2009.
• Rutherford County TN Unemployment - The unemployment rate decreased to 10.1% in August 2009, which is down from 10.2% in July 2009.
• Wilson County TN Unemployment - The unemployment rate increased to 9.5% in August 2009, which is up from 9.1% in July 2009.
• Sumner County TN Unemployment - The unemployment rate increased to 10.3% in August 2009, which is up from 9.9% in July 2009.

The article goes on to state that according to the Tennessee Department of Labor and Workforce Development, across Tennessee unemployment increased in 47 counties, decreased in 42 counties and stayed the same in 6 counties.  Overall, the August 2009 unemployment rate in Tennessee was 10.8%, which is over a full percentage point higher than the US national unemployment rate at 9.7%.

Given that most of the counties in the greater Nashville Tennessee metropolitan area have unemployment rates of over 9%, with Rutherford County TN and Sumner County TN posting unemployment rates over 10%, there is no way that housing prices will increase.  Also, there will continue to be high rates of foreclosures and short sales in Middle Tennessee.

Moody's Puts Us in a Bad Mood: House Prices Won’t Return to Peak Until 2020

According to this HousingWire.com article, House Prices Won’t Return to Peak Until 2020: Moody’s Analyst, a Moody’s Economy.com report predicts that "at least another decade will pass before housing prices return to peak 2006 levels." For those of you who have been following my blog you already know that I have been saying this for months now. In fact I have been saying that it will be at least 10 years before housing prices return to their 2005-2006 peak levels. The article quotes the Moody's report, written by Moody's Analyst Celia Chen, as stating "The correction will be not only deep but also lengthy. "The national price level will not regain its 2006 high until 2020, a peak-to-peak housing cycle of 14 years."

Despite the 2020 projection being on the low end of my estimate (i.e. AT LEAST 10 years), this HousingWire.com article actually confirms what I have been saying since according to the HousingWire.com article, "the projection seems conservative in light of historic data."  The article states that the Moody's analyst wrote that after the Great Depression, housing prices took nearly 20 years to return to their previous peak. the report also shows that in Japan 15 years passed since their residential market lost half of its value and there are still no signs of a recovery.

The HousingWire.com further quotes the Moody's report as saying "housing prices will regain normalized rates of appreciation during the first five years of the recovery. But the decline in prices and the subsequent recovery vary by region to region. In some states, prices will decline 6% or less and recovery will come before 2014. Other areas that have experienced declines of more than 46% won’t get back to 2006 prices until 2023."

My prediction for Middle Tennessee is that the Middle TN housing market will not recover peak home values until 2023-2025.  This is due to the following characteristics of the Middle Tennessee housing market:

• The Middle TN housing market peaked much later than most areas of the country with a peak of late 2007/early 2008 instead of early to late 2006.
• Extreme overbuilding during that peak especially in the higher price ranges.  This supply balance will continue for many years since for some reason people are still building here.
• Tennessee has historically high rates of personal bankruptcy which will cause higher than average foreclosure and short sale rates.
• Tennessee has higher than average unemployment rates, which will also cause higher than average foreclosure and short sale rates.

Forecast Predicts Nashville Job Market Will Recover in 2012

According to this Nashville Business Journal article, Nashville predicted to recover in 2012, the Nashville metropolitan job market will return to pre-recession job levels in 2012 along with Memphis, Atlanta, Philadelphia, New Orleans, New York City, Boston and 12 other metropolitan areas. According to the article Austin and San Antonio in Texas will recover in 2010 and Dallas-Fort Worth and Houston and 6 other metropolitan areas will recover in 2011.

While all this sounds good, I am reasonably certain that it is not correct if by "pre-recession job levels" they are referring to the 4.5-5.5% unemployment rates that were the norm from 2004-2006. Those unemployment levels would certainly be welcome given that we now live in the era of 10%+ unemployment levels (10.8% for the state of TN in August 2009 according to the Tennessee Commissioner of Labor & Workforce Development James Neeley). Unfortunately, I cannot see how that can happen. The low unemployment rates of 2004-2006 were 70%+/- fueled by consumer spending that enabled businesses to sell products and services and, therefore, hire more employees. That consumer spending was enabled by cheap and easy to obtain debt (think HELOC's, credit cards, auto loans, personal loans, etc.). That debt is now largely gone, or at least significantly reduced.

Therefore, my problem with this article's rosy "pre-recession job levels" prediction is that it does not make sense. How can we return to "pre-recession job levels" if the consumer spending that created that low unemployment no longer exists? The answer is we can't and job levels will not return to "pre-recession job levels" for many, many years. I predict that unemployment rates will drop (i.e. the job market will improve), but the unemployment rates will stabilize at around 6.0-8.0%.

This will all negatively impact housing prices and ensure that foreclosures and short sales remain at relatively high levels for the next several years even after the job market recovers. Simply put, less people will be employed and, as a result, there will be less home buyers.

What the Government Should Do to Help the Housing Market: Stop Meddling in Housing and FIX THE ECONOMY

How should the government fix the housing market? The answer, stop meddling in the housing market. Instead, the government should focus on the economy. The fundamental question is why have jobs been leaving the US for the last 3 decades? Answer: taxes, government regulations (think environmental regulations that punish companies while doing nothing to help the economy such as CO2 emissions, etc., hiring quotas, employment laws, etc.) and labor unions. Fix those problems and employment and income rises. After several years maybe incomes will catch up enough and housing prices will fall enough that we actually reach a sustainable ratio of median home prices to median incomes (normally median home prices in an area are 3x incomes in that area) when overall employment is stable.

Right now we have increasing unemployment, increasing foreclosures and short sales, but artificial government meddling. This is causing confusion and chaos. For those who think we can ride this out with a 1 year extension of the tax credit, etc., please look at the stats. Foreclosures will remain at very high levels for 3-5 years and at high levels for several years beyond that. Unemployment, will start to go down in about 12-18 months, but it will not go back down to the 4.5%-5.5% levels of 2004-2005 because the economy (and the employment market) was so dependent on consumer spending and that spending will not come back since it was fueled and enabled by easily obtainable debt that is no longer available.

While this mess hurts me right now as a REALTOR and a homeowner who is trying to sell their home due a relocation, I know this is true. Declining housing prices are good for the economy. It will free up homeowners' capital that can be spent and/or invested in other areas instead of being sucked up by artificially high housing payments. It will enable people to actually eventually own their own homes and live with less debt and stress instead of living on the absolute edge. It is better to pay less for a home with higher interest rates then to pay more (and borrow more) at lower rates. This is all just a deleveraging of the US economy, which IS NECESSARY.

Mark my words, eventually the government subsidizing of the real estate market will end and the housing market will decline more. It is unavoidable.