Solving the Mortgage Crisis - Part I
I don't know about you all, but I was reading Ben Jones' Housing Bubble Blog 3 years ago when house prices were still climbing 20% a year and housing bulls were laughing at the bubbleheads. To them, the naysayers obviously missed the boat and were just sore losers who rented.
Way back in 2005 there were plenty of people (Federal reserve economists excepted of course) who saw the bubble and predicted that when the adjustable rate mortgage resets came due (beginning en masse in 2007) there was going to be one heckuva housing bust, and a cacophony of calls for a bailout of the greedy and the stupid.
Now that those predictions have come to pass, the question is, should we just let the mortgage/housing debacle play out, or are there ways to intervene that would be socially beneficial?
We ought to at least be able to narrow down the options, filtering out those that mainly bail out the greedy, or else entail too much cost or moral hazard. Of those options that remain, we ought to at least be able to narrow down areas of disagreement. Below are my suggestions.
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Is the housing market bottoming?
I couldn't help but notice the screaming, above-the-fold headline this week in the SF Chronicle, Homes sales get lift, but lid still on prices. It sounded like nearly two years of a contracting real estate market was coming to an end.
The long slide in home sales may be nearing an end, but that doesn't mean prices are going to rise anytime soon.
...some people saw last month's unusually big surge as a sign the market may be bottoming out.
Any time the news media uses the term "some people" is a clue.
As it turns out, the article was not just misleading, it skirted the shaky edge of being an outright lie.
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Worst Housing Slump since World War 2 CONFIRMED!
Submitted by New Deal democrat on April 24, 2008 - 12:08pm
This morning's New Home sales, as reported by AP, make it official:
Sales of new homes plunged in March to the lowest level in 16 1/2 years as housing slumped further at the start of the spring sales season.
The median price of a new home in March compared to a year ago fell by the largest amount in nearly four decades.
The Commerce Department reported Thursday that sales of new homes dropped by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units, the slowest sales pace since October 1991.
The median price of a home sold in March dropped by 13.3 percent compared to March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.
In a prior diary I asked if we were in The worst housing slump since the Great Depression? As of today, we have come close to our final answer.
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New Durable Goods Orders Fall
New durable goods orders and new single-family home sales both fell sharply in February as recession worsens challenging the Presidential candidates
Two economic reports from the Census Bureau today reflect the deepening recession and an urgent need for the Presidential candidates to get serious about how they will address what could be a long and severe recession with lasting consequences.
Even with prices rising sharply, the nominal value of new orders for durable manufacturing goods fell another -1.7% in February after plunging by -4.7% in January. Nominal values of new durable orders is now down -8.6% since last July to the lowest levels since March 2007.
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