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The bad news keeps getting worse: existing home sales fell 27% in July

**I saw Dan's post below, but wanted to add my 2 cents.**

Home sales of existing homes fell in July by 27%. According to the Associated Press, this was the largest monthly drop since 1968. President Obama traveled the country declaring this to be a recovery summer but no one really took him seriously. The American people could feel things were bad and getting worse, and today's home sales numbers simply bear out what they have been feeling.

Yesterday the New York Times published an article that said home sales have fallen so far so fast the past few years that home values simply cannot recover enough to make home ownership a wealth building venture anymore:

Instead, Mr. Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment.

Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.

"People shouldn't look at a home as a way to make money because it won't," Mr. Baker said.


July's near 30% drop in home sales confirms what this article is saying. Home prices will simply continue to fall as desperate sellers try to snag buyers. Keep in mind that baby boomers will want to sell their larger family homes as they prepare to retire, so even more homes will be added to an already saturated market over the next few years. Our economy needs to pick up steam soon so people can get jobs and receive loans legitimately to purchase these homes, but dropping home sales and decreasing values are preventing the economy from picking up. It's a nasty catch-22 of the government's making.

Barney Frank, Chris Dodd, and other Democrats in Washington are primarily responsible for this mess when they used the housing and mortgage markets as a social program to extend home ownership rights that don't exist. They insisted that banks and mortgage companies loosen their requirements for home loans so those who were on the low end of the socio-economic scale - read: those who had bad credit or no credit - could own a home.

Mortgage companies and banks also are partially responsible for this mess when they used the push for home ownership from Washington as a means to make some fast cash. They gave out expensive sub-prime or interest-only loans to almost anyone who wanted one without requiring proof of income. Many of those who got the loans signed on the dotted line knowing they could not repay the loans, so they are partially responsible for this mess, too. These loans that were then bundled together and sold off to other banks, particularly Fannie Mae and Freddie Mac because they were backed by US taxpayers. Enter the sub-prime mortgage crisis and the massive bailouts that cost even more money.

The truth is there is no right to own a home, just the right to earn an income so you can buy a home if you think you can afford it. This is what the pursuit of happiness is all about.  However, personal responsibility can't be magically disappeared by government diktat. Unfortunately, fool politicians thought they could suspend all personal responsibility for groups of constituents they wanted to protect. So now the entire country is paying the price for their arrogance.

The artificially Washington DC-driven demand sent home prices sky rocketing so high over a period of years that they reached unsustainable levels. This sub-prime mortgage bubble inevitably popped and created the nasty correction we're all living through right now.

All of this could have been prevented, but those who were behind the initial run up weren't listening when others like Peter Schiff began expressing fears of a sub-prime mortgage/economic crisis:

So here we are in August of 2010. Home sales continue to drop, which sends values even lower. Foreclosures are still rising, which also sends home prices lower.  Fannie and Freddie are still being bailed out even though they've already received $151 billion of our tax dollars. And President Obama is still creating government programs to keep people who can't afford their homes in their homes, which just worsens the economy and extends the pain. Instead, he needs to allow the market to do what it needs to do, which is to find the level of equilibrium between real supply and real demand. That means letting people who can't afford their homes go through foreclosure so the banks can deal with the properties as they need to. The sooner banks can get the bad loans resolved and off their books, the sooner our economy can get back to some kind of normalcy. Only then can the economy and our country move forward.

Originally posted at KimPriestap


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Comments (11)

We definitely need to get t... (Below threshold)
Jim Addison:

We definitely need to get the government out of the mortgage business, but it will take at least a couple of decades to do it - and unfortunately the odds are people will get stupid and elect Democrats again sometime before it is accomplished, and we will be back to square one.

The biggest problem caused was that there were no provisions made to require the content of bundled mortgages or mortgage-backed securities be disclosed. Before Dodd and Frank came up with the whole CRA and subprime scam, mortgage securities were dependably safe. Nearly all mortgage bankers adhered to a standard in writing loans, and the default rate was low and usually comparable to the overall market. That all changed with the subprime craze designed by congressional Democrats.

With no disclosure required, investors were caught off guard when problems arose - those securities were supposed to be rock solid! Where did all this junk paper come from? Worse, no one could be sure which securities had subprimes in them, or how many, or how they were performing. So they were afraid to touch any. Suddenly a dependably bedrock investment vehicle couldn't be sold at any price.

Just when you thought it couldn't get worse, another brilliant idea from Congress was the SEC "mark to market" rules which required all marketable securities held by companies like banks and insurance companies had to valued at their current market value to count towards the capitalization requirements.

BAM! There goes AIG - even though they held mostly good paper, with no one buying the market value went to ZERO. They weren't alone. This is why I supported the first half of the TARP money - it was a government-created crisis in its entirety: you break it, you bought it. My feeling was we had to pay to avert a financial meltdown, but we should immediately change the rules, require disclosure, get Freddie and Fannie out of subprimes, and hang all Democrats at our leisure.

The last thing this nation ... (Below threshold)
Dane:

The last thing this nation needs is Republican leadership meddling in the economy. How do you think we got to this point in the first place?

As early as 2006, top advisers to Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Bush and his team misdiagnosed the reasons and scope of the downturn. As recently as February [2008], for example, Bush was still calling it a "rough patch."

The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.

"There is no question we did not recognize the severity of the problems," said Al Hubbard, Bush's former chief economic adviser, who left the White House in December 2007. "Had we, we would have attacked them."

Looking back, Keith Hennessey, Bush's current chief economic adviser, said he and his colleagues had done the best they could "with the information we had at the time." But Hennessey did say he regretted that the administration had not paid more heed to the dangers of easy lending practices.

And both Paulson and his predecessor, John Snow, say the housing push went too far.

"The Bush administration took a lot of pride that home ownership had reached historic highs," Snow said during an interview. "But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost."

The Republican White House didn't have a clue - not a clue - that the nation was tettering on the brink - and it was their job to know.

www.nytimes.com/2008/12/21/business/worldbusiness/21iht-admin.4.18853088.html

Kim,Government wan... (Below threshold)
hcddbz:

Kim,

Government wanted the inflated prices so they had justification for increasing property taxes.


Dave:
Bush made 17 attempts to reform FM/FM if they were headed in 2001 and 2002 their would not have been the crisis that exist today.

** 2001

April: The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."

** 2002

May: The President calls for the disclosure and corporate governance
principles contained in his 10-point plan for corporate responsibility to
apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

President Bush made 17 atte... (Below threshold)
Ryan:

President Bush made 17 attempts to reform FM/FM? That's news to me. What did his Republican congress and senate do about it?

If you figure a President o... (Below threshold)
JLawson:

If you figure a President only has so much political capital to 'spend' - then Bush, IMHO, spent it where he figured it needed to be spent.

After 9/11, the War on Terror (remember that little thing?) was the high-priority item on his plate, Ryan, and that took so much capital he could have called for a nationwide initiative to repaint school crosswalks and the Dems (and not a few Repubs) would have blasted it as overly expensive and unneeded.

As it is, Barney Frank (who was supposedly overseeing it all) was very much on record saying Fannie and Freddie were perfectly fine, thankyouverymuch, no changes needed, and Bush was an idiot for thinking so - and the media sure didn't have any problems believing HIM over Bush.

Politics is all about visibility - if the media doesn't push an agenda (either for or against) you won't be hearing jack shit about it.

Ryan,many of the c... (Below threshold)
hcddbz:

Ryan,

many of the calls were met with Democrats calling any attempt to reform FM/FM as attacks on the poor or that the Republicans were racist. Unfortunately Republicans gave in just like they gave in on real Social Security and permeant tax cuts.

2003

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

Don't worry about it.

"These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

Representative Melvin L. Watt lets us know what was really going on Republican just want to kick the poor out of houses.

"I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing," Mr. Watt said.

2005
http://www.youtube.com/watchv=_MGT_cSi7Rs&feature=player_embedded

The prof is even now FM/FM are spending more money on affordable housing throwing good money after bad.

But who cares then next bubble awaits.
Student Loans !

Dane and Ryan are all for B... (Below threshold)
GarandFan:

Dane and Ryan are all for Barney Frank 'rolling the dice one more time'.

Perhaps they can also explain the obscene amount of bonus money being paid out to the CEO's of Fannie and Freddie. Why no outcry there? Why no marches in front of their homes?

Nice try Kim........you onl... (Below threshold)
Jeff L:

Nice try Kim........you only forgot 2 words. Ownership Society. Remember that one? Here is a little refresher for you. "We're creating... an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property." - President George W. Bush, October 2004. Here are some of the policies that were pushed by Bush. My personal favorite, the zero downpayment initiative, get a government home loan with zero down. Another good one is the no monthly payments for 2 years mortgage. These policies led to financial innovations that grew out of the mortgages--derivatives built on other derivatives, packaged and repackaged until no one could identify what they contained and how much they were, in fact, worth.
Good story though Kim, never let the facts get in the way of a good story.

you knie it's funny hoe now... (Below threshold)
JustRuss:

you knie it's funny hoe now the lines about wallstreet and greedy republican bankers...have turned into "its bushes faultzo. Especially after the lefties spent the last 18 months DEFENDING government involvement in the mortgage markets.

you know it's funny how now... (Below threshold)
JustRuss (mobile forgive mistakes please):

you know it's funny how now the lines about wallstreet and greedy republican bankers...have turned into "its bushes fault". Especially after the lefties spent the last 18 months DEFENDING government involvement in the mortgage markets.

How has that POS not been r... (Below threshold)

How has that POS not been run out of town on a rail?




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