**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