Last week S&P/Case Schiller published a report about their survey conducted on home price in 20 cities around the nation. The result of the survey really brought in chilling effect to many economist and more importantly to the real estate industry stake holders like Sellers, Realtors and Builders. The report said, we are seeing price drop in home prices which are witnessed in 2003 when the housing bubble started. It details out how the real estate market is in worse shape in 20 cities.


In response to the report, NAR(National Association for Realtor) said that the survey didn’t took into consideration all the communities around the nation which are doing well in this current economy. Whatever the NAR says, the survey did show weakness in the real estate market which is not improving much. For this current double dip, uncertain condition, Whom do you think is to blame for this double dip? I don’t think we can just point fingers at one single entity like Government or the financial institutions. It is a chain reaction and has cascade effect. Everyone who plays role in the real estate transaction has role to play and surely impacted this housing market. Let’s start from the big fish to fry,

How about Government?

Yeah, sure why not. Everybody blames the Obama government for this bad economy and real estate market as well. Government surely has a important roll to play for the double dip in the housing market. When government jumped to save the real estate market 3 years ago, many analyst said, every bubble has to heal on its own and government shouldn’t be saving it. Helping by boosting the market to reach to normality is just a short term fix. That’s what exactly happened. Government thought they should give the helping hand to the struggling housing market and it worked during certain period like a steriods injection. After the credits are vanished, housing has gone to a really worse situation than it was 3 years ago. Let’s see some government programs and other topics which played a part in the double dip.

1. Firsttime Home buyers Credit – This was enacted as part of Recovery act and started in 2008 and extended to 2009. According to preliminary data from IRS, as of August 22, 2009, over 1.4 million taxpayers have claimed the FTHBC for homes purchased in 2008 and 2009. This represents total foregone tax revenue of about $10 billion through August 22 . There is not doubt it helped to boost the housing market for certain period but we are not experiencing the after effects of the steriod type boost. Every comparison report is now considering last year sale when the market was doing great with credit. It shows a big drop and market is going to react for the drop. If it would have been a normal recovery, this wouldn’t have happend. The magic of credit did work for Auto industry but its totally different sector all together compared to Housing which deals with thousands of dollars and too many formalities and paper work.

2. Loan Modification Program – This program was announced by Treasury department with the possible helping hand to save many American’s home going into foreclosure. For each home loan modification application that is eligible and qualifies for the program, the lenders and providers get $1,000 as an upfront fee. If the borrower remains current in their monthly payments, the lenders and service providers will get $1,000 per year for up to 3 years. The mortgage service providers who represent the lenders also get an incentive of $500 if they help the lender focus on the mortgage holders who try to be consistent and on time in their monthly payments. The mortgage lender will get $1,500 if the borrower modifies the loan prior to falling behind on the monthly payments.

It was estimated to to save 4-6 millions americans but the recent reports says the modification program is a failure. Out of millions, only 600,000 loans were modified. The Treasury Department has continued to defend the program, arguing that while the program has fallen short of its goals, it has still helped modify about 600,000 mortgages. Ending the program, Treasury has argued, would hurt the housing market. The main reason for failure is no penalty to the lenders, too much paper work and too many hurdles.

3. Financial Regulations

With the subprime mortgage crisis, we surely need to regulate the financial institutions but is it right time? As per economist, Regulation and economic advancement never goes very well together. Because, regulation slows down the recovery process and puts lots of road blocks to move forward. That’s what happened. Too many regulations and rules to be followed by the banks and financial insitutions and they really stopped lending money out unless the borrower is too trust worthy. As the lenders deny to give mortgage, houses cannot be sold and inventor gets stacked and chain reaction starts.

4. Mortgage Rates
Usually when the mortgage rates fall the home sales goes up but at the same time refinancing numbers also goes up which is a good sign for real estate market. But currently even the mortgage rates are too low compared to prior years, homes sales and home prices are stagnant and even going down. The reason, people are not willing take a chance. They don’t know whether the real estate has bottomed out or still has long way to go. Also mortgage rates have gone down and came back out in Nov 2008 and gone down again. Many analyst say it is because of the Federal MBS program. If mortgage rates were kept a steady increase, it could have help with the home sales.

5. Unemployment

Last but not the least and more important of all, unemployment is the biggest culprit of all for all the real estae. Without a steady job, no steady paycheck to even feed the family, how many americans will think about buying a house. Employment opportunity is the base for any economic growth, with almost 10% unemployment rate, it is long way to go for any sort of steady real estate market growth.

Let’s look at the other players in the next post…

About Vijaianand Thirnageswaram

I am a Proud Realtor of Texas, trying to guide and help clients to find their dream home and educate them to buy them for right price. I am also a Candidate for CFP who has more financial knowledge which allows me share and educate clients in any financial decision making process.

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