Home Prices Could Drop 50% As The Great Recession Resumes
In my opinion the Recession that was time-stamped by the Economic Bureau of Economic Research (NBER) to have begun in December 2007 has not ended and continues today. How can the NBER declare an end to this Recession with unemployment at 9.7% when the Recession began with unemployment at 4.6%?
The basic causes of the Great Recession began in the Housing Market and the community banks on Main Street. Those problems have been masked by numerous failed attempts at mortgage mitigations as house prices stabilized during the period when the government was offering tax credits for first time homebuyers as well as existing homebuyers who wanted to move. Those programs ended on April 30th for contracts and for closings effective this week by the end of June 30th.
Efforts to extend the closing date to September 30th have yet to be passed by Congress. When this schedule for contracts and closings was announced last fall, I predicted that many deals that went to contract on time would not make closing on time. The National Association of Realtors now agrees with me and indicated recently that they expect 180,000 home purchases will not close on time as the buyers were not able to get financing approval on time, and home builders could not meet the demand on time.
The provision to extend the deadline is stuck in Congress, attached to the bill that extends unemployment benefits for 1.3 million Americans. The Senate failed to pass this measure three times last week. In addition the US economy is feeling the adverse affects of the Gulf oil spill and the debt crisis in Europe, which the Fed now cites as a potential economic contagion.
It’s housing that got the ball rolling down hill and more than half of the 7932 community banks can’t lend due to overexposures to lending, most notably to commercial real estate loans including construction & development loans.
All of the bailout moves and programs were like putting economic whip-cream on those crappy loans Senator Carl Levin from Michigan talked about in the Goldman Sachs (GS) investigation a month or so ago. With the soon passage of unworkable new financial regulations, we will see the same gunk when the whip-cream melts.