Will we see the start of another housing collapse before the end of 2010? That is what a number of top economists are beginning to fear. The truth is that there are some very troubling signs in the housing numbers. The massive tax credit that the U.S. government was offering to home buyers helped prop up the housing market for quite a while, but now that the tax credit has expired, many real estate professionals are bracing for the worst. The reality is that foreclosures continue to set all-time records, the mortgage industry is a complete mess and another massive wave of adjustable rate mortgages is scheduled to reset in 2011 and 2012. As the U.S. economy continues to falter, and as the nation starts to deal with the economic fallout from the Gulf of Mexico oil spill, many are now wondering how in the world Americans are going to be able to afford to purchase millions of these homes which are still massively overpriced. The American Dream is still way too expensive for the vast majority of Americans. So are there signs that housing prices in the U.S. could be on the verge of another major decline?
The truth is that massive U.S. government intervention helped stabilize U.S. housing prices for a while, but the tax credit expired at the end of April. As home buyers rushed to finalize their purchases in March and April it made the housing numbers look promising for a couple of months, but now things are rapidly becoming unglued again. We’ll get to the statistics in a moment.
But first it is important to note that mortgage institutions have been seriously tightening their lending standards over the past couple of years. The days when virtually anyone could easily get approved for a huge home loan are long gone. The surviving lenders have been burned way too often and they have learned some very hard lessons. They are scrutinizing mortgage applicants much more thoroughly now.
So why is that important?
Well, when you have less loan applicants being approved that means that you have less potential buyers in the marketplace. Less potential buyers means that there is less demand for homes. When there is not a lot of demand, prices go down.
Of course short-term demand had been artificially inflated by the huge tax credit that the U.S. government was offering to home buyers. But now that the tax credit is over, the numbers tell us that the housing industry could be in for some very hard times…
-Newly signed home sale contracts dropped more than 10% in May. Some analysts are warning that this could just be the very beginning of a new string of monthly declines.
-Internet searches on real estate websites are down approximately 20 percent compared to this same time period in 2009. If people are not looking for homes it is because they don’t plan to buy any time soon.
-According to the U.S. Commerce Department, housing starts in the United States fell 10 percent in May, which represented the biggest decline since March 2009. Not only that, but the data also revealed that single-family home starts suffered their biggest drop since 1991. Considering that there is a record number of unsold homes right now in the U.S., it is extremely unlikely that things will turn around for home builders any time soon.
-The number of U.S. home foreclosures set a record for the second consecutive month in May. This is a clear sign that the very worst of the U.S. housing crisis is not in the past.
-As of March, U.S. banks had an inventory of approximately 1.1 million foreclosed homes, which was up 20 percent from a year ago. The fact that the backlog of unsold foreclosed homes is still growing has got to be extremely troubling for the entire U.S. real estate industry.
-The Mortgage Bankers Association recently announced that over 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period. That was a new all-time record and was up from 9.1 percent a year ago.
-On top of everything else, a massive “second wave” of adjustable rate mortgages is scheduled to reset in 2011 and 2012. This means that even more U.S. homeowners are not going to be able to afford their mortgages and there are going to be even more foreclosures.
-Authorities now tell us that the cost of fixing Fannie Mae and Freddie Mac, the government-backed mortgage companies that purchase or guarantee the vast majority of all U.S. home loans, will be at least $160 billion and could grow as high as $1 trillion. Without Fannie Mae and Freddie Mac, the entire U.S. mortgage industry would simply collapse. So it is a really troubling sign to see that they have become giant money pits that require constant infusions of U.S. government cash just to survive.
-In fact, Fannie Mae and Freddie Mac are scheduled to be delisted from the New York Stock Exchange because their stock prices have been trading under $1 per share for more than 30 trading days. That is how far they have fallen.
The frightening thing is that the economic effects from the Gulf of Mexico oil spill have barely been felt yet. The disaster in the Gulf threatens to push that entire region into a devastating depression, and the economic shockwaves from the oil spill are surely going to be felt from coast to coast. Considering the fact that the U.S. housing industry is already on the verge of a major crisis, the last thing it needed was a disaster of this magnitude.
So, no, things are not going to be getting better for the U.S. housing industry. Anyone who thinks so is seriously deluded.