Housing's Big Problem

The housing market is starting to show signs of mending from its deflationary cycle. The Fed's move to hold interest rates at or near 0% for an extended period of time and other actions being orchestrated are moves to fix housing and get the economy back on track.

Low interest rates aren't the only thing helping the housing market. The federal government's first time buyers' $8,000 tax credit is prompting buyers to get off the fence, despite the recessionary economy. Multiple offers on foreclosures in especially hard hit markets like the Miami condo market and in the Southern California housing market are showing strength as inventories are reduced.

However, banks and mortgage servicing companies have delayed or canceled foreclosures on hundreds of thousands of homes and other properties on which foreclosure notices have been filed. The tactics are moves to delay the reporting of losses by bankers and gives the Obama administration and Congress more time to develop further steps to deal with the nation's # 1 problem of the financial crisis.

The Fed's plan along with the Treasury Department, which is buying up toxic assets that essentially come down to failed home mortgages are moving on a path to solve the nation's worst financial crisis since the Great Depression.

"It appears that we are now going to amortize those losses over a period of years," said Mark Dotzour, chief economist at the Real Estate Center at Texas A&M. "Keeping interest rates low will allow banks to earn their way out of the losses incurred. It's not really good for the banks. The losses are hidden from the public and they'll take years to recognize."

The delay reporting further losses could give banks more time to restructure their balance sheets, and improve business. However, it could also just delay the inevitable as more banks fail. Already, 81 banking institutions have been closed by the FDIC this year, topping the total number in all of 2008. Bank failures this year are on track to reach the highest number on record.

The moves are highly significant since the Obama Administration seems to be handling the housing crisis with less force than what the president promised during campaign speeches running for the presidency as foreclosures climb. More than 4-million properties have already been foreclosed in the worst foreclosure epidemic in U.S. history.

The administration also backed-off pushing Congress to pass a law that would have directed bankruptcy judges to recalculate mortgages in foreclosure, but legislation to force judges to reset mortgages may be reintroduced in Congress. Banking lobbyists have urged lawmakers to halt any sort of legislation that would have restructured mortgages.

The government's orchestration to improve the housing market, however, will take many months to reach a turning point. Reaching the bottom of the housing market in each area of the country will be a regionalized affair.