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Real Estate in Economic Cross Hairs

By       Message Mike Colpitts     Permalink
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More than three years ago housing markets began to bring down the national economy with increasingly sluggish sales. At first home sales faltered in the strong western markets in California, known for leading the nation in a wide variety of businesses, and then in Florida after devastating hurricanes hit the state in a series of storms not experienced in more than 50 years.

"So goes real estate, so goes the economy," is one of the oldest sayings in real estate parlance. The cliché could not be more of a truism today. As the administration of President-elect Barack Obama takes office and Congress debates an all-time record spending stimulus package the likes of which have never been seen in history, Americans are increasingly worried about the economy, unemployment is rising, foreclosures are hitting new records and businesses are failing at rates that haven't been witnessed in decades.

In an interview with CNBC Washington correspondent John Harwood, Obama gave the first indications of what his plan calls for in the housing market. Without offering details, he said the plan would offer some sort of help to alleviate foreclosures. "Something has to be done about foreclosures," he said.

The economic crisis has gripped the nation as the majority of housing markets home values deflate in what analysts concur is an unprecedented pattern of falling home values. In direct relationship to the financial crisis, the fallout of falling home prices weighs heavily on Obama's plan to right America's economy.

As Housing Predictor forecast nearly two years ago, the epidemic of foreclosures is threatening to undermine the national economy. Former President Bill Clinton, who signed the law that allowed securities to be traded on Wall Street without the oversight they needed to regulate the marketplace and keep Wall Street traders from trading economic instruments to sell mortgages at an all-time record pace may put it best: "For each foreclosure it hurts our national economy $225,000." That's because Clinton explains the average mortgage is around $225,000.

The credit risk models used to calculate the number of foreclosures given the free-wheeling loose lending practices in the real estate boom were ill-equipped to handle the volume of mortgages that would be sold. The crisis nearly destroyed the nation's economic system and still threatens catastrophic damage unless Congress and the White House quickly come together on a plan to rescue it.

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There won't be much time for Obama. The crisis has entered its third year in real estate as foreclosures top 3.4-million homes. Another 3-million are conservatively forecast by Housing Predictor to be foreclosed through 2011. That figure could be raised depending upon what the Obama administration is able to get Congress to approve. More than 5-million adjustable rate mortgages are set to reset in 2009 and 2010 alone. Some homeowners will be able to refinance in order to hold on to their homes. An increasingly high number have been unable to refinance because of falling home values. Foreclosures are running as high as 70% in this area, and could worsen with eroding home values.

Housing Predictor is an independent research firm that forecasts housing markets throughout the country as an online service. As part of our editorial policy, we do not endorse political candidates or take a stand on political issues. However, it has come to the time when we have to sound the alarm.

America's real estate crisis just doesn't have that much more time before it triggers worsening economic turmoil, the likes of which have never been seen in this country. It has come to the point where as real estate analysts we need to point to the fact that housing markets like any other financial markets are subject to irregularities from time to time and as such may become highly volatile.

Home prices that have fallen at more than 30% in one year in some especially hard hit areas are evidence of this. The fallout could continue at equally rapid speed if foreclosures are not stopped at least in an attempt to stabilize the economy. Should Congress not approve a plan to do this and enforce its activation within four months from the time Obama takes office, all of our best studies and projections show the crisis will deepen and it is likely the country will fall into an economic depression as a result.

It would be the legacy of President George W. Bush.

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http://www.housingpredictor.com
Mike Colpitts is the Editor of Housing Predictor.com, an independent web site, which forecasts more than 250 local housing markets in all 50 U.S. states and real estate news. Housing Predictor has a staff of researchers, economists and computer (more...)
 

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