"We have shamelessly borrowed from our children. And we used it, we didn't invest it. That's the picture we're in," said Ben Verwaayen, Chief Executive of Alcatel-Lucent.
FT.com reports
The Obama administration agreed just before Christmas to offer an unlimited credit extension to Fannie Mae (FNM) and Freddie Mac (FRE) for the next three years, lifting a cap that was at $200 billion for each company.
The $8,000 credit tax reward for purchases of new homes will end in April, after it was already set to expire in November.
The argument for the extension of government stimulus in the housing sector is the growing pressures of defaults on mortgages due to the 10% unemployment rate. There are concerns that foreclosures could top the 2009 level of 2.8 million. The 2009 levels were 21% greater than 2008. These figures would have been worse without the aid of Obama's Home Affordable Modification Program.
Repossessed homes, however, were up only 1.1% from 2008, driven primarily by short-term factors such as trial loan modifications, state legislation extending the foreclosure process, and an overwhelming inventory volume, reports James Saccacio CEO of RealtyTrac.
It is unclear whether these modifications have only forestalled the inevitable foreclosures to come while filings peaked in July of 2009 and declined the following 4 months.
The Fed has been buying up mortgage-backed securities, which reduces mortgage rates by 25 to 75 basis points. 30-year mortgages are at 4.98% for the week ended Jan. 28, the lowest rate in decades. Mortgage rates are also linked to yields on Treasuries and MBOs.
Most of the loan modifications are temporary which leaves economists pessimistic about the future of the housing market.
The four states with the most foreclosure filings -- California, Florida, Arizona and Illinois -- accounted for a full 50% of the nation's properties receiving notices.
Most forecasts predict price declines in 2010, from 3% up.
Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%.
The stabilization of home prices, which started in October 2009, can be attributed to the low mortgage interest rates and the first-time homebuyers tax credit.
The three primary reasons why home prices are expected to fall once again are:
1. The second wave of home foreclosures
2. Rising interest rates
3. The end of the tax credits
Strategic defaults are also expected to rise as the value of home prices fall and people will walk away realizing that the value of the home dips below the value they owe.
Peter Schiff, president of Euro Pacific Capital, says that home prices (now down 29% from their peak) are only half way to the bottom.
No comments:
Post a Comment