As the U.S. economy picks up steam following last Friday’s better than expected non-farm payroll jobs in February of 227,000 many are now looking to the housing market for signs that the health the U.S. economic recovery is on the right track.
The U.S. housing market first began cracking in 2007 and was the primary catalyst that helped to cause the financial markets to tumble. The housing bubble bursted. Most homeowners that bought U.S. houses from 2007-2010 have witnessed steep declines in their home values.
When the U.S. housing market plummeted during the financial and housing crisis, investor demand for housing bonds also took a nose dive. Investors were reluctant to purchase assets closely tied to the fragile housing market.
Five year later, the housing market has yet to fully recover and millions of Americans are still stuck in their homes, waiting for home values to improve.
Americans are still underwater or upside down with their house mortgage, meaning that they owe more on their house mortgage compared to the current market value of their house.
According to the research of Corelogic, 23 percent of the roughly 50 million residential mortgages in the United States are currently “underwater.”
U.S. home values declined 4% in 2011. In late February Marketwatch posted the S & P’s Case-Schiller large metro city by city housing decline in 2011 alongside the overall decline since the peak in 2007.
The U.S. housing recovery still has a long way to go.
But there are a few signs of a silver lining on the horizon.
According to the National Association of Realtors, existing home sales attained their fastest pace in 20 months in January 2012 while more Americans than expected signed contracts to purchase homes. Housing starts also rose 1.5% in January to a rate of 699,000, according to the Commerce Department.
Meanwhile, U.S. rental rates have been creeping higher, causing many renters to question whether it is more practical to rent instead of purchasing a home. Many economists predict that 2012 will be a year that the U.S. housing market begins to recover.
Despite the recent optimistic housing data, Fed Chairman Ben Bernanke signaled that the housing market is still holding back the U.S. economic recovery.
“The economic recovery has been disappointing in part because U.S. housing markets remain out of balance,” the Fed chairman said during his address at the International Builders’ Show in Orlando, Fla in February.
Bernanke estimates the decline in home prices since the housing crisis has resulted in more than $7 trillion in lost household wealth. Although interest rates are hovering near historic lows, Bernanke believes that many Americans are failing to apply them to their home mortgages.
“Federal Reserve policies meant to drive down long-term interest rates have had less effect than they otherwise would have had as even creditworthy households find it difficult to obtain mortgages or refinancing” Bernanke said.
The Obama administration has attempted to help underwater mortgage holders to refinance their homes through the Home Affordable Refinance Program (HARP) which is an offspring of the Making Home Affordable Program. On November 15, 2011 the U.S. government announced changes to HARP regarding eligibility.
In order to be eligible for the HARP refinance program :
- Your loan must be backed by Fannie Mae or Freddie Mac.
- Your current mortgage must have a securitization date prior to June 1, 2009
If you meet these two criteria, you may be eligible for HARP. However, if your mortgage is FHA, USDA or a jumbo mortgage, you are not eligible for HARP.
Although roughly 1 million Americans have benefited from HARP and refinanced their home, there are millions of more Americans who fail to qualify to refinance under the current narrow eligibility requirements. And that means millions of American will remain cash strapped in their homes until HARP is broadended as President Obama hinted he would like to do during his State of the Union address.
During his address, Obama said he would send legislation to Capitol Hill to make it easier for homeowners to pay a lower interest rate on their mortgages, saving people up to $3,000 per year. Senior administration officials reported that unlike earlier proposals, the new refinance measure will cover not only home loans guaranteed by federal mortgage giants Fannie Mae and Freddie Mac but also those owned by private investors.
Obama spoke about the need to hold accountable the mortgage servicers accountable for “abusive and negligent” foreclosure practices.
On February 10th, U.S. Attorney General Eric Holder, Department of Housing and Urban Development (HUD) Secretary Shaun Donovan, Iowa Attorney General Tom Miller and Colorado Attorney General John W. Suthers announced that the federal government and 49 state attorneys general reached a $25 billion agreement with the nation’s five largest mortgage servicers (J.P. Morgan Chase, BOA, Wells Fargo, CITI, and Ally Financial formerly GMAC) to address mortgage loan servicing and foreclosure abuses.
The landmark settlement gives money back to the victims and helps underwater homeowners to refinance their homes. The $25 billion settlement rivaled the major tobacco settlement by big tobacco companies in 1998.
According to Housing and Urban Development Secretary Shaun Donovan, the agreement will direct $17 billion to writing down debt to buffer about 1 million homeowners from foreclosure through mortgage forgiveness, forbearance or loan modification programs. In addition, roughly 750,000 borrowers may get direct payments of as much as $2,000 to compensate them for servicing errors.
The presidential election and foreclosures
In recent weeks, rising oil prices, Greek default worries, and employment reports have been widely covered in the news. But one story that hasn’t been getting coverage is the story about foreclosure rates being the highest in political swing states such as Florida, California, Ohio, Michigan, and Nevada. Four of the biggest political battleground states…Michigan, Florida, California and Nevada are among the top 10 states with the highest foreclosure rates.