Twitter   RSS   Email  
 
Home
Admin

 How the Global Economy is Dependent on Christianity


 Why America May Never Recover From the Recession


 Save Money Homeschooling


5 Reasons Why We Are Likely To Have a Second Mortgage Market Collapse

By: Steve Johnson

9/22/2009 - 37 Comments

The housing market that began to stabilize in the last few months, as the plethora of government interventions in the housing market has finally helped form a bottom, is about to give way. 

A Bloomberg article yesterday outlined what is holding up the housing market.

First, there is the $8,000 first-time home buyers’ tax credit that is about to expire.

“Obama administration is studying whether to let a first-time home buyers’ tax credit expire as scheduled at the end of November. “

Second are the low interest rates, which are only low because the government is purchasing billions of dollars in bonds to keep the interest as low as possible.

“Bernanke and his Fed colleagues may continue talking this week about how to wind down purchases of mortgage- backed securities, according to Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York. The two programs have helped stabilize real-estate demand, with new-house sales rising 9.6 percent in July from the prior month, the most since 2005.

Ending these efforts may stifle the housing rebound by depressing sales and pushing up both mortgage-backed bond yields and interest rates on home loans”

“Under the current program, the Fed is scheduled to buy up to $1.25 trillion of mortgage-backed securities and $200 billion of agency debt by the end of the year. So far, it has purchased $862 billion of the former and $125 billion of the latter. “

“An abrupt stop might push up mortgage rates by a half to one percentage point, said Hooper, a former Fed official.”

Third, there are millions of foreclosures yet to hit the market because many of them have been held off the market by banks waiting for the market to show signs of recovery.

“We could be facing a triple whammy at the end of the year: the expiration of the tax credit, the end of the Fed mortgage-buying program and rising foreclosures.”

The question is how can the Fed exit the housing market without it collapsing again?  There is a very slim chance that these programs will get extended.

“Congress may not pass an extension; the chances “seem slim,” said Mark Calabria, director of financial-regulation studies at the Cato Institute in Washington and a former staffer on the Senate Banking Committee. Public opposition to increasing the federal budget deficit is high, and there’s little appetite on Capitol Hill for finding spending cuts to offset the cost of the tax credit, he said.

The deficit will total $1.6 trillion this year as revenue falls and the government spends at the fastest pace in 57 years.”

“In a sign of the public’s concern about the deficit, 62 percent of people surveyed in a Sept. 10-14 Bloomberg News poll said they would be willing to risk a longer-lasting recession to avoid more government spending. “

Fourth, ARM mortgages "are about to explode." At least, that's what the attorney general of the sovereign state of Iowa says. ARM loans allow homeowners to pay only the interest for the first few years.  Many ARM loans are coming due and will be resetting next year, which will increase these mortgage payments by 2 to 3 times what they are today. 

Almost all these homeowners are underwater. They bought at the peak of the bubble.  How many of them can afford a 200% increase in their mortgage payments?  Not many.

That's why a new wave of foreclosures and personal bankruptcies is coming.

Fifth, the unemployment rate continues to climb and is likely to reach 10% in the next few months.  California’s jobless rate has risen above 12%.  Few jobs means few people will be able to purchase homes, which means the supply of homes will remain higher than the demand. 

Conclusion

The government will have to end their programs that are propping up the housing market and banks will be forced to sell their foreclosures - leading us to a second housing market collapse. The only thing that will stop the fall of housing prices this time will be the effects of inflation as the trillions of new dollars that the Federal Reserve has created make their way into the economy. 

Based on this information, housing prices are likely to drop another 10-30% in the next 2-5 years.  Renting is likely the best option during this period, unless you can secure a long term low interest rate with a mortgage payment that you could pay without having a job.

Copyright © 2018 PennyJobs.com. All rights reserved.

The Case Against the Fed

This book, written by Murray Rothbard, an economist and historian of fairly well known repute, is a scathing attack on not only the Federal Reserve, but the interests that created this institution. Rothbard explains how the Federal Reserve is the true source in the destruction of wealth, which has led to the destruction of the middle class and continues to sift money into the hands of the wealthiest.

The Hyperinflation Survival Guide: Strategies for American Businesses

The Hyperinflation Survival Guide offers strategies for business managers to keep their enterprise afloat in the midst of runaway inflation. Within this succinct little book are a plethora of sensible business strategies for American businesses. If businesses are to survive they must effectively counter and minimize the ill effects of rampant inflation and/or hyperinflation. The utmost prudence is required in managing accounts receivable, inventory, and production at such a time. A sudden inflationary economic downturn may very well bring a business to its knees leading to insolvency.

Crash Proof

Peter Schiff has predicted the economic hardship more accurately then any other economist in the world in this book. Everything from the housing crash to the credit crunch to the stock market. Peter has a plan to help you servive the crash. Peter explains why the Wall Street investment firms are still trying to sell you stocks, and was the house prices are likely to continue to decline for years to come.

A Survival Guide For Selling A Home

A Survival Guide for Selling a Home helps readers face the challenges of deciding whether or not to use an agent (and how to find one), estimating a price, and deciding which upgrades are worth making -- and which ones are not -- to add to their home's value. Featuring handy checklists, worksheets, and examples, the book takes readers step by step through the process of selling their homes, giving them valuable information on essential topics.