There’s a giant paradox in the nation’s housing market now. Mortgage interest rates have fallen to near all-time lows, yet homeowners as a whole are in a state of unease not seen since the Great Depression. In 2009, nearly 4 million foreclosure notices went out to homeowners unable to keep up with their payments, an increase of more than 20 percent from 2008.
Arguably the most crucial, and underappreciated, reason behind the collapse has been excessive federal intervention. Recent reports and articles from American Enterprise Institute (AEI) Senior Fellow Peter Wallison and AEI Visiting Fellow Charles Calomiris strongly suggest the pileup of bad mortgage paper has the words “Made in Washington,” written all over it. In other words, rogue capitalism is partly to blame, but rogue government has played a central enabling role.
Our nation has over-invested in housing. To put the matter more simply, we’ve bought more housing than we can afford. According to the Irvine, Calif.-based RealtyTrac Inc., the number of U.S. homes seized by banks during First Quarter 2010 was 35 percent higher than for First Quarter 2009. And the number of owner-occupied homes in immediate danger of foreclosure was 16 percent higher. “We’re right now on pace to see more than 1 million bank repossessions this year,” notes RealtyTrac Senior Vice President Rick Sharga. The Mortgage Bankers Association of America, meanwhile, estimates that during First Quarter 2010, 10.06 percent of all mortgage loans on 1-to-4-unit dwellings were delinquent and another 4.63 percent were in foreclosure. Thus, nearly 15 percent of all homeowners with a mortgage are to some degree in danger of losing their home.
Want more evidence of a crisis? A report released late last year by First American CoreLogic, a real estate information company in Santa Ana, Calif., estimated that 23 percent of homeowners nationwide owe more on their mortgages than their properties are worth in the market, a condition popularly known as being “underwater.” And a new study by Barclays Capital estimates that about 30 percent of all home sales in 2010 will be foreclosure-related, as opposed to the typical figure of around 6 percent. Moreover, says Barclays, U.S. home prices will tumble 3 percent to 5 percent over the next couple of years – on top of the 30 percent decline occurring since 2006.
Carl F. Horowitz is director of the Organized Labor Accountability Project of the National Legal and Policy Center, a Townhall.com Gold Partner organization dedicated to promoting ethics in American public life.
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