Despite bailouts the housing financial deck of cards is still teetering. Next year 48 percent of the outstanding home mortgages will have a negative loan value, whereby the amount owed will be more than the home's value. Currently one of every 136 homes are foreclosed; this is distorted by a backlog of unrecorded foreclosures. Calling the recession over is laughable. Last April Congress and President Obama established the federal $8,000 first-time homebuyer tax credit. The result was a scammer's bonanza. Nineteen thousand filers who claimed the credit never bought homes. Another 74,000 filers ($500 million tab) were not first-time buyers. Five hundred people under 18 claimed the credit, including a 4-year-old (of $150,000 income unqualified parents). The year's cost to taxpayers was over $5 billion; $43,000 for every house sold.
So Congress extends the credit and passes another stimulus (deficit) bill of $24 billion that includes a $6,500 tax credit for existing homeowners to facilitate their home sale. Taxpaying renters continue to subsidize the inflated sale of their neighbor's house. What will this financial fiasco cost taxpayers? This finagling further distorts the housing market and postpones the day of establishing a floor (basis) for real recovery. Meanwhile, the housing deck of cards grows, but ever more unstable.
This is a far cry from the early 1900s when FHA housing mortgages were limited to seven years. A 50 percent down payment was required with an ending balloon payment. One in 10 Americans owned a home. The banks were endowed with the ability to expand credit and with it the money supply. Left alone, interest rates adjusted as the amount of credit used was voluntarily supplied and demanded. Then came government intervention with the artificial imposition of low interest rates, and the humongous expansion of credit. People live way beyond their means, two-thirds "own" homes (in 2001), and politicians get re-elected. Now Freddie and Fannie ($80 billion already in bailout) want another $20 billion. Looks like the recession-leading housing demise will continue. If anyone thinks this artificial system is not headed for a potential depression, don't breathe on this deck of cards.