This entire blog will be dedicated to creating a forum for those outside of the glass house in Washington DC to espouse practical ideas on how to confront and ultimately redefine the debate on the fiscal bankruptcy of the United States that continues on a daily basis.
Without question it is the policies of the last 20 years, across both Repulican and Democrat administrations and congresses, that has left us with the mess we have today. Just read this for a brief recap on the ill founded reasoning for pushing the current Government controlled Fannie/Freddie to lend money to anyone with a pulse. So bickering and finger point over how we got here is irrelevant. There will be time to learn the lessons from the past and apply them to the future. However that time will not come until we finally deal with the root cause still plaguing the housing market today which is different than what the talking heads would lead you to believe.
The single biggest issue facing housing today is the amount of current homeowners underwater on their existing mortgage - those who owe more debt on their house than their house is currently worth. Today the talking heads in the news are trumpeting the fact that the number of American homeowners underwater on their mortgages fell from the previous month to only about 21% of all homeowners in the US.
(http://news.yahoo.com/s/nm/20100809/us_nm/us_usa_economy_housing_2).
Now this needs to be put further into context and that context is that you need to understand the total amount of Mortgage debt outstanding in the US. According to CNBC, this amount to almost $15 Trillion in Mortgage debt and another $600 Billion in Home Equity debt. (http://www.cnbc.com/id/30438711/America_s_Biggest_Types_of_Personal_Debt?slide=10)
Where I differ with the talking heads is that they would lead you to believe that Jobs are the number one factor to fixing the housing crisis. They would have you believe that as long as people went back to work that eventually the supply/demand equation of housing would rebalance and that as more people move back into the market to to buy homes that home values would rise as a result of this. The thesis is correct that home prices will increase as more people are employed. Where they miss the boat is assuming that this alone will fix the housing crisis.
The housing crisis today is not improving because of the vast amounts of homeowners that are both underwater and STILL employed. Not to appear heartless but those who have lost their jobs today have no impact on the housing market. If we assume that the unemployment rate has stabilized (which is a big "If" I agree) then it is fair to assume in my opinion that those who have already lost their jobs are for the most part now immediately stopping paying their mortgages as the social stigma of defaulting on a mortgage has long since faded away by the middle of 2010. What is impacting the housing market the most is those that are still employed, still gainfully making mortgage payments, but 25% underwater in their current house with zero hope of seeing the value of their home return to its original price in the next 10 years. That homeowner, who we will from here on out refer to as Joe America, is the engine that could revive housing and the entire economy itself if our government and banks would get their heads out of their butts and come up with some Financial Ingenuity.
The next post will explain how the government, banks, and Joe America can all make a small sacrifice today that would immediately stop the bleeding in the economy and make the future look so much brighter on the housing front.
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