The
latest news from the entire media source is touting a boom in the housing
industry. The truth is the numbers are so small I tend to call it more of a
long, hard crawl out of the deep hole we’re in. I especially say this since I
believe the misrepresentation causes rippling effects over the economy in a
false manner.
To be truthful, this
alleged turning point in the housing market can very quickly fizzle to a new
low. Any business venturing into such sticky waters may find itself short on
its expectations. The expected revenues, the costs of doing business, the cost
of acquiring customers could be a gamble that might not pay off.
However, some
indicators are up, including data for housing starts and permits as well as the
NAHB/Wells Fargo Index of traffic of prospective home buyers, which has made a
spectacular rebound since last spring.
Unfortunately, it is
difficult to pin down because nothing drastically different has occurred in the
economy from March until September. I for one, have a serious time believing
the unemployment rate, for example, dropped to 7.8 percent from 8.2 percent.
Yet, 24 million workers are still out of work?
I believe we have a
short run of optimism playing out here. Something that could fizzle, if one
economic element shows its dirty face and spoils the party. I would not bet the
farm on any significant recovery lasting a long period of time.
Take a look at the
facts. The mortgage market is being dominated by the government. This can’t be
good because they really have no reason to be in the mortgage market. Between
Fannie Mae, Freddie Mac and the FHA, they are holding 90% of the market in
loans. That just doesn’t make me sleep better at night.
The FHA is also in a
bind facing a $16.3 billion shortfall, and the only way out is to look to us
the taxpayer. Unfortunately, the FHA can’t foreclose on a property and turn
around a doomed note, maybe even leasing it back to the defaulted owner. They
have rules they have to follow.
The truth is, they are holding approximately 734,290
seriously delinquent loans in the FHA portfolio alone. Next year, they expect
to dump up 50,000 of these bad loans to private lenders. The question is, and
then what, we bail them out with taxpayer funds also? It seems like a cat
chasing its tail.
I wouldn’t be so naive
as to think that the worst is behind us. It appears that Americans are more likely
to rent rather than to own. According to the Census Bureau, the home ownership
rate has been falling from 69.0 percent in the third quarter of 2006 to 65.6
percent in the third quarter of 2012. This is validated by the strong numbers
in mufti-family units’ construction and the availability of single-family homes
at discounted prices scooped up by investors for renter units.
The other storm
cloud hovering over the entire economic growth is what remains to happen in the
other aspects of our economy. The ridiculous spending in Washington, the lack
of job creation, tax increases, the Middle East and of course, the problems in
Europe, all playing a possible spot as a spoiler for the economy.
With all this
uncertainty floating in the air, I would be cautious with making any
speculative moves. Play it close to the vest until we can see a brighter future
on the horizon. Meanwhile, keep your expenses down, pay off old debt, and be
careful what work at what price you take on.
