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Is The U.S. Housing Market Ready To Stand On Its Own?

Is the U.S. housing market ready to stand on its own? Let's see:

  • According to its latest monthly survey, John Burns Real Estate Consulting reports that 59 percent of new home buyers rely on low-down payment government-backed mortgages, including FHA, VA, or USDA financing with 96.5 to 100 percent home loan-to-value (LTV) ratios. The good news is that average unsold finished inventory per community shrunk from 3.7 to 2.7 units. On the other hand, the average net sales per community dropped from 2.0 to 1.6, returning to levels last seen in July.
  • Government-run Fannie Mae and Freddie Mac plus FHA currently account for more than 85 percent of all loans provided to all buyers.
  • The federal government is spending more than a trillion (that's $1,000,000,000,000) to buy U.S. housing-backed securities in an effort to drive down interest rates. Some economists and housing experts estimate that if the U.S. housing market wanted to attract international buyers for these housing-backed securities, the real interest rate would have to be at least a half-point to one percentage point higher than it is now, bringing mortgage interest rates up to 5.5 to 6 percent. Unfortunately, that would mean thousands of home buyers would no longer qualify.
  • The $8,000 first-time home buyer tax credit has been the driving force behind helping the housing market find a bottom. Unfortunately, the tax credit officially expires November 30. Effectively, it expired October 15th. Trade-up home buyers will now wait to close until after November 30, to see if Sen. Johnny Isakson's new and improved $8,000 home buyer tax credit (which allows anyone who earns up to $150,000 if single or $300,000 if married to receive the tax credit) will pass.
  • The national unemployment remains at 9.8 percent, but is far higher in major employment regions, like Illinois (10.5 percent), Michigan (15.3 percent), Nevada (13.3 percent), Florida (11 percent), and Ohio (10.1). If you factor in the true numbers of unemployed, including those who have given up on finding a job, the numbers are far worse. As I've maintained all along, without jobs, you can't have a true real estate recovery.
  • UPDATE: The National Association of Home Builders (NAHB) just announced that its home builder confidence survey fell to 18 from 19 in September. Anything under 50 means most home builders view new home construction conditions as poor. (The September number was the highest in over a year.)
If you consider the numbers, it doesn't look like we're in the middle of a sustained housing recovery. The real question is this: What, if anything, can the federal government do to create a real recovery for real estate?

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