The Housing Bubble Continues to Burst

by Robert Reich —

The National Association of Realtors said today that home prices have now dropped to the point where they’ve wiped out all the gains in housing prices since 2004. 2004, not incidentally, was when interest rates last hit bottom, and the Feds looked the other way while mortgage bankers began shoving money out the door to anyone who could stand up straight and many who could not. In other words, 2004 marked the start of the housing bubble.

Should we take comfort from this? A bit, except for the fact that housing still has a way to fall because boomers will be cashing in their homes over the next few years — buying smaller condos or, if necessary, rentals, for their retirement years. (Even though fewer and fewer boomers will be able to retire, they’ll need all the cash they can get). That means still more homes on the market, including all those bigger ones that were built when the boomers were having families. And more homes on the market means still lower prices.

In truth, home prices first began to rise more rapidly than rental prices in the 1980s, when boomers hit the housing market big time. So, demographically speaking, there may be even a longer way to go before the housing market hits bottom.

Meanwhile, younger people who might otherwise consider buying a home are waiting on the sidelines. Either they can’t get a mortgage loan (the banks continue to hoard) or they assume housing prices will continue to fall and are prepared to wait.

robert_reich.jpgAll this raises questions about how long and how much the federal government can mitigate the mortgage crisis. Obviously, it can do much more than it’s doing now — which is remarkably little, given the $350 billion that Hank Paulson has already burned through. But as housing prices continue to deteriorate, the number of home owners who are under water — owing more on their homes than their homes are worth — continues to rise. A portion of them will walk away from those homes, dragging down home prices around them.

It’s another mess Bush is leaving at Obama’s front door.

by Robert Reich

Robert B. Reich is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.

This article first appeared on Robert Reich’s Blog. Republished with permission

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  1. Dr. Jim Hamilton says

    I am tired of hearing real estate brokers blame mortgage brokers for the mess we are in. Most of this was greedy homeowners,real estate agents, investors, appraisal companies and some mortgage people.
    The american people need to face the truth, If a home was valued at $75,000.00 and 7% (realtor fee) was added to that and it gos on the market for $80,250.00. Mortgage brokers had nothing to do with the markup, a real estate company did that.. Now everybody in the mortgage business knows that they are only permitted to make 5% of the loan amount, $80,250.00 x 5% = $4,012.00. Now everybody else get to put their fee on top plus whatever the interest rate will be from the lender over 30 years. The banks have always been banks from the very first day one opened it’s doors, people have always complained about the banker and nothing has or ever will change. 85% of the people in the world couldn’t get a mortgage without a mortgage broker. Because banks never gave loans to people with out somewhat perfect credit. Well we don’t need all the people involved in selling and buying homes. These are the people needed, seller,buyer, mortgage broker & attorney’s.. We had real estate agents that took a 2 week class got licensed and were selling million dollar homes with their noses in the air. Many of them had never sold a glass of water !!! They would put major pressure on a mortgage brokers to close a loan while often times they would shop with other brokers for a quick close. The next thing to come was real estate brokers getting mortgage brokers license ( 12%)!!!
    It’s greed !!! But why don’t we get rid of the mortgage brokers that actually help the american people, many that didn’t drive around in luxury cars or live in nice homes because they didn’t know about them before they went on the market.. If we are going to point fingers ! Then we need to talk about everybody that put there name on a contract. There was nothing wrong with the ARM loans ! They were the best thing that ever happen in this country, the problem was the dishonesty ( GREED ) by everybody. Now we are putting families and their possessions in the streets so they can go and rent from investors that had perfect credit and inside tips, but didn’t use mortgage brokers. Instead of allowing these people to keep their homes and make lower payments like rent.
    For every wrong that we do or allow to happen ! There is a bigger price to pay. We need to bring this mess to a halt now. Really there’s going to be big trouble very shortly.

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