Home > Finance and Economics > Real estate problems looming again

Real estate problems looming again

Florida may or may not encapsulate the country’s lingering mortgage mess.  However, stories like this do not give reasons for optimism:

Record snowstorms in January and February had many Americans shoveling sidewalks and driveways instead of combing through listings for open houses. Partly as a result, an index that tracks sales agreement showed a 7.6 percent drop from December to a seasonally adjusted January reading of 90.4, the National Association of Realtors said Thursday.

It was the lowest reading since last April and a disappointment to economists, who had expected it would rise to 97.6.

The weakness, however, was not confined to the wintry Northeast. The biggest month-to-month drop was in the West, where sales fell 13 percent. Sales fell almost 9 percent in the Northeast and Midwest and 2 percent in the South.

The weather isn’t the only culprit, wrote Jennifer Lee, an economist with BMO Capital Markets. “The impact of government incentives . . . appears to be running out of steam, which is, frankly, a scary thought,” she wrote.

When it comes to the economy, significant growth isn’t really possible until the real estate market corrects itself.  With the American taxpayer owning virtually all of the US mortgage market via Fannie, Freddy and the FHA, plus subsidizing homebuyers with the tax credit, the market is being propped up by the US government—-its a false bottom.

The bubble burst but effectively, the market never crashed due to government support.  Eventually markets need to crash in order to be made whole.  Just like cash for clunkers, the tax credit is only bringing future sales into the present–there’s no other incentive. 

It will be both interesting and scary to see what happens after the tax credit expires on April 30th.

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