Unemployment is typically the last economic indicator to recover from a recession, but even at 9 percent the jobless rate is positively brisk compared to another badly lagging sector of the economy — housing.
The rate of decline in home prices had been improving since it seemed to have bottomed out in 2009. But that upswing has come to an abrupt end. The real estate research firm Zillow says home prices dropped 3 percent in the first quarter of this year and fell 8.2 percent year-over-year. Prices have now fallen for 57 straight months, according to Zillow, and 28.4 percent of homeowners are underwater on their mortgages, meaning they owe more than their house is worth.
Economists who had forecast the housing market would bottom out this year are now saying it will be sometime in 2012.
Acting as a drag on any recover is the vast number of foreclosed homes selling — when they sell — at huge discounts. Fannie Mae and Freddie Mac sold 94,000 foreclosed homes in the first quarter but the mortgages giants have an inventory of 218,000 homes, up 33 percent from a year ago.
And all of this is getting expensive. Bailing out Fannie Mae and Freddie Mac from defaulted mortgages has cost $259 billion and Fannie Mae has just asked the government for another $8.5 billion.
Under present laws, there does not seem to be much the government can do except wince and write the checks until the market stabilizes and lenders recover their confidence. Mortgage rates are really low — if you can get one. Lenders who were burned by their overconfidence during the boom are now, according to anecdotal evidence, too cautious about making loans, even to buyers who meet all the usual standards of credit worthiness.
What the government should not do is act to artificially re-inflate the housing bubble. The $9,000 homebuyer’s tax credit that expired last year bought a reprieve in the slide in home prices but it was both temporary and expensive.
It’s hard to disagree with the assessment of Wall Street Journal columnist Brent Arends:
“What a foolish boondoggle those tax breaks for home buyers have turned out to be. The government spent an estimated $22 billion between 2008 and 2010 on tax breaks to prop up the housing market. All it achieved was a brief suckers’ rally that ended last summer.”
We can only hoped that once the unemployed find jobs they’ll want to buy a house. There are plenty available.
Dale McFeatters is an editorial writer and columnist for the Scripps Howard News Service.