Every now and then we hear a comment from a senior government official, offhand though it may have been, that really strikes at the heart of the current state of affairs in housing.
Today it was Fed Chairman Ben Bernanke before the Senate Banking Committee:
"Affordability is not the issue it was a few years ago, so I think at this point I would recommend focusing broadly on the economy and the financial system as a whole. People are not likely to buy houses when they’re feeling very unsure about their jobs."
I’ve been arguing this point for quite a while now, that the fundamentals of the housing market don’t apply to this particular housing market. Today we learned that home prices nationwide continued to fall, and even accelerated in their declines. Prices are now at levels not seen since 2003, essentially giving back all the gains of the housing boom. In 2008 homeowners lost $2.4 trillion of housing wealth, with wealth losses broadening around the country, according to First American CoreLogic.
So no, it’s not about affordability anymore.
Many opposed to the housing bailout argue that we should simply let the housing market correct on its own, let as many homes go into foreclosure as need be and watch them be scooped up by more worthy borrowers and more earthly prices. There are bottom feeders out there, and I mean that in a good way, but I simply don’t think there are enough to consume enough properties to turn the whole market around. Most people, after all, need to sell and existing home before buying a new one.
- Bernanke: US Recession Could Drag Into 2010
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