Market Bottom: They Just Don’t Get It!

By John Hines
Economist

Bank owned homeThe bottom of the real estate market is a fleeting place that has seen the initial stages of recovery tease markets in the worst hit areas of the country, including California, Florida and Nevada. As home sales rise, bankers hold off on making foreclosures and keep lending standards so high that only a quarter of the people can borrower that apply the bottom of the market remains elusive.

However, newly placed government programs to improve mortgage lending are slowly being instituted through the FHA and local state and government agencies. With Signs of Bottomadditional government efforts whether we politically favor them or not, the lending pipeline improves. Bankers will make more loans on homes and businesses.

That’s how normal real estate depressions work out. But this housing crash is anything but normal. “Bankers aren’t doing their jobs,” says outspoken real estate mogul Donald Trump. “Congress is sitting on its hands,” says Brian Lawson, a real estate analyst. “Without further government intervention we’re screwed.”

Unfinished HomesFor all of its looks and appearances that the housing market is making a rebound with improving home sales, the rise in sales is an orchestration by the government to make markets look good to the public. A longer and complete recovery can not be choreographed by government intervention but must be developed through strategic planning and the implementation of laws on mortgage lending to protect consumers interests first.

First time home buyers have jumped to take advantage of a federal tax credit, which has been extended and expanded to move-up buyers through April. The credit has resulted in a reduction of foreclosures, which have been the majority of sales. Lower prices and inviting interest rates have aided housing markets in making moves towards recovery.

Bottoms of housing markets only fall in place when public opinion improves and in this housing crash public sentiment has a long ways to go before anyone will see a bottom appear.

The government will have to take major action to at least curtail the huge epidemic of foreclosures or risk the development of a full economic depression. Congress just doesn’t get it. The U.S. was on the brink of economic failure. Now members of Congress want to insult the Treasury Secretary. Get a grip!

Things could be and will be worse if Congress doesn’t get moving on legislation to force the banks to modify mortgages. The American people already know they’re going to be holding the bag for the worst economic disaster in history, and pay we will for years to come.

The issue now should be to get the economy back on track and get the lending pipeline moving. Unlike other business markets, housing markets don’t bottom all at the same time and recovery develops over a long period of time.

How long will it take for the bottom of the market to appear? As long as it takes Congress to get its act together and that could be a very long time.

If Congress makes the tough decisions it needs to make we could see a bottom by the third quarter of 2010.