Mindfu

The article I read was from the Economist magazine and was entitled “What foreclosure problem?”.  The article was about commentary by writer Ezra Klein from his newsletter and his views on the housing market in the United States.  Ezra was supposedly informed by an economist from Moody’s that they expect 11 million foreclosures in the next six to nine months.

The author of the Economist article, however, was somewhat surprised by the concern on the part of Ezra over this news.  Housing markets, though currently are in a dire state, are likely to get worse.  Turns out that 11 million homes have negative equity.  In other words, if the owner purchased the home for $500,000, the morgage on the home is for $500,000 but now the home may only be worth $300,000.

In the third quarter of last year, investment in residential homes was at a $329.8 billion annual rate.  This is the lowest it has been, in nominal terms since the first quarter of 1996.  In order for this to be an actual threat to recovery then, residential investment would have to fall significantly lower than this level, which is seemingly impossible to imagine.  With the exception of a catastrophic event, which would pose a significant threat to the American economy, its unlikely that the problems in the housing market could get much worse.

It is possible to imagine these falling housing prices and the compression going on in the economy affecting household consumption, which in turn could have negative effects on the current state.  But many households already began reducing consumption to pay off existing home equity loans and its unlikely that there would be something to cause this to accelerate.

American banks are in much better shape than in 2008 and quite a significant bit of the bad loans in the U.S. have been acknowledged
and are being delt with.  Crisis from somewhere else would be more likely than from the housing woes.  Unfortunately for those caught in the eye of the storm, the housing markets with the worst amounts of negative equity are concentrated in just a few states: Nevada, Arizona, Florida, Michigan and California.  Deterioration of neighborhoods and other related foreclosure activity will likely fall on deaf ears, since the problem is no longer a national problem.

Source:
http://www.economist.com/blogs/freeexchange/2011/03/housing_markets