More Signs of Strength in Housing: Does Bernanke Get the Credit?

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Andrew Harrer / Bloomberg / Getty Images

Ben S. Bernanke, chairman of the U.S. Federal Reserve, listens to a question during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., U.S., on Thursday, Sept. 13, 2012.

It’s an election season cliché to forewarn an ideological opponent that he is not entitled to his own facts. But when it comes to the economy, it would seem one is entitled to his own facts. Or to be more precise, that there are so many facts floating out there that one can construct any reality he wants out of them. Sure, the unemployment rate has declined dramatically from its peak of 10% in 2009 to 7.8% today. But how much of that decline is a result of people dropping out of the labor force — of so-called discouraged workers? It seems as though every new piece of economic news that comes out can be spun to reflect a wide range of conclusions.

But there has been one aspect of the economy – the housing market – that has been persistently producing good news, so much so that even the most bearish observers have labeled it a bright spot. And a survey released yesterday by Fannie Mae serves to show that many U.S. consumers are feeling more positive about the housing market. Thirty-seven percent  of respondents believe that home prices will rise in the next year, the highest percentage since Fannie Mae began releasing the survey in 2010. And 19%, also the largest percentage yet, said that now was a good time to buy a home. What’s more, according to the poll, consumer confidence about the economy in general is on the rise – with 41% saying the economy is on the right track, an 8% rise compared to last month’s survey. These statistics don’t show the public to be very confident about the economy or the housing market, but they do show that the public is more confident than they’ve been in several years.

(MORE: Home Sales, Prices Rise: Is Housing Finally Ready to Lead a Recovery?)

Another piece of good news out yesterday was from analytics firm CoreLogic, which said that the so-called “shadow inventory” of homes in the U.S. fell to 2.3 million homes in July, down more than 10% from a year ago. These are properties that owners would like to sell, but can’t or won’t because of market conditions. These could include homes that are stuck in the foreclosure process, are already bank-owned, or are seriously delinquent. This shadow inventory is troubling to real estate analysts because these homes will eventually be sold, putting downward pressure on prices, but it is unclear when they will hit the market. The orderly working through of the shadow inventory is crucial for continued recuperation of the real estate market — and that seems to be happening.

So what’s behind the strength in the housing market? Part of it is just the passage of time. Housing prices have fallen so far and consumers have unloaded enough personal debt that housing is becoming a good buy once again in many areas of the country. But another key to the housing markets strength is the extraordinary actions the Federal Reserve has taken to stimulate the economy. For years, the central bank has been propping up asset prices by purchasing U.S. Treasuries and mortgage-backed securities, and the announcement last month that it would stage an indefinite program of $40 billion monthly purchases of mortgage-backed securities has had an appreciable affect on the housing market. Following the Fed’s announcement of QE3, mortgage rates hit all time lows, and refinancing activity increased significantly. According to a report in Bloomberg BusinessWeek:

“Borrowers are refinancing at an annualized rate of 22 percent, according to Lender Processing Services (LPS). At this rate, more than one in five borrowers will refinance over the next year . . . Refinancing is normally not an option for borrowers who owe more than their home is worth. But they have been getting into the act this year, thanks to the Obama administration’s Home Affordable Refinance Program, which rewards banks for working with underwater homeowners. Since the start of 2012, there’s been a 65 percent increase in refis for borrowers who owe at least 20 percent more than their homes are worth; HARP now accounts for about a quarter of all refis.”

(MORE: Five Reasons It Could Be the Opportunity of a Lifetime to Buy a House)

This is good news for Ben Bernanke, who aimed to increase such activity as a means to stimulate the economy. Without Federal Reserve support of the housing market, it’s unlikely that housing prices would have stabilized in the manner they have. But will the housing market continue to recover? Not everyone is convinced. Paul Diggle of Capital Economics told CNBC, “More recently, MBS yields have made up nearly all of their initial drop. If sustained, that suggests that mortgage rates may not fall much further, and could even rise.”

It’s not certain that continued Fed action will keep spurring the current pace of refinancing activity, but at least for the time being there is one sector of the economy that’s showing signs of life, and one arm of the government that’s helping it get there.

MORE: Too Much Candy: A Plain-and-Simple Way to Understand Quantitative Easing, Part 3

14 comments
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Venture Guy
Venture Guy

Get ready for leg 2....unless you think interest will stay at ZERO while the US spends itself to oblivion!  We are one step away from being Spain! Benny is printing like there is no tomorrow and if keeps doing it there won't be!

Leftcoastrocky
Leftcoastrocky

Housing market has finally bottomed out.  Prices are flat or climbing in most locations.  (The Greenspan-Bush-etc. housing bubble is finally over.)

Leftcoastrocky
Leftcoastrocky

The housing market has been holding the economy back.  The economy is slowing climbing back now.

T Marq
T Marq

The housing bubble effect isn't over yet, far from it. Those homes that appear to be driving up the housing strength are in for a shock in the very near future.

This is not the time to buy, home prices will continue to drop and more losses are expected, for several more years top come. Rent and save, that's the right approach.

Don't get duped with todays news to wave happy flags, it will only last a moment, and then reality shock will set in again.

Sundara0000
Sundara0000

It is a big ponzi scheme. The Fed (the banks) are buying back mortgage(from them selves) with money (virtual) so that they can loan out more (virtual) money to people to buy houses. When you pay your mortgage you are giving them back money they never had in the first place.

11340bh
11340bh

You are missing the point. With home loans in the bottom as a retired person here

is what is happening.  Most older people had SS plus 4 1/2 % interest on their 100,900

for an additional $4,500 per year which would have paid their property taxes, insurance,

etc. plus paid taxes on that money.  Now at .5 % they have lost $4,000 of income. and

they may have also lost their job through no fault of their own.  With FHA loaning

money at the low rate for thiry years is a farce for us as we will be payig them out

again.  Would you want to lend money for 30 years at that rate? No and neither would

I. Obama just doesn't understand business, etc. Enough said.

Venture Guy
Venture Guy

Bonus is SS goes bankrupt 20 years earlier as Social Security has to invest in government bonds to get a return....guess what those bonds pay now? Good luck fending for yourself...as Obama will be speaking for millions while you live ina BOX!

RichBachelor
RichBachelor

Wow… My best friend Abigale has just announced her wedding with a handsome millionaire shortly after they met on ~ ~ ===?=== RichBachelor ===?===~ ~ 6 months ago. This is a dating site where you can meet rich successful men and classy gorgeous women  . bing or google.

PowerOfChoice
PowerOfChoice

Obama feels he is above following rules and his government agencies are the same harming hard working “Middle Class” American citizens such as:

 

http://thebusinesstimes.com/pu...

 

Per article owner put $384,000 into house and after Property Rights violated sold instead of staying for the 10 years.  Per County Records "Sales and Conveyance Information” 12/06/2010 they sold the home for $245,000 dollars.  That was a huge possible financial LOSS of $139,000 for a family.

 

What is happening where Contracts, Laws, Honesty, Morals, and Ethics are tossed out windows to implement government programs?  It is one thing to build meeting or exceeding the contract and laws same as other owners, but not build violating others in such a self-serving manner.  These actions harm hard working “Middle Class” families having life savings and investments ruined.

 

PLEASE write Senators and Congressmen letting them know that We the People want property rights better protected similar to Identity Theft such as: 

 

“Whoever, with intent to obtain property knowingly participates in changing, without lawful authority, a contract attached to Real Property of another person with the intent to commit, or to aid or abet, or in connection with, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony or fraud under any applicable State or Local Law, shall face fines or imprisonment for … “

Venture Guy
Venture Guy

A bonus is Obama has spent $20000 per person of deficit for every single person in the country. Each member of your family owes $52000 and each tax payer is on the hook for ONE MILLION IN UNFUNDED LIABILITIES  Where are you, your uncle, your neighbor, the poor getting that money?

PowerOfChoice
PowerOfChoice

LOL ... that is why I am going to cast my vote to FIRE our current president this November and WILL LIKE IT ALOT !!!  That is one action in a long time which will give me great satisfaction.

1hopelessoptimist1
1hopelessoptimist1

When is less bad news good news. Besides the burgeoning Nation's capital and Manhattan, there are few localities that are at the 2006 price and construction levels.

Pellam
Pellam

The second shoe has yet to drop. This housing market lift is nothing but a dead cat bounce. In fact, the only thing that will truly raise prices in the near future is dangerously high inflation.

John David Deatherage
John David Deatherage

The housing market will "be back" when the demand for housing has consumed the excess supply of housing created by the loose money (amp; lending) policies of the Fed.

The economy is far too complex to be micro managed by small group of people from the Federal Reserve and the Treasury.  The more they do, the more distorted the outcome.  Less is more.