Realty Check, the CNBC segment on the Real Estate market reports a very optimistic improvement for housing.
Diana Olick reports that Mortgage delinquencies dropped a full percentage point in Q4 compared to last year and that the improved housing market can be attributed to better underwriting and a stronger job market.
While the main stream media reports improvements in the US Economy and Real Estate market, WTF Finance puts a reality check on CNBC’s Realty Check segment.
The reduction in delinquencies has little to do with an improved job market and can directly be attributed to the historic bailout programs. Since the changes in accounting regulations in Spring of 2009 financial institutions no longer have to mark their assets to current market value. As a result of those anti-free market changes companies can mark their assets and liabilities up to bubble value which give the illusion that banks are in stronger financial condition than they truly are. This provides an incentive to not foreclose, especially on loans that weren’t guaranteed through the various Government Sponsored Enterprises. That’s one reason why certain housing markets such as Coastal Orange County, despite the loss of many high paying jobs and a local economy that is very much dependent on the Real Estate sector, appear to be immune from significant price depreciation for now.
The artificial price bottom is unsustainable over the long term, especially in an environment where interest rates are increasing while tighter underwriting standards are put in place to ensure that the buyer can in fact afford the home purchase. While underwriting standards are still very loose for loans with Government backing it is impossible for people to indefinitely provide sufficient demand at these prices when the jobs lost aren’t replaced with others of equal pay. Many Real Estate markets such as Orange County experienced massive salary inflation due to the real estate bubble and these jobs will not be replaced with anything close to equal pay.
While CNBC reports that the improvement in the Real Estate market can be attributed to better economics we would like to point out that delinquency and foreclosure rates only remains artificially low due to a combination of loan modifications, foreclosure moratoriums, and social programs such as the $3,000 housing allowance we reported on in our article “More Socialism For California Homeowners: $3,000 Monthly Housing Allowance.”
If the Real Estate markets across the Nation were to truly improve based on sound fundamentals there would be no need for extensions of unemployment benefits, loan modifications and the continuation of Government guaranteed loans through Fannie, Freddie, VA, and USDA. Without government guarantees the Real Estate market would be exposed for what it truly is. A re-inflated bubble that is unsustainable without the many artificial variables that increase demand for housing while reducing supply of properties for sale.