You know economic conditions must be really bad when government run agencies like Fannie Mae are forced to revise down their economic forecasts. It seems even they could not stomach the government's propaganda about a recovering economy, green shoots, blah blah blah. In a sobering does of reality, Fannie Mae's July report opens up and tells it like it is:
Black Swan Insights
U.S. economic data over the past month have generally been downbeat, with a barrage of dismal news on housing and consumer fundamentals calling into question the durability of the U.S. recovery. Consumer confidence has moved lower, reversing its gradual uptrend. Leading indicators of housing activity suggest that a pullback in home sales in the third quarter will likely be more significant than we initially anticipated. Most importantly, private payroll gains have weakened in recent months. While we had anticipated a slowdown in economic growth in the second half of the year (as the impacts of inventory building and fiscal stimulus wane), we now believe growth will slow by more than we previously projected. For all of 2010, we have revised lower our projected growth by four-tenths of a percentage point to 2.8 percent, and we remain on guard for a setback amid increased uncertainty and downside risks.I wonder if the White House is going to incorporate this in to their "we saved the economy" pitch ahead of the November elections. It seems like all of the stimulus packages and money printing did nothing to help the real economy. It only enriched the Wall Street banks who were happy to borrow from the FED at 0% and buy anything with a positive yield. Then they use the profits to pay billion dollar bonuses to their employees. According to the Fed and the White house this should help the economy, but the truth is that the banks are the only ones who have profited. Another interesting part of Fannie Mae's July report is the discussion on housing which says:
The near-term outlook for the housing market looks bleak, according to leading indicators. Since the end of April, mortgage applications have fallen by over 40 percent, reaching the lowest levels seen since early 1997. Pending home sales, which are recorded at contract signings, posted a 30 percent drop in May to the lowest level on record. Given recent developments in the housing and labor markets, we have increased substantially our projected pullback of home sales in the third quarter and reduced our assessment for a rebound in the fourth quarterFannie Mae goes on to note that the only way the housing market will ever recover is if employment improves which according to the Federal Reserve will not happen anytime soon. Fannie also goes on to say that:
another significant factor that will keep the turnover rate of homes for years to come below the levels seen prior to the housing bust is the number of homeowners whose mortgages are significantly underwater. Borrowers with a mortgage loan-to-value (LTV) of 125 percent or more totaled nearly five million in the first quarter of 2010, according to First American CoreLogic. These homeowners are unlikely to prepay their mortgages regardless of how attractive mortgage rates are. This also has a negative implication for the outlook of the labor market, as it is an obstacle for skilled workers to relocate because they cannot afford to take losses on their homes.I don't blame people who stopped paying their mortgage because they were severely underwater. The only alternative is to become a slave to the banks for the rest of your life by paying a mortgage that is more than the value of your home. Who the hell wants to do that? And before I hear the argument that you have a responsibility as a borrower and an obligation, lets remember that the banks stole $800 billion cash + trillions in government backstops (10T?) and liquidity facilities all while paying themselves billions in bonuses. I would rather hold these banks responsible than foolish, stupid, and sometimes criminal people who took out mortgages they could not afford. This is not to say that I would assist these people in any way. The law is pretty simple--if you default on your mortgage the bank gets your home (assuming this is a non-recourse state). The banks knew the risks and took them. No one should get an illegal taxpayer bailout. The current situation of 5 million people who are underwater should but a lid on the housing market for a long time. Obama can try all of the failed mortgage restructuring ,which does nothing to solve the problem because it does not reduce principal. All these programs do is lower the monthly payment for a few years. The housing market is going to take a minimum of 3-5 more years to gradually settle out and reach a proper clearing level. This of course assumes the government does not invent another scheme to "keep people in their homes." These programs simply delay the inevitable. If people cannot afford their home they have no right to be living in it! So the next time you hear some propaganda agent tell you the housing market is recovering you will know better.
Black Swan Insights