According to David Wessel, The Wall Street Journal global economics editor, the housing bust is over. It’s in print, it’s on YouTube, and people are blogging that now the bust is over. President Obama can keep his job.
Wow, I feel like a real burden has been lifted and we can all go back to being normal. It’s been a long six years. But, before we break out the champagne and break into song, this revelation demands a closer look.
Wessel goes on to say “…the upturn in housing is a milestone, a particularly welcome one amid a distressing dearth of jobs. From here on, housing is unlikely to drag the U.S. economy down further.
It will instead reflect the strength or weakness of the overall economy: The more jobs, the more confident Americans are about keeping their jobs, the more they are willing to buy houses.”
However, unemployment statistics aren’t improving and are actually flat-lining from month to month. Are we really to believe that housing will not impact the economy anymore?
Wessel is ignoring the fact that 30% of homeowners, or 16 million people, are underwater on their mortgage. It will probably take 10 years to recover the equity that has been lost in real estate.
According to AARP, about 32% of adults over the age of 50 have experienced such substantial declines in housing values that retirement will have to be postponed indefinitely. Many retirees once counted on the sale of their homes to fund costs for health-care and long-term care, but that wealth has now vanished. An astounding 1.5 million people in the “over 50” demographic have already experienced foreclosure, with millions more still at risk.
Perhaps Wessel missed the recent report by First Focus Campaign for Children.
According to First Focus, a nonprofit bipartisan children’s advocacy organization, 8 million children will be affected by foreclosure in owner occupied properties and repossessed rentals. This would include 2.3 million who have already experienced foreclosure, three million more who are at serious risk of losing their homes in the near future, and finally 3 million who have been or will be evicted from foreclosed rental properties.
Events such as foreclosure have a very profound effect on children in many ways. Families that receive foreclosure notices are more likely to move causing midyear school disruptions.
The study showed that for every forced move, reading and math scores dropped so dramatically it was equal to the child missing a month of school. Further, the study shows that parents under financial stress often interact with the children differently, and tend to provide less supportive parenting, which can lead to negative behaviors.
Maybe he also missed reading the testimony of David Berenbaum, chief program officer of the National Community Reinvestment Coalition, who delivered a speech to House of Representatives Committee on Financial Services in June.
In his speech, Berenbaum informed the committee that, “Our housing markets are currently experiencing a self-perpetuating cycle wherein foreclosures drive down home values; sinking home values erode bank assets and household wealth; loss of wealth leads to lower consumer spending and less lending activity by banks; this, in turn, leads to lower productivity; that creates more unemployment; and more unemployment causes more foreclosures.
The most dispiriting aspect of the current crisis is that we have yet to meaningfully address the cause of the foreclosure crisis, the core problems that caused the financial system to implode and drove the economy into a ditch.” He also told the committee that 1.5 million homes are in the foreclosure process and an additional 3.6 million foreclosures will take place over the next two years.
I believe Wessel is somewhat premature when he announces that “the housing bust is over.” We still have a possible recession hanging over our heads during the second half of this year.
A glimmer of good news can be seen in the reduction of shadow inventory that is slowly being released on to the market, but there is still more to come. Or, maybe he’s just a pundit that is spin doctoring news that gives us a tiny light at the end of the tunnel so we all feel better about this mess we are still in.
Diane Gozza is EVP at Houston-based Integrated Mortgage Solutions, a woman-owned, WBENC-certified national firm offering a suite of secure integrated services for the management of distressed portfolios.