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According to Fundamentals of Economics The Foreclosure Crisis Should Have Been Gone by Now And The Market Recovered

According to fundamentals of economics the foreclosure crisis should have been gone by now and the market recovered. But this has not happened. Self-curing has not taken place.

The key factor to restoring the confidence and the spending power of the consumers is the health of the real estate market. It is more so than the stock market because the majority of the houses are held by the people – the public. According to expert Celia Chen of Moody’s Analytics the economy has been poorer by $360 billion due to weakness of consumer spending; the amount is equal to the worth of new car sales in America.

foreclosure signThus given the scenario, it was surprising to many that President Obama in releasing his package about job creation had only few passing words for the housing segment. Obama said that he hoped the package would assist “responsible homeowners” to get their mortgages refinanced.

No new steps are offered in the plan to help millions of borrowers threatened with foreclosure or severely defaulting. No reference has been made to suggestions that have been made by pundits and community groups to transform the empty houses into rental units or to offer reduction in principle on a wide scale.

Why was Obama reluctant? Maybe there were political compulsions over sensitive issues regarding offering help to borrowers who overreached themselves during the bubbling years in taking loans they could not manage. Perhaps White House is thinking that if it can put in punch in hiring than growth will pick up speed in the general economy; housing can tag along later.

Washington consultant Robert Shapiro, previously attached to the Clinton administration said this “was the original hope of the economic team” with the Recovery Act involving stimulus funds of $787 billion that was launched in 2009. Shapiro advocates that a more definite focus should be on the huge backlog of foreclosures and the shadow inventory waiting in the wings. He commented, “We bailed out banks. This is bailing out homeowners”.

Washington’s track record in dealing with the housing crisis has been poor. In the private sector the efforts have produced negligible results. The most important issue is the inventory the banks are sitting upon.

All said and done –  the system has got stuck while the pain continues and the damage spreads.

Photo by Mike Licht, NotionsCapital.com

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