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Nov. 6, 2009
Rabbi Berel Wein: Choosing to hear
JWisdom.com Zero to 1/60th: How to Empower An Hour with Gavriel Aryeh Sande (7 minutes)
Caroline B. Glick The mullahs' big week
Suzanne Fields A Fallen Wall for Fallen Man
Nov. 5, 2009
The Kosher Gourmet: Three scrumptious -- but simple -- butternut squash dishes
JWisdom.com Hidden Hints: Unlocking Faith & Prayer with Rabbi Jay Yaacov Schwartz (10 minutes)
Nov. 4, 2009
Tom Hamburger and Kim Geiger: Should prayers be covered?
JWisdom.com When God played peacemaker With Rabbi Sroy Levitansky (5 minutes)
Nov. 3, 2009
Martin Peretz: Beware, Barack. Beware, Rahm. Beware, Axelrod
JWisdom.com Are you are closet idolater? With Sara Yoheved Rigler (10 minutes)
Nov. 2, 2009
Paul Greenberg: The Holocaust is now on Facebook
JWisdom.com Abraham's Strange Change With Rabbi Yitzchok Fingerer (5 minutes)
Oct. 30, 2009
Rabbi David Aaron: Secret to Immortality
Caroline B. Glick Silencing dissent in America
Oct. 29, 2009
Lini S. Kadaba: Do tactics avert flu or reduce humanity?
JWisdom.com We Must Revamp our Religious Vocabulary With Gavriel Aryeh Sanders ( 10 minutes)
Oct. 28, 2009
Rabbi Yonason Goldson: Atheists in Bubbleland
JWisdom.com Why what we wear impacts who we are With Rabbis Mordechai Becher, Menachem Golberger and Aliza Bulow ( 10 minutes)
Oct. 27, 2009
Paul Greenberg: The United Nations Is Outraged Again, Or: Department of Mideast Static
JWisdom.com The Science of Love With Rabbi Jonathan Rietti ( 7 minutes)
Oct. 26, 2009
The Jewish Ethicist by Rabbi Dr. Asher Meir: Damaging disclosures with a twist
JWisdom.com Wisdom and Wonks With Rabbi Eytan Feiner ( 7 minutes)
Oct. 23, 2009
Rabbi David Aaron: Are you ready for the ultimate pleasure?
JWisdom.com Watermark and oneness with Rabbi Sroy Levitansky ( 4 minutes)
Caroline B. Glick Stop using limited powers in a way that expands our enemies' advantages over us
Oct. 22, 2009
Steven Emerson: Terror Cases Share Desire to Kill Americans
JWisdom.com No More More Family Fights --- Really? By Sarah Chana Radcliffe ( 5 minutes)
Oct. 21, 2009
Tonya Alanez: Holocaust denier sues survivor, calling Auschwitz memoir 'vicious lies'
JWisdom.com Meditating Jewishly: A Panacea for Success by Sarah Yoheved Rigler ( 7 minutes)
Oct. 20, 2009
Dennis Prager: Obama and Dalai Lama: Why Israel Worries about U.S. President
JWisdom.com Abraham was not religious By Rabbi Yitzchok Fingerer ( 6 minutes)
Oct. 19, 2009
JWisdom.comWhy Good People Do Bad Things By Rabbi Eytan Feiner ( 7 minutes)
Oct. 16, 2009
Rabbi Yonason Goldson: The Perfect Number
JWisdom.com Hearing Voices By Rabbi Sroy Levitansky ( 5 minutes)
Caroline B. Glick How Turkey was lost
Oct. 15, 2009
Jeff Jacoby: Peace vs. the 'peace process'
JWisdom.com: Former MTV producer and stand-up comedian Rabbi Lawrence Hajioff: Taming a Control Freak (A VERY fast 15 minutes)
Oct. 29, 2003
Mortimer B. Zuckerman: Graffiti On History's Walls (MUST-READ!)

Jewish World Review Feb. 21, 2008 / 15 Adar I 5768

The Haunted Housing Market

By Mort Zuckerman

Mort Zuckerman
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http://www.JewishWorldReview.com | How much longer will house prices keep falling? That collapse is a larger threat to our economic well-being than even the headline-grabbing problems of our increasingly frozen financial system. We've had half a century of rising home values, capped by an inflation-adjusted rise of 85 percent from 1997 to 2006. Now the loss of value tops $1 trillion, and the financial world has incurred hundreds of billions of dollars of losses on the premise that U.S. home prices would never fall. The median price of a new home is at $206,500, receding to where it was in November of 2003, thus wiping out more than three years of price appreciation. It takes 6.3 months to sell a finished home compared with 4.3 months a year ago. The ratio of inventory to sales is the highest since October 1981 — there's an unsold extra backlog of a million single-family homes and condominiums. Builders have cut their housing starts by approximately 40 percent over the past year. David Rosenberg of Merrill Lynch estimates construction will fall from a million units to approximately 700,000 units, an all-time low since World War II.


House prices, though, haven't fallen enough to tempt buyers, despite sales incentives and rebates. According to the Conference Board, fewer Americans plan to buy in the next six months than at any time since 1994. The decline in conventional mortgage rates has failed to spark sales because it has been trumped by tighter lending standards. Speculators, who helped fuel the bubble, have virtually disappeared from the market.


No loans. New mortgages are harder to get now than at any other time in the 17 years that the Federal Reserve has been surveying senior loan officers. Lenders have disqualified thousands of potential buyers. A third of planned home sales were canceled or delayed last fall, in large part because the buyers could not get the loans they needed. Those who do qualify are being asked to make substantial down payments, sometimes going back to the old rule of 20 percent down, with monthly payments that are high enough to pay down the debt. No longer are there interest-only loans or quick mortgage refinancing that used homes as an ATM and produced over $1.2 trillion of free cash for homeowners during the past seven years.


There's also the fact that many who do qualify have lost the desire to buy since nobody can be sure of how far real home prices will decline. But decline they will. Merrill Lynch estimates that home prices could sink an additional 20 to 25 percent over the next two to three years. This would mean that many homeowners, including two thirds of those who bought homes in the past 18 months, would owe more than their homes are worth. It would also wipe out some $5 trillion on the balance sheets of households. Goldman Sachs sees prices declining by 10 to 12 percent this year. Home prices are on track to recede to a more conventional multiple of family income at 2.8 times, declining from the national average today, which is 3.9 times. That would return values to 2000 levels in inflation-adjusted terms, an unprecedented decline.


Lower rates can help those with adjustable-rate mortgages, but they cannot stop the deflation of the housing bubble or prevent a tidal wave of mortgage defaults. This is partly because mortgage rates reflect the 10-year treasury bond yield more than the federal funds rate. That rate has dropped, but the spread of both fixed- and adjustable-rate mortgages over treasuries has widened, which means smaller declines in mortgage rates. Then there are those many borrowers who got mortgages in 2003 and 2004 when the federal funds rate was 1 percent; they're not going to get a better deal than that. And if they now have zero or negative equity in their home, they won't be able to refinance in any event.


We are facing the largest increase in loan defaults in postwar history. As William Gross, head of the PIMCO investment fund, points out, "To revive the housing market, the rates on 30-year mortgages are going to have to come down significantly — no small challenge when inflation is rising." He suggests an expanded Federal Housing Administration program to offer below-market 30-year mortgage refinancings with minimal down payments. Senate Banking Committee Chairman Chris Dodd suggests a variant of having the government buy mortgages in or near default and refinancing them at easier terms so the borrowers can keep their homes.


There is no time to delay in combating the trends. Monetary policy cannot make bad investments turn good. Cheaper mortgages won't cure the market where properties are plunging so much in value. The collapse of value will affect all homeowners and, through them, the whole economy. It's bound to be the most pressing issue in this presidential election year. Voters in the primaries and general election should look to candidates with credible policies in mind to address this downturn.

Every weekday JewishWorldReview.com publishes what many in in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.

JWR contributor Mort Zuckerman is editor-in-chief and publisher of U.S. News and World Report. Send your comments to him by clicking here.

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