Mark Paustenbach speaking for the Treasury said that the Obama government has taken comprehensive measures to stabilize the housing sector to help the American house owners faced with the threat of foreclosures. The steps did bring about some good news.
There was a modest increase in housing prices in 2009. The index of Case-Shiller had reached its peak in 2006 July at 33%. In April 2009 it reached its nadir. The latest report shows that the index went up by 4.7% last May from what it was one year previously.
The aim of the government policy has to slow or stop the fall in prices. If it fell further then more house owners would go underwater with the value of their property being less than the loan amount due. About 21.5% of single family houses having mortgages went underwater during the quarter starting from April. It was less than the previous year when the proportion was 23% as per the findings of Zillow.
If housing prices increase further then more number of house owners would be able to sell their properties – something they had been failing to do because of the underwater condition. But an increase would enable them to sell off at a price that would cover the loan and yet leave something over for them to make a new start. The market would also be saved from a fresh influx of supply of foreclosed houses.
According to the Mortgage Bankers Association 4.6 % of all loans pending were inside the foreclosure zone at the end of last June. The drop in sales last July indicates that overall the prices would start to slide down again.
Although the mortgage rates for 30 years contract is as low as 4.4% many are not yet confident enough of the future to come forward. There are 4 million houses in the real estate market. If the numbers are increased then the buyers would undoubtedly have a dominant say in prices.
Dean Baker of Center for Economic Policy and Research based in Washington opined that prices of properties had been overvalued by 15% and sometimes 20% in many regions. A view is gaining ground that the government should not prevent this downward slide and allow the market to correct itself. There are other apprehensions that another wave of tumbling prices would set off deflation fears.
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