President Bush has signed a housing rescue plan into law. Home prices have been continuing to fall during the housing crises while foreclosures are still rising. A Marketwatch report says some Republican lawmakers were urging Bush to reject the rescue bill. Here are three of the main components of the new bill from Marketwatch.
allowing homeowners who cannot afford their monthly payments to refinance into government-backed loans through the Federal Housing Administration;
extending a line of credit to Fannie (FNM) and Freddie (FRE), the government-sponsored mortgage-finance titans;
modernizing the FHA, increasing the loan limit for FHA loans and increasing conforming-loan limits for Fannie and Freddie.
Stocks were up today even though oil prices starting climbing once again. The Dow climbed 186 points to 11,583 while the Nasdaq managed just a 10 point gain.
Reuters reports in the video below that the biggest drop in existing home sales in 10 years has reignited concerns about the economy. Stocks were hammered today on news that existing home sales fell 2.6 percent in June. Weekly jobless claims also climbed past the 400,000 mark. The Dow dropped 283 points; the Nasdaq fell 45 points and the S&P 500 lost 29 points.
Sometimes it is worth tacking a look at how we got into this mess in the first place. Reuters has a great recap in the video below. It began with a US housing problem that has quickly mushroomed into a crisis. In this video, Reuters explains how banks begin to tighten credit when a high percentage of subprime mortgages started to become overdue. The loan problem escalated and subprime lender New Century filed bankruptcy. These losses spread to larger banks that have had to write off billions of dollars of debt. Today, the credit problems have not gone away. Home prices are still dropping and inflation is a serious problem. The weakening economy is starting to impact growth and job creation. There are worldwide concerns that the U.S. will fall into a recession and this recessio nwill drag the global economy down with it.
The BBC reports that there has been a 93% climb in home foreclosures (also known as repossessions) over the past year. This is part of the credit problem that has been widely blamed for the falling stock prices over the past couple years. The BBC says there has also been a corresponding surge in layoffs at construction and real estate companies.
There was a 93% jump in filings for repossessions on the same month a year ago, and a 9% rise on June's figure, property firm RealtyTrac said.
The mortgage industry has been hammered by rising default payments.
Separate data showed a surge in job losses in the construction sector and among real estate firms, largely prompted by the slump.
Falling sales and decreasing prices have made it harder for homeowners who have hit difficulties to sell their homes and clear their debts.
The RealtyTrac data showed there were 179,599 foreclosure - or repossession - filings in July. This equates to one for every 693 households.
If the credit crunch continues to escalate there could be additional fallout from jobs lost in the housing sector and from a reduction in spending as homeowners become concerned about the falling value of their stock portfolio and home value. Even wealthy individuals may tighten spending if they watch the value of both their home and their investments shrink.
After two straight months of increases home construction dropped a steep 14.3% in January. Reuters says the drop was worse than what most economists were expecting.
The pace of U.S. home construction fell 14.3% in January, sharpest drop since October and much worse than economists had expected, a government report on Friday showed.
The drop followed two months of increases.
The Commerce Department said housing starts clocked an annual pace of 1.408 million units in January compared with a 1.643 million pace in December. January's pace was the lowest in nearly 10 years.
Economists had forecast January housing starts to fall to a 1.60 million pace from December's originally reported 1.642 million units annual rate.
The housing market was considered last year's top business story by some. It is attracting a lot of early attention already this year.
Broderick Perkins at the Reality Timesargues that the housing market was last year's top business story.
The market was so hot for a while, condo speculation (along with a concentration of high-end condos in some markets), drove up the national median condo price beyond that of single-family detached homes, according to the National Association of Realtors.
Last year, however, accelerated home price appreciation proved unsustainable, sales slipped, speculators split, renters stayed put, builders bolted, foreclosures reached historic proportions in some demographic segments and the inflated bubble of a housing market began to reenter the atmosphere.
It was the sudden reversal of fortunes that led Associated Press' newspaper and broadcast editors to put the housing market at the top of the heap of business stories for 2006, according to the news service.
"At the housing market's peak, buyers rushed to open houses, blank checks in hand. Lenders gave big-money mortgages to people who could barely afford their monthly payments. That ended in 2006, when home builders scuttled projects, walked away from land they'd hoped to develop and would-be buyers canceled orders," reported AP's Ellen Simon.
Everyone had been expected the housing bubble to burst and housing did indeed retract. The big question is how much more are housing prices going to drop in 2007 and will all home prices be affected or just those markets that have had the biggest bubbles.
