Banks Stifling Us Housing Recovery

Recent data suggests that 1 in 7 mortgages in the US is delinquent

. Horrific statistic, yes, but the reality behind the data is that there is a very good chance that there will be more inventory adding to the already bloated supply of unsold homes within the next 12 months. Sovereign-International analysts say that, contrary to popular perception, there are many buyers but they believe that prices have further to fall and they wont buy until they see very attractive deals. The longer it takes for the sellers to relent and give them an awesome deal, the longer the market will continue to behave like a listing ship in heavy seas.

The trouble is that the banks and the Federal government are doing everything in their power to support prices at their current levels. Bailouts, government tax credits and denial are the chief culprits here.

One Sovereign-International analyst said, The foreclosure departments at the banks are determined not to let repossessed properties go for what buyers are prepared to pay. If a buyer offers, say, 50? in the dollar, banks will demand 80? thereby attempting to set support lines for the market but if the buyers perceive there is plenty of room for prices to fall further, the housing market will remain stagnant while freshly added inventory drives prices down even further.

The firm believes that the economic recovery could be fast-tracked if banks would allow prices to fall to levels where buyers feel comfortable diving in. The chief obstacles to this course of action remain the banks reluctance to further mark down the value of the toxic assets on their balance sheets. You will remember that the banks and now the US Federal Reserve have hundreds of billions of dollars of mortgage-backed securities on their balance sheets which, when created, depended on a healthy real estate market for their value. The collapse of the US property bubble meant that these securities could no longer be accurately valued. If the banks allow prices to fall freely, they would have to drastically reduce the notional value of these securities which could result in huge losses. The US governments efforts to stir activity in the market include tax breaks for first-time buyers as well as initiatives to help lenders restructure or refinance mortgages where borrowers are struggling. Utter denial.

The Sovereign-International analysts suggest that, if the banks and the government were to allow prices to find their natural level, the housing market would embark on the road to a sustainable recovery within 6 12 months. One said, The market will correct regardless of interference or artificial support so its best to simply let it happen because the alternative is a slow, painful grind to the bottom that will take a lot longer and ensure that economic recovery remains sluggish for years.

by: Amanda Sedgewick

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