By Robert Romano – “We are in a double-dip housing recession,” declared Americans for Limited Government President Bill Wilson, commenting on a Zillow, Inc. report showing a 22 percent increase in negative equity, a measure of homeowners owing more than their properties are worth and an increase in foreclosures for the first quarter of 2011.
“Zillow’s data confirms what Case Shiller reported two weeks ago, with home values plummeting to their April 2009 lows,” Wilson noted. Except, none of this was supposed to happen.
When Barack Obama signed the $826 billion “stimulus” into law he promised that “We must stem the spread of foreclosures and falling home values for all Americans”. But that didn’t happen. And it was not from a lack of trying.
A homebuyers’ tax incentive program costing taxpayers $22 billion ultimately had no impact on rescuing the housing market. In fact, it made matters worse by temporarily greasing the wheels of housing sales and momentarily boosting home values slightly. But now they’re plummeting again, as both Zillow and Case Shiller confirm.
Zillow reports that now 28.4 percent of homeowners are underwater, up from 24 percent in the fourth quarter in 2010. The negative equity jump can largely be attributed to the 3.3 million tax incentive homebuyers who bought into the program, thinking it would turn the housing market around. Radio talk show host Mark Levin on May 9 called it a “sucker’s rally”.
It’s hard to see what the wisdom of the program was in hindsight. Since April 2008, when the program initially went into effect, the 10-city and 20-city composite indices have each dropped 16.7 percent and 18.06 percent, respectively. But that’s not even 1 percent of government’s full efforts to “save” the market.
When one considers the Federal Reserve’s $1.25 trillion mortgage-backed securities purchase program, the $150 billion sunk into Fannie Mae and Freddie Mac, the first $150 billion “stimulus” passed in 2008, the $826 billion second “stimulus”, and the $26.1 billion states bailout of 2010, the federal government spent, borrowed, and printed more than $2.4 trillion to prop up the economy.
Meanwhile, Wilson says, the recovery is nowhere in sight. “Zillow does not foresee any bottom in housing until 2012, at the earliest,” Wilson warned, adding, “The irony is that we would have already hit the bottom if government had just got out of the way, even if it meant that institutions that bet poorly on housing failed.”
It didn’t have to be this way, he said. “We wasted over $2 trillion on the faulty premise that the government could somehow stop the housing bubble from deflating,” saying the “stimulus”, foreclosure “prevention” and incentives all “have failed at their stated objectives.”
He explained, “We should have done nothing and let the chips fall where they may, and we’d already be in an economic recovery. Instead, we have just prolonged the recession, created slow growth stagflation, and added trillions of dollars to the national debt unnecessarily.”
To prevent it from happening again, Wilson said “government must get out of the way, and allow this market correction to finally work itself out.” He endorsed an approach by House Republicans, led by Rep. Scott Garrett, Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises (GSEs), that would unwind Fannie Mae and Freddie Mac and restore private control over housing finance.
In an exclusive interview with Americans for Limited Government, Garrett said, “We don’t want to be sitting here 5 years, 10 years, 20 years from now with another failed form of a GSE where the taxpayer has to be on the hook for and bail them out again.”
Garrett said the current bailout of the GSEs could wind up costing taxpayers more than $400 billion. But that may even be a low-ball estimate, considering that the interview was shot prior to the most recent data being released from Zillow.
As home values decline further and foreclosures rise, the losses to Fannie and Freddie will multiply. Critically, this means that the financial crisis is not even over, even though Obama alleged that the bailouts and “stimulus” had stopped the bleeding.
On Feb. 18, 2010, he said, “One year later, thanks largely to the Recovery Act, we can stand here again and say that a second depression is no longer a possibility.” So much for that.
Housing is now in a double-dip recession, which Obama said if he got everything he wanted, would never happen. But then, by now, he should have about as much credibility as the Keynesian policies he was responsible for implementing to address the crisis. He has failed remarkably, and now, we really do need a change.
Robert Romano is the Senior Editor of Americans for Limited Government.
