Democrats are finding little success in their nearly two-year campaign to ease the nation’s housing woes.
Since coming into office, President Obama has undertaken a series of policy initiatives intended to stabilize home prices, boost demand and reduce foreclosures.
But a series of recent reports indicate those policies have not stopped the precipitous decline in housing, which began well before the official start of the recession in December 2007.
The National Association of Realtors on Tuesday reported that existing home sales plunged 27.2 percent in July, hitting the lowest level in more than a decade.
The decline exceeded even the worst estimates of analysts, many of whom predicted a sales drop of around 14 percent.
There could be more disappointing data on the way. The Mortgage Bankers Association will release a report on mortgage delinquencies Thursday that is expected to show the foreclosure crisis is still going strong.
The continued problems in the housing market are bad news for Democrats, who are already struggling to convince the public their policies are moving the economy in the right direction. With the midterm elections less than three months away, voters say the state of the economy is their top concern, and most surveys show the public is souring on Obama’s handling of the issue.
The Obama administration has repeatedly defended its housing polices, even while conceding that the market remains weak.
White House spokesman Bill Burton was noncommittal on Tuesday when asked whether Treasury Secretary Timothy Geithner’s efforts on housing have been a success.
“I'll leave that to the economists and the pundits to decide. All we can do is everything we can to grow this economy,” Burton said.
Last week, the administration reported tepid progress in
federal efforts to modify home loans and reduce foreclosures. The report said
nearly half of all mortgages that were entered into a trial program for loan
modification have been canceled.
Only 14 percent of the roughly 3 million delinquent loans eligible for the administration’s “Home Affordable Modification Program” have received a permanent loan adjustment. The government initially committed $50 billion to the program.
Senior officials at the Department of Housing and Urban Development (HUD) and Treasury Department last week argued that their efforts have stabilized parts of the housing market, despite the modest success rate for modifications.
The administration can at least claim tentative success on the stabilization of housing prices. The S&P/Case-Shiller index that monitors home prices in selected cities found that the market remained effectively flat in the last seven months. Prices have declined roughly 30 percent since their peak in the summer of 2006, according to S&P.
"There has been a great deal more of price stability," Raphael Bostic, assistant HUD secretary, told reporters last week.
Still, private forecasters warn it is possible home prices will start declining
again, particularly because unemployment is one of the biggest causes of housing
market troubles. The national unemployment rate has held steady at 9.5 percent
the past two months, but there have been signs this month that the recovery of
the job market is faltering.
"It's very possible we're going to have another decline in the home price market," said Anthony Sanders, a finance professor at George Mason University.
IHS Global Insight, a private economic firm, estimates that median sales prices for existing single-family homes will continue to decline through the first quarter of 2011.
Such a decline would compound ongoing difficulties in the federal efforts to reduce foreclosures.
Assistant Treasury Secretary Herb Allison last week said the cancellations in the federal modification program stem from an ongoing review of applications made last year that relied on a borrower's stated income. The goal was to get people quickly into the program and review the applicant’s documents later.
"Many of the people did not meet the
qualifications," Allison said, adding that the cancellations under the
program could increase.
The loan modification program has drawn criticism from Republicans, Democrats and housing market experts.
David Abromowitz, a senior fellow at the left-leaning Center for American Progress, said the government needs stronger tools to force lenders to modify loans.
"We need to start to consider some stronger medicine and some real disincentives for lenders to keep from foreclosing, or we're not going to see this work through the system for another few years," he said.
Abromowitz said lawmakers should reconsider giving bankruptcy judges the power to modify loans, a controversial policy proposal that the financial industry terms "cramdown." Congress debated the policy several times in 2009, but it fell 15 votes shy of passage in the Senate.