Deja vu all over again: Fueling the next housing meltdown

Charles Hugh Smith
Sep 8th 2009 at 4:00PM

Low down payments, risky mortgages guaranteed by government entities, rising defaults — haven’t we been here before? Isn’t this the same mix of easy money and poor risk-management that blew up the housing market in 2007 and 2008?

You’d think the mortgage industry and the federal government would have learned their lesson since the housing bubble’s collapse. But you’d be wrong. Essentially, nothing has changed, except the names of the government-sponsored enterprises.
Freddie Mac and Fannie Mae, the GSEs that fueled the great housing bubble of 2002 to 2007, melted down once a substantial portion of the trillions of dollars of risky mortgages they’d underwritten began defaulting. Now that taxpayer-funded bailouts have footed the bill, Fannie and Freddie are mere shadows of their former freewheeling selves.
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The housing recovery mirage

With home prices rising even in California, it might seem that the worst is over for the housing market. But the good vibrations may be short lived.

NEW YORK (Fortune) — Is the housing bust over?

Shares of Toll Brothers (TOL), Hovnanian (HOV) and KB Home (KBH) and other builders have surged. The exchange-traded fund that tracks the group has nearly doubled since March.

Home starts have risen for five straight months, while sales of new homes recently hit their highest level since last September. Prices are up as well: the Case-Shiller index of national house prices rose 2.9% in the second quarter, ending a three-year decline.

These signs — as well as anecdotal reports about house shoppers growing more willing to write a deposit check — have executives at homebuilding firms declaring the worst is over.

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Lobbying intensifies to extend first-time buyer tax credit

By Kenneth R. Harney

Washington Post Writers Group

August 30, 2009

It’s one of the biggest unknowns bugging would-be buyers of houses and condos this summer: Will Congress let the $8,000 nonrepayable tax credit for first-time purchasers expire as scheduled about three months from now? Or will the credit get a second life and be extended for six to 12 months, taking pressure off buyers, real estate agents and settlement companies?

That’s an especially urgent matter if you’re a buyer just starting to shop and you see entry-level prices bottoming out or rebounding. The tax credit statute requires buyers to fully close on their purchases –– not just be under contract –– no later than Nov. 30. This doesn’t leave a lot of leeway for people who haven’t yet decided on a specific house and who haven’t nailed down mortgage financing.

The whole process of negotiating offers, signing sales contracts, applying for a loan and completing the closing can easily extend for two months –– or a lot more.

Given the rapidly approaching deadline, what’s the likelihood that Congress will blow the whistle and allow at least a little extra time? Though Congress is on its summer break, most members of the Senate and House use part of the August recess to listen to constituents back in their home districts.

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