Global Economic Crisis

The National Association of Realtors released its most current report on pending home sales; it was utterly dismal. April witnessed  a contraction from March of 11 percent;  year-on-year pending house purchases fell by 26.5 percent. It must be recalled that a year ago the U.S. housing market was already in feeble shape.

These numbers confirm that America’s residential housing market remains in pathetic condition. This massive share of U.S. economic activity, the faltering of which triggered the ongoing global financial and economic crisis, remains in pathetic condition. With no recovery in sight-and it must be recalled that housing is typically the leading edge of a real economic recovery from a deep recession, there is no clear path towards healthy economic metrics. This sobering statistic, in conjunction with other tepid economic indicators, including a weak employment market, highlights the fragility of the U.S. economy. At this point, it is only massive government deficits, projected at more than $1.6 trillion for the current fiscal year, that has prevented a continued massive contraction in overall economic performance in America. And, as I have pointed out before, massive public debt is no viable strategy for creating long-term sustainable economic growth.

Ground zero of the global financial and economic crisis of 2008, the collapse of the U.S. residential housing market, remains in critical condition. Despite trillions of dollars in public debt utilized as a backstop for the mortgage industry and gimmicks like tax credits for new home purchasers, the stream of date shows that the overarching trend in the United States is continuing home price deflation, as a rising proportion of outstanding mortgages  are under water.

One recent survey indicates that in January of this year 27 percent of all American mortgages were under water (balance of mortgage exceeds market value of home),compared with 20 percent in August 2010. The National Association of Realtors Pending Home Sales Index most recently has tracked downward movement on home sales, and prices in most parts of the United States continue to decline.

With a weak housing market in the U.S. seemingly immune to massive injections of borrowed public money, no wonder Fed Chairman Ben Bernanke is printing money like a crazy man on LSD. His most recent bout of quantitative easing does not seem to have stimulated the domestic housing market at all, though it has pumped up the Dow Jones index to absurd ratios of price to earnings. However, as 2008 demonstrated the centrality of housing to the U.S. economy and not its hyperbolic stock market, the continuing weakness in this core sector does not bode well for a sustained recovery, both in America and throughout the global economy.

Two years after the onset of the global financial crisis, sparked largely by the collapse of the American residential home market, primarily proprieties financed with sub-prime mortgages, the aftershocks continue. The latest data concludes that 2010 witnessed one million home foreclosures in the United States, a record high. While the tail end of 2010 did witness a deceleration in foreclosure filings, this seeminlgly positive news is misleading. The slowdown was caused by revelations that banks had resorted to improper documentation in persuing home foreclosures. This has led to a temporary reduction in such filings, however this merely means that there will likely be an acceleration in the foreclosure rate during 2011.

The continuing and growing foreclosure disaster in America contradicts all the other supposedly positive economic data pointed to by policymakers and their spin-masters ( that is, if you think the Federal Reserve engaging in a second round of quantitative easing is “positive” news). Despite the massive stimulus-derived public budget deficits and Fed money-printing, the weak housing sector in the U.S. will likely continue to be a wet blanket that suffocates the marginal economic growth being conjured into existence through unprecedented levels of public debt expansion. Clearly, the housing crisis that begat the global financial and economic crisis is far from over.

The latest S&P/Case-Shiller U.S. National Home Price survey showed a much weaker than expected rate of price increase, a mere 1.7 percent in August. Furthermore, in the 20 major urban housing markets incorporated in the Case-Shiller index, prices declined by 0.2 percent from the previous month.

The past several months reveal that since the termination of the federal homebuyer tax credit program, which artificially propped up the American housing market, U.S. residential real estate has continued its trend of price contraction. In the past four years U.S. home prices have fallen by 28 percent. The consensus view is that the latest S&P/Case-Shiller report is gloomy in the extreme, pointing to further erosion in U.S. home values, with many more Americans falling under water with their mortgages as their home equity collapses. Not a hopeful sign that the global economic crisis will soon end.

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For the first time ever, the monthly figure for bank repossession of residential properties in the United States topped 100,000. According to the market research company RealtyTrac, September witnessed 102,134 home foreclosures in America. The foreclosure rate at such high levels clearly demonstrates the continuing fragility of the U.S. residential property market, ground zero of the ongoing global financial and economic crisis.

The record rate of bank repossession of private homes comes amid a major controversy over sloppy paperwork by financial institutions connected with the massive wave of foreclosures. Many states across America have already announced their intention  of investigating banking practices connected with the high rate of foreclosures. There is even talk of a mandatory freeze on foreclosures being imposed on the banks. Should that happen, the already weak American housing market would suffer another major blow.