Market Recap

Another week, another government attempt to right a listing housing ship. This go-around, tagged The Homeowner Affordability and Stability Plan, aims to keep between 7 million and 9 million people from foreclosure. How? The details are inchoate, but here are the rudiments: The plan provides incentives, most notably a $1,000-a-year “pay for success” fee, to mortgage lenders to rework up to 4 million borrowers on the verge of foreclosure. Another component would help another 4 to 5 million families said to be upside down – market value below principal value – to refinance at lower rates.

Economist reaction was measured. "This is a nice mix of policy steps that will have a mitigating impact on foreclosures," said Mark Zandi of Moody's Economy.com. Zandi also noted that e stablishing a standard loan-modification process that applies to most mortgage servicers would help spur refinancing and modifications.

Of course, the main criticism of this bailout attempt, as with any bailout, is fairness. What about the 90% of homeowners paying their mortgages on time? Many of these homeowners feel like they are getting the shaft, having to subsidize other people's profligate behavior.

It's a legitimate complaint, but it's worth noting that conservative homeowners have a stake in the bailout plan too. Americans have seen trillions of dollars in wealth evaporate as stock and home prices have plunged. Because household spending is related to household wealth, declining home and stock prices have contributed to a deep drop in consumer spending, hindering the economy's ability to grow. Yes, it can all feel unfair at times, but the plan can still be worthwhile to implement. Perhaps the best analogy is to a child whose parents bail him out after he gets in trouble. Sometimes the best action is to bailout, move on, and ensure the behavior isn't repeated.

Few constituencies want to see the nation bailout and move on more than U.S. homebuilders. The latest government data show new-home sales dropped by 15% to 331,000 in December. Year over year, sales were down 45% lower. The hard fact is that new home sales will continue to suffer if foreclosures continue climbing at 2008's onerous rate. The Homeowner Affordability and Stability Plan, is a valuable step in preventing that from happening.

A Broken Record Worth Repeating

Maintaining a stiff upper lip, keeping the nose to the grindstone, persevering through adversity, are all clichés worth remembering. Unfortunately, dour data gets repeated, amplified, repeated, and then amplified again. It can all wreak havoc on one's confidence and sense of security. In other words, it's easy to fall into the we-are-all-going-to-hell-in-a-hand-basket trap.

It’s worth noting that while government efforts are garnering most of the headlines, the private sector isn't simply twiddling its thumbs. Most of the large banks are actively engaging in mortgage modifications, tackling each loan on a case by case basis. The loans that are worked out are allowing more people to stay in their homes, generally at more favorable rates. It's also worth remembering that we are still looking at readily available 30-year fixed-rate loans hovering around 5% and that the sales of existing homes have climbed steadily over the past few months. There are great properties available at even greater prices, and many of your clients should be able to qualify for the mortgage required to purchase one.

The market will eventually turn, but it won't turn on a new government program (which isn't to say these initiatives won't help on the margin). It will turn on the daily plugging along and the work each of us applies to our job. It's not sexy, it's not headline grabbing, it's not grandiose, but it works. Even though it doesn't feel like it's working now, it is, which is why we still feel confident in saying this time next year will be markedly better than the time right now.