Housing Is Still The Key to Recovery

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tdp2664 InvestorPlace The markets have rallied since Fed Chairman Ben Bernanke spoke outside the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, last week. He did not offer a new quantitative easing program, as expected, but he did pin the tail on the donkey, by which I meant he said the onus is on Obama and Congress to act swiftly to aid the recovery. He’s right, and he also was right to state that there needs to be a delicate balance between enough fiscal stimulus and prudent spending. Good luck with that. A lot of attention is going to be placed in the next month on a jobs speech from the president next week, and after that, people will be focused on the Super Committee in Congress that is charged with deficit reduction. My expectation is that the Super Committee will be a political disaster. I really hope I am proven wrong, but the members are far apart in ideology and focus and watching them work will be a very scary civics lesson. You will just not want to let your children watch that mess. Some members on the committee are dedicated spenders who think that redistribution of taxpayer money is a form of social justice. Others are highly partisan in the opposite direction. Members will try to protect their personal turfs, and the grand bargain will be elusive. It could be a horror show. That puts even more pressure than usual on the president to get his side of the politics right, or the equity and credit markets are going to be hopping mad come autumn. The main positive idea that’s been floated is a housing initiative that would allow people to refinance their homes at current interest rates, around 4%, even if they lack much equity. I love this idea, but officials have been trying to work out the details for months without success. I am told that around 750,000 permanent mortgage modifications have been done, which sounds like a lot, but it’s really just a start. Bankers estimate there are 5.5 million mortgages currently in foreclosure or tied up in bankruptcy. CoreLogic has said that nearly 11 million homes are currently valued below their current mortgage. That’s about 20% of U.S. homeowners, analysts say. How do these people refinance responsibly? This gets to the heart of the problem with housing. Home affordability is at its best levels in decades after prices have fallen by a third in many regions, and mortgages are dirt cheap. The problem is not prices or rates, but that there are not enough people with good jobs to buy homes.