Will the new Stimulus Package help the floundering Housing Industry?
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Just how bad is the housing industry? With massive foreclosures and a worsening
economic pinch, countless homeowners are on the brink of losing their domiciles,
some of which they have either built by hand or had in their family for
generations.
In a report released by the Commerce
Department today, the number of newly constructed homes plummeted nearly
17% during January, as the financial crisis continues to weaken the industry.
Furthermore, the annual rate of construction fell to 466,000 units, more than 12%
lower than the 530,000 units economists were expecting. The annual rate currently
sits more than 56% below January 2008 numbers.
Looking further into the report, the government agency also revealed that
applications for building permits decreased by a record amount, 4.8%, to a
seasonally adjusted rate of 521,000. These figures are now more than 50% lower than
last year's totals. Economists were looking for January permits to come in at 527,000.
"Eventually the extraordinarily low level of new homebuilding should help get
inventories of unsold homes under control. But for now, the drop in new construction
is being overwhelmed by the flood of fire-sale-priced foreclosed homes and short
sales hitting the market, so foreclosure mitigation efforts will also be key to the
inventory situation," David Greenlaw and Ted Wieseman, economists for Morgan Stanley
(MS), commented earlier this morning.
Not since the conclusion of World War II, has the country been in such an economic
sprawl. Last year alone, there were more than two million people in the midst of
the foreclosure process, and with the overall impact of the recession not fully
realized, that number has been projected to reach as high as 10 million within the
coming years.
In a report released by the Mortgage Bankers Association, just over 9% of all homes
throughout the U.S. were already in arrears or foreclosed last year. Additionally,
in a report released by Credit Suisse (CS), more than 16% of all homes that
currently have a mortgage, or 8.1 million homes, could slip into foreclosure by
2012.
The current news comes on the heels of the signing of the stimulus package by
President Obama late Tuesday afternoon. With the bill passed, the Obama
administration will now turn their attention to the collapsing housing market in
efforts to revive the troubled industry.
The plan directed towards the housing markets, which is estimated to be in the
neighborhood of $275B, including a $50B from the funds already deemed for the
financial bailout, will provide homeowners with a more manageable mortgage payment
that will amount to 31% of a borrower's yearly income.
A source familiar with Obama's housing plan said it would "help responsible
homeowners afford their mortgage payments. It will enable millions of Americans to
refinance or modify their mortgages to get their monthly payments down, giving them
much needed relief in this time of economic distress and preventing millions of avoidable foreclosures," the source further added.
In order to fund the stimulus package, the Treasury Department stated that they
will double the financial aid lent to mortgage giants Fannie Mae (FNM) and Freddie
Mac (FRE), which will allow these companies to play a bigger part in support of
the housing industry revival.
As part of their support, the Treasury Dept. will increase their preferred stock
purchase arrangement from $100B to $200B, while also allowing each company to
increase their portfolio limits from $850B to $900B. These actions should provide
stability and confidence within Freddie and Fannie in order to help maintain
mortgage affordability.
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