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More bad news for the housing market today, as the Federal Housing Finance Agency announced that home prices in July were 5.3% lower than they were in July of last year. The main culprits leading to lower July prices are, as usual, the large supply of homes available, tighter lending standards, and record foreclosures, that have resulted in sellers slashing prices in order to sell their properties. On a month to month basis, prices fell 0.6% from June to July of this year.
The drop in prices was seen universally in all regions. The only area of the country that saw prices rise on a year over year basis was the West South Central regions.
The credit crisis over the past year has already claimed a couple big name companies, and prompted the Bush administration to suggest a $700 billion bailout for the financial industry.
While the proposed $700 billion bailout sounds good, some analysts propose that it may not be enough to help homeowners that are finding themselves in properties that they can no longer afford to keep.
According to Douglas Elmendorf, a senior fellow at the Brookings Institution, the proposed bailout plan is not going to be able to address the underlying fundamentals (subscription required) that are leading to lower home prices. According to Elmeddorf, even if the current proposal is approved, we are still going to see two pretty tough situations continue: falling home prices and rising unemployment. The true advantage to the bailout plan will not be to boost home prices, says Elmendorf, but it should at least be able to keep the country out of going into a deep recession.
Susan Wachter, a professor at the University of Pennsylvania's Wharton School, thinks that the bailout plan could lead to higher home prices, but that it will not be an immediate response and will probably take some time. Wachter believes that the bailout is a good start, but that more steps are going to be needed in order to stem the drop in home prices. In addition to the current plan, there is going to be the need for an infusion of capital to allow banks to step up their lending activity, as well as a restructuring of current troubled mortgages to help to reduce the number of foreclosed homes that are flooding the market.
Makes sense, as some areas that are seeing the largest drop in home prices are the same areas that are seeing the largest increase in foreclosures. If we can not start to ease the amount of foreclosures, then there is little we can do to help boost home prices across the nation.
We will get a better idea of just how well the bailout plan will help with home prices once more details become available on the specifics.
Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.
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