Pending home sales fell in November as the National Association of Realtors index for that part of the market fell to 96 in November from 114.3 in October. The sharp drop brought with it the fear that the housing recovery is only a mirage and that unemployment and an increase in mortgage costs will push the home market back into hell.
Housing may never have left hell. Foreclosures are still rising and the $75 billion that the federal government means to put into mortgage modifications has done little to moderate mortgage default rates.
The difficulty with making mortgage payments has moved beyond the poor and lower middle classes. The Office of the Comptroller of the Currency reports that the number of prime mortgages in default rose to 838,000 in the third quarter, double the number in the same quarter the year before. Robert Shiller and Karl Case, the economists who created the S&P/Case-Shiller Home Price Index, told Bloomberg that they expect mortgage defaults among prime borrowers will increase throughout 2010.
The housing crisis is not nearly over. Pending home sales were one indication of that. The portion of the unemployed population that will lose insurance benefits will move up if joblessness does not improve markedly or Congress does not extend safety net benefit again. More home mortgages will fall into default as owners lose the small sums of support that the government gives them. Interest only mortgages made four and five-year ago will begin to reset which triggers higher monthly payments on those loans. Many of the people who hold these mortgages cannot afford an increase in their home ownership costs.
The rich are often the last to be beaten down in a recession. Many of them have assets to sell or savings. The increase in prime mortgage defaults is a sign that the net eggs that kept those of substantial means in their homes are eroding. The formerly well-to-do can join the rest of the people who are out on the streets as they look for rentals.
Douglas A. McIntyre
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