NY Times Ignores Banks' Latest Role In Distorting The Housing Market
The New York Times doesn’t get it. Thursday’s front page reported that the U.S. housing market was again booming, with demand rising and builders racing to catch up. “After six years of waiting on the sidelines, newly eager home buyers across the country are discovering that there are not enough houses,” it breathlessly began.
The article cited the housing market in Sacramento, California, where home values have tracked the national average—rising from 2000 to 2005, falling in 2006 and bottoming out in 2009, and climbing back up today. “In my 27 years, I’ve never seen inventories this low,” it quotes a local realtor. “I’ve also never seen a market turn so quickly.”
The problem with Catherine Rampel’s report is that her analysis completely omits one of the biggest drags in the American economy that is creating an artificial shortage of homes for sale and inflating home prices. That trend is how banks are not willing to revise loans of people with ‘underwater’ mortgages, or who owe more than current home values.
Amazingly, one of the sources cited by the Times, Zillow Real Estate Research, notes that as of late February, 41.7 percent of the homes in Sacramento were underwater, or had “negative equity” averaging $100,000 below the current market values.
The Times correctly noted that large scale investors have been buying up foreclosures and so-called starter homes, based on business models that envision renting the properties. But nowhere does its report mention that housing market “scarcity” is a direct result of banks refusing to modify mortgages for more than a third of Sacramento home owners.
As Alternet has reported, this refusal by banks is a tremendous market distortion that is dragging down local economies across America. Indeed, Zillow research says that 19.4 percent of homeowners are underwater nationwide. “In total, underwater homeowners owe $1.01 trillion more than their homes are worth,” its February 2013 report said.
Now, imagine, if lenders had to write off a portion of that debt and in so doing freed up hundreds of billions of dollars that could be spent on Main Streets across America. Or, if the federal government created an ultra-low interest program to help these borrowers pay the banks in full but then have much lower interest payments, which could mean saving several hundred dollars a month or more.
“They’re not offering that. That’s the problem. It’s not there,” said Brent White, a law professor at University of Arizona and author of Underwater Home: What Should You Do If You Own More On Your Home Than It’s Worth.
The Times report simply ignores the reality that 13.8 million homeowners nationally—Zilliow’s late February figure—are underwater. Instead, it talks about home builders trying to get new home permits from local authorities and then airs their gripes about the shortage of wanted construction workers. Once again, the lenders, many of whom tossed caution to the wind when making these loans, come out on top.
You can bet that many lenders with underwater loans will be lending money to builders and new home buyers. That capital is underwritten by underwater loans with payments with interest rates that are often double what offered for today’s home loans. But the federal government isn’t stepping in to help these homeowners to boost the economy. And the national newspaper of record doesn’t consider this topic newsworthy.