BusinessWeek is reporting that foreclosure.com released data that 1 million homes were lost through foreclosure in 2008. Up 63% compared to 2007.

President of Foreclosures.com, Alexis McGee, believes that the worst is behind us. I'm not sure that this is the case. While home prices have fallen a bit, and interest rates are low, house prices are still overpriced compared to incomes and many Americans are dealing with losing their jobs or seeing their income decline.

While the bailout has helped some banks cover their loses, it hasn't opened up lending much. Especially for those looking to refianance out of problem mortgages.

So far, the programs aimed to help homeowners in foreclosure haven't had much success.

RealtyTrac, another company that tracks nationwide foreclosure information, reported slightly different numbers.

U.S. foreclosure activity jumped 81 percent in 2008, with one in every 54 households getting at least one filing notice, suggesting various state laws and private programs to slow the process have been ineffective, RealtyTrac reported on Thursday.

Nearly 3.2 million foreclosure filings on 2.3 million properties were made last year, the Irvine, California-based research firm said. Filings include notice of default, auction sale or bank repossession.

While foreclosure activity did slow in the 4th quarter, it was still up 40% from the 4th quarter of 2007. If other parts of the country are similar to what happened here in Bergen County, many foreclosures were likely postponed due to the holidays. Hundreds of foreclosures that were scheduled to be auctioned off in November and December were pushed back to January 2009.

It's a bit late but I wanted to post about something I just saw on CSPAN. Late night C-SPAN? Yeah sometimes I'm up late and bored. Senator Sheldon Whitehouse, a Democrat from Rhode Island made some points during today's meeting with Congressional Budget Office (CBO) representatives.

[An aside: Peter Orszag, Director of the CBO, gave a great assessment of the TARP program when Congress was considering voting on it. I was very impressed with his testimony but it was sort of like watching someone ask an economist whether they should burn or shred their money. The CBO doesn't make policy decisions, they just evaluate what the impact will be of those decisions. I was still very happy to hear that Orszag has been selected by President Elect Obama to be his Director of the Office of Management and Budget, even though he still doesn't make policies, but his input can now have more influence on selecting the right ones.]

Senator Whitehouse pointed out that last years budget included $260 billion dollars to pay the interest on the Federal deficit and that money could have been used for better purposes. I'm glad to hear our elected officials thinking in these terms. In a previous post I explored some other ways to spend $1 trillion, in response to the bailout money that was being handed out.

The difference between the actual deficit, and what the CBO projected when President Bush first took office is $7.7 trillion. That's a pretty big chunk of change considering President Clinton left office with a budget surplus. The video on the right is from March, 2008.

During the bubble our economy was growing very fast. That's kind of what a bubble is. But instead of saving that money and using it to pay down our debt, we increased it dramatically. Financial Planning 101, put money away during good times because good times don't always last.

What might have happened is that instead of saving, money had to keep flowing out to keep the ponzi scheme that was the housing market keep going. And if you look at the bottom of this next link, you'll see that housing was very unaffordable under the Bush Administration.

I don't have any political affiliation but it's hard not to point out the obvious. I do get a kick out of either hard core republicans or democrats that link to some of the political topics I've discussed and use it to back up their arguments. And I've had both, sometimes for the same blog post!

Let's take a look now at what Sen Whitehouse determined we could have done with that $260 billion last year.

• Provide Universal Healthcare - This one doesn't need much explaining. Cost of healthcare has been growing and many Americans are in trouble. Sick or injured people can't work. People that don't work don't pay taxes and sometimes have to rely on public funds. Healthier citizens means a healthier country. Healthcare costs are also a leading cause for bankruptcy in this country yet 15.3% of Americans (45.7 million) had no health insurance in 2007. That's not counting the underinsured.
  
• Double Pell Grants - The cost of higher education has also been rising and many families are finding it harder to send their kids to college. If we're going to compete in the Global Economy we need smart citizens since we've shipped a lot of jobs that don't require college educations overseas. In the 2005-2006 year "the maximum Pell grant covered one-third of the yearly cost of higher education at a public four-year institution; twenty years ago, it covered 60% of a student's cost of attendance." Doubling it will bring us back to where we were 20 years ago.
• Double the Head Start Program - The Head Start Program was created in 1965 to address systematic poverty and provide education, health, nutrition, and parent involvement services to low-income children and their families. Here we are 43 years later and 12.5% of our population (37.3 million people) still live in poverty.
• Fix 95% of the bridges that need repair - Our infrastructure needs repair. Bridges in particular and they have already shown they can be a real threat to human life. Improving our infrastructure also puts people to work.

According to Sen. Whitehouse, we could have done all of these four things with the $260 billion that went to pay the interest only on the deficit. How do we run such a big deficit when the economy is booming?

Now, with all the bailouts and proposed stimulus package, things will only get worse. A lot of people made a fortune during the bubble, and now our government will have to spend even more money to try and fix things. Money we don't have. Money we didn't save. Money we have to borrow.

During the housing bubble, many people who got in trouble with their mortgage kept refinancing to cash out some equity and try and get ahead. This would give them more debt but give them some money to try and sort things out. As long as house prices kept rising, they could do this indefinately. But house prices were not sustainable. It seems like our government handled their debts the same way.

Or at the very least behaved like one. You know what they say, if it looks like a duck, swims like a duck and quacks like a duck, it's likely a duck. I've covered some of these topics earlier but want to bring together some new factors that show that house prices are not sustainable and have been artificially inflated, along with some new charts to illustrate the point.

While I'm pretty good at math, I'm not a mathematician. What I can do is recognize and relate patterns. So there won't be any complex formulas as in a more advanced proof, but it should also be easier to understand.

I'm also going to try and debunk the myth that interest rates made house prices affordable, even though prices had grown so fast. Using conservative calculations a responsible buyer should use when deciding how much to spend on a house, it appears that in 2006 houses were selling for almost twice what the median household could afford.

Thanks to grim over at njrereport.com for putting together a comprehensive post regarding David Lereah's spin during the real estate bubble. The post provides a good collection of articles of Lereah's past comments on the housing market.

David Lereah was one of the Chief Economists for NAR, the National Association of Realtors, during the bubble years. He voiced very optimistic projections on the house prices, as does his successor Lawrence Yun.

One of Lereah's quotes from the CNN Money article reads:

I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right inline with most forecasts. The difference was that I put a positive spin on it It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.

Not only did the top dogs at NAR spin the truth, they encourage their Realtors to do the same. To make it easy, NAR has their Surround Sound Program, to provide optimistic reports to their agents. The goal of the program is to surround prospective buyers with enough positive noise that the real bad news gets drowned out.

CNNMoney.com has a list the 10 worst real estate market projections for the top 100 real estate markets. Eight of the top ten markets are in CA.

It's surprising that the NY Metro area, which contains Bergen County, NJ, is absent from the list, considering back in August New York City was the least affordable housing market. That was the first time the top spot when to a city outside of California.

With this region being so unaffordable, and with the decline in home values being less than other areas, it doesn't make much sense to me. Many areas in California and Florida have already seen dramatic declines in house prices. Some people have even tried to call the bottom in places like LA. According to these projections, that doesn't seem to be the case and 9 of the worst 10 housing markets are expected to continue to decline into 2010.

Back in May, CNN Money listed house price forecasts for the top 100 markets, where the NYC real estate market was projected to see house prices drop 13.2%.

There have also been some notable changes in forecasts since May. Sacremento's forecast had the worst change. The forecast dropped 13.3 percentage points to -22.2% from the -8.9% forecast in May 2008.

Miami showed slight uptick of 2.1 points in the forecast, going from -24.9% in May to -22.8%.

You can see the rest of the changes in forecasts in the table below:

 

	2008 Median House Price	2009 Forecast	2010 Forecast	May 2005 Forecast	Change from May 2005
Los Angeles,CA	$375,340	-24.9%	-5.1%	-16.8%	-8.1
Stockton, CA	$248,050	-24.7%	-4.0%	-16.8%	-7.9
Riverside, CA	$256,540	-23.3%	-4.8%	-16.9%	-6.4
Miami-Miami Beach, FL	$293,590	-22.8%	-6.4%	-24.9%	2.1
Sacramento, CA	$225,140	-22.2%	2.3%	-8.9%	-13.3
Santa Ana-Anaheim, CA	$532,810	-22.0%	-3.5%	-15.2%	-6.8
Fresno, CA	$257,170	-21.6%	-3.3%	-14.3%	-7.3
San Diego, CA	$412,490	-21.1%	-2.9%	-9.7%	-11.4
Bakersfield, CA	$227,270	-20.9%	-2.5%	-13.6%	-7.3
Washington, DC	$343,160	-19.9%	-5.7%	-13.2%	-6.7

Today, more news on the failure of the Housing Rescue Bill to help homeowners that are having trouble paying their mortgages and possibly facing foreclosure.

The three-year program was supposed to help 400,000 borrowers avoid foreclosure. But it has attracted only 312 applications since its October launch because it is too expensive and onerous for lenders and borrowers alike, Preston said in an interview.

312 is far short of the goal of 400,000. Back in September I wrote on how the $700 billion Wall St bailout was not likely to provide homeowners with foreclosure help. Part of that discussions was about how hard it was for homeowners to get loan modifications.

I believe part of the reason for the failure was that lenders were able to choose if they wanted to participate or not. To do so, they would have to be willing to write down the mortgage to less than the current fair market value of the home. Since house values had already dropped significantly, this would mean a decent chunk of change.

You would think that the alternative of having to take posession of the home in the hopes of selling it in this market, where inventory is high and demand is low, wouldn't be very attractive. But when you factor in the billions in bailouts the banks have been getting it seems like a sweet deal. The lenders get the cash AND they get to take the house back.

It's a shame because getting people into these types of mortgages could have greatly helped with the foreclosure epidemic we're seeing.

Another part of the Housing Rescue Bill dealt with setting aside $3.92 billion to acquire and redevelop foreclosures. This partly helps out the communities by having homes that are unoccupied due to foreclosure not sit idle and unmaintained, becoming a blight in the neighborhood that would further reduce property values.

The big benefit though, again goes to the lenders. These homes have an owner. The lenders that took posession of them as a result of a foreclosure. The banks hold them, don't maintain them so they become an eyesore then federal (taxpayer) money is used to buy the homes from the banks and fix them up.