151,267 New Listings - March 2010 - Last update March 10, 2010 6:15 AM ESTHappy Talk and Wishful Thinking is Not Slowing Down Foreclosures
If one lends an ear to the bouncy happy talk of the Treasury and the Federal Government one might start to believe that the economy has started to inch upwards. But wishful thinking is not slowing down foreclosures.
During the third quarter the economy went up by 3.5% and this made screaming headlines – ‘The Economy is Back in Gear’ (CNN) and ‘The recession ended unofficially in September’ (NPR).
There were mumblings however that consumer confidence had taken a dip and forecast of dull Christmas shopping. Sale of new houses unexpectedly fell by 3.6% in September whereas the experts had anticipated an increase. Unemployment claims made during the third week of last October rocketed to 531,000 – much above the expected 520,000. It indicates that the unemployment rate will touch 10% in the November report of the Department of Labor. One third of the house owners in USA are now underwater with the loans being more than the value of the house. It is little wonder then that foreclosures are surging ahead.
How can this contradictory situation be analyzed? The positive growth in the economy has closely followed the decline in GDP by 6.4% during the first quarter and another 7% fall during the second quarter. This increase has been largely due to two government stimulus measures – the cash-for-clunkers that made people rush to purchase cars and the $8,000 tax credit offered to new house buyers.
These two measures did not expand the economy but only pushed it forward. It means that somebody opting for the cash-for-clunker plan is usually someone who is saddled with a weary junk and needs to purchase a new automobile in any case. So all the government does is to give a poke and push. Once the programme came to an end the sale of cars dropped. Moreover most of the payments were for those who bought foreign cars and thus the boost helped the car dealers and not the car manufacturers.
The same applies to the case of houses. Very few would be swayed by the $8,000 tax credit to buy a house. The people who made the purchases had already made up their minds to do so and this gift came as a pleasant surprise. Here again the government gave a nudge
It is being said that the country should not expect a recovery till the end of 2010. This is because those who wanted to buy cars and houses have done so. The car subsidy has expired. Congress is being pressed to extend the tax credit. But those who wanted to and could afford to buy a house have completed their job.
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