Barry Ritholtz says the government-induced housing recovery is “kinda like drinking yourself sober.” His post is the case for why the worst might not be behind us. At some point the government stimulus will stop, and at that point we could find out the recovery has no clothes…
As the WSJ reported last week, the number of loans backed by the FHA has soared, and “its market share reached 23% in the second quarter, up from less than 3% in 2006, according to Inside Mortgage Finance.”
Even worse, the FHA is now insuring mortgages with as little as 3.5% down. Add in the $8,000 first time buyer tax credit, and you have all the makings of a government sponsored boomlet.
The downside?
Rising delinquencies, for one thing. The FHA delinquency rate has soared. The Journal noted that “At the end of June, some 7.8% of FHA-backed loans were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, up from 5.4% a year ago.”
The FHA was not previously a big player in the housing boom, in part because it insisted on borrowers and lenders doing their homework. Insured loans were capped, borrowers had to document their incomes. Now, it is the market. The WSJ said that in August the FHA along with the Department of Veterans Affairs backed 40% of all home sales.
As Ritholz notes:
So the cure for too much easy credit going to unqualified people with too little skin in the game is more easy credit going to (according to delinquency rates) unqualified people who have too little skin in the game.
Which all goes to say, this ain’t over yet. Might want to hold off on buying those dirt-cheap Miami condos.
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