That is causing a loss of confidence.  That is going to make mortgage rates go up! 

From James Glassman at the New York Times:

What’s my interest in this? I head a nonprofit group that encourages developing nations to adopt policies that will lead to prosperity — starting with transparency and the rule of law — and hold up America as a model. Yet in its high-handed dealings with Chrysler and G.M., the Obama administration reminds me of an irresponsible third-world regime, skirting the law and handing economic prizes to political cronies. – New York Times

If you go back a few months, these auctions had nobody attending.  Now, it sounds like foreclosure auctions are hot in the Puget Sound area.  The inventory levels in the northwest can actually be worked through pretty quickly when the buyers come out again.  It sounds like buyers are coming out! – Chelan Real Estate Blog

Between that and the stock market, it’s no wonder folks are feeling a little less flush.

The declines mean that U.S. homeowners lost a cumulative $3.3 trillion(3) in home values during 2008, with much of that loss coming in the fourth quarter. Homeowners lost $1.4 trillion during the fourth quarter alone; more than the $1.3 trillion lost during all of 2007. Since the housing market’s peak in 2006, $6.1 trillion in home values have been lost. – Zillow

The article goes further to mention that the losses in the last quarter of 2008 were greater than for all of 2007 and the rate of loss is accelerating.  Seattle got a mention as a metropolitan area that experienced a decline larger than the national median a 12.1%  median home value decline in the 4th quarter.

Just keeping a little national perspective in the mix during one of our beautiful sunny days in the Lake Chelan Valley!

The following video illustrates the extraordinary and historical amount of printed money the Fed has dumped into the banking system that has yet to get banks lending.  Banks have money.  But it is not easy to get a loan.  The banks are sitting it out.  They know how awful many of their financial situations are.  They know option ARM recasts the next couple of years are going to be bad.  For many banks, the asset side of their balance sheets is going to suffer when overpriced real estate enters foreclosure and they have to mark it to what it will fetch on today’s market.  So, many of the banks are holding onto the TARP money so that they can bail themselves out. 

I am optimistic and know that anything can be fixed.  I am also not blind and am concerned what this will cost all of us, and our children.  Speaking for myself I will proceed, but carefully.

The builders’ lobby is ramping up its sales pitch for a $250 billion stimulus package called “Fix Housing First,” arguing that financial markets won’t recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner’s mortgage rate. – WSJ

There are some pretty nifty graphs showing the housing correction has already moved prices back in line with historical price to income ratios.  However, price to rental ratios are still a bit out of line.  The Realtors and National Association of Home Builders are running these newspaper ads in Washington in support of the “Fix Housing First” proposal.

I’m not a big fan of bailouts.  We’ve already spent $350 billion.  Do you think it has helped?  How about spending another $25 billion on automakers?  We spend nearly $80 billion every year on farm subsidies and supports through the Department of Agriculture and according the the Cato Institute and many experts, it doesn’t have any positive impact.  Shouldn’t other industries be asking for their share?   What industry do you think will be asking next and what will be left to tax to pay for any of it?

Critics say the plan, which applies to loans owned or guaranteed by government wards Fannie Mae and Freddie Mac among others, could encourage people to suspend payments.

But what about the moral obligation to pay off a debt?

Elected officials have been chipping away at that by blaming the foreclosure crisis largely on predatory lenders. In a campaign fact sheet, President-elect Barack Obama says he “recognizes that the real victims in the subprime mortgage crisis are not the lenders, but the millions of borrowers who followed the rules and whose only crime was taking out mortgages that lenders told them they could afford.”

Last year, Congress started removing some financial hazards of default when it passed a bill that temporarily waives the income tax on mortgage debt that is canceled when a homeowner is foreclosed upon, sells a home for less than the remaining debt (a short sale) or gets a loan modification that reduces the principal balance. – San Francisco Chronicle

And, it gets worse later!  After going through how easy it is to qualify, it states:

If all three of these maneuvers can’t reduce your payments to 38 percent of income, you won’t get a fast-track modification but could still request a customized deal, says the official, who spoke on the condition of anonymity.

The streamlined process looks only at income, not assets. If you refinanced your home to buy a Mercedes or own another home, you won’t be expected to sell them to pay your mortgage.

Peter Schiff, president of Euro Pacific Capital, predicts that many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.

“This is a once-in-a-lifetime opportunity,” Schiff says. “People are going to feel like complete morons if they don’t participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn’t afford.”

The government is offering loan servicers $800 for every homeowner they get into the plan.

Schiff predicts that loan agents “will be cold-calling people trying to get them into it. Just like they encouraged people to overstate their income to get a bigger loan in the first place, now they will encourage them to understate their income to qualify for a smaller loan.” – San Francisco Chronicle

Of course, with taxpayers footing the bill, the banks don’t seem to be able to find the manpower to go through the documentation loan by loan and are “streamlining” the process.  So, if you fit a certain formula of negative equity and a variable interest rate loan, you can probably “streamline” your way to a better loan, whether you need it or not.  Those who lied in the first place to get a loan they couldn’t afford are offered a second chance to do the same, but this time at taxpayers expense.

In the blogosphere, there is discussion of even those who aren’t having any trouble paying for their loans to miss some payments in order to qualify for the better terms of the bailout loans.  What do you think the likelihood of these loans having better default rates than the pre-bailout loans are?  This is what bailout critics were worried about when they said the bailout would just prolong the market correction, at a very high cost.

To add further fuel to my frustration, I read here at the Bloodhound blog that Michael Alix, who worked at Bear Stearns for 12 years and was its senior risk manager since 2006, was named a senior vice president in the bank supervision group of the Federal Reserve Bank of New York, the Fed announced.  Of course, Bear Stearns failed miserably at properly asessing risk.  Now he will oversee the financial safety and soundness of banks. 

You can read more about the “Liar Loans” at CNBC and The Real Estate Bloggers.

The lowest mortgage rates for a generation is one of the factors that caused the housing boom in the first place. So where are we, rates are getting lower again, foreign investors are entering the market due to the dollar’s valuation and prices are lower than anywhere in the recent past. Other than the continued press, things don’t look too bad for bargains. Is around this time the point where folks a couple years from now wish they bought?