Affordability Squeeze Depresses Home Sales

Prospective homebuyers are confronting what the National Association of Realtors (NAR) describes as “the most difficult affordability conditions in nearly 40 years.”

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In a recent speech, Federal Reserve Chairman Ben Bernanke said the financial markets are “stabilizing” but remain “far from normal.” That assessment might also apply generally to the economy, which is hardly “normal,” if your definition of normal includes even moderate growth and a housing market that isn’t on life-support. Whether the economy is stabilizing remains an open question, however, as economists continue to debate whether we are heading into a recession, have already stumbled into one, or still have some hope of avoiding a serious downturn entirely.

The subprime induced financial crisis seems likely to achieve what political pressure, an accounting scandal and withering criticism could not – stronger regulatory oversight of the giant government services enterprises (GSEs), Fannie Mae and Freddie Mac.

Combining two combustible issues is not usually the recommended strategy for shepherding legislation through Congress. But by adding regulatory reform for the Government Services Enterprises) to a bill providing assistance to homeowners facing foreclosure, Sen. Christopher Dodd (D-CT), chairman of the Senate Banking Committee, has managed to secure strong bipartisan support for both.

All those supposedly irresponsible consumers who “recklessly” borrowed too much money to buy homes they couldn’t afford are bad enough. But now, we’re told, people who can afford to make their mortgage payments are walking away, simply because they now owe more than their homes, located in depressed real estate markets, are worth.