Housing Market 2011: As Rough As 2010

Looking back on 2010, the year in real estate was, in a word, terrible. Property values continued to fall, foreclosures rose, and even the lowest interest rates in 50 years seemed to have little positive effect on the property market.

For U. S. real estate, 2010 was the year of failed government intervention where nothing worked as intended. It was the year when bankers clearly threw their customers under the bus. And the only saving grace of this year from hell is that it might have been even worse.

So will 2011 finally be better for real estate? No. It will be 2012 before housing even remotely recovers.

Facing a mortgage crisis, governments this year did what governments do: They implemented new policies intended to help, then lied about those policies, saying they were really expected to work. Fat chance with $4 trillion in lost homeowner equity and a commercial lending system stunned into paralysis. While Treasury and the Fed had to respond somehow, the response they made was inadequate and possibly useless. It wasn't enough by a long shot, but then maybe no program could have been big enough to break this deleveraging fall.

The first-time homebuyer tax credit cost $16.2 billion for three months of slightly increased sales activity and a tiny (and temporary) slowing of price erosion. The Federal Reserve Bank spent more than $1 trillion buying mortgage-backed securities to keep mortgage rates artificially low, leading to some refinance activity but absolutely no impact on the purchase marketplace that was the Fed's target. The Fed spent more trillions buying government bonds to keep rates low across the board. This worked to some extent but did not fuel home purchase activity, which was, again, a major goal.

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Treasury's Making Home Affordable mortgage modification experiment, at a cost of $75 billion, was a proven failure, missing by 3.5 million its goal of 4 million modifications. The Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP) -- the two tools intended to repair millions of bad mortgages--failed completely in the face of a loan servicer paperwork blizzard in the tradition of "the dog ate my homework. " With loan servicers earning more from foreclosures than from mortgage modifications, mods didn't happen -- and won't.

One of the most damning aspects of the Making Home Affordable failure is that it is now touted as having helped the deficit by virtue of having been such a miserable failure. Yes, the program cost less than expected, because it was a dud. Ditto for Fannie Mae's DU Refi Plus program.

Don't even get me started on robo-signing. There are bankers who should clearly be in prison, yet I don't see that happening. Too big to fail, remember? And principal reduction is now just a good punch line for Conan.

Here's the bottom line for these many mortgage programs: If you can't fix a $4 trillion problem for $700 billion, you sure can't solve it for $75 billion. These loan programs were just camouflage allowing deleveraging to continue on its miserable course with the TV cameras pointed elsewhere. Had a miracle happened and job growth resumed, the Obama administration might have pulled it off, appearing to fix what they were never in a position to fix--what they still aren't in a position to fix.

Sadly, 2011 will just continue the deleveraging, and market conditions may well get worse before they get better. Interest rates are trending higher and are well off historic lows, which should bring refinance activity to a halt. Credit is still tight and there are warning signs of increased equity destruction. Foreclosure activity will increase dramatically. Unemployment, of course, is still a drag.

First-quarter purchase activity is expected to be at record lows. Seasonal effects, climbing interest rates, tight credit, unemployment still above 9 percent, and the foreclosure time bomb are going to hurt everyone. Foreclosure activity will reach record levels in the first quarter then fall somewhat through the rest of the year, not because the situation is getting significantly better but because banks will deliberately control the pace of foreclosure to avoid a legislative backlash (and jail).

Still, 2011 will show the highest foreclosure rates in history, weighing on the market well into 2012. If there is any good news for 2011, it is in a moderate increase in purchase activity expected in the second and third quarters. Higher rates, tight credit, oversupply of bank-owned properties and continued unemployment will temper this activity, though. The extension of the Bush tax cuts may help purchase activity, too, finally allowing for some "green shoots. " But the grass will not really grow until 2012.

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Susan pat

Good day my friend.

First of all , I would like to use this medium to give you a brief summary of my experience on the internet. I was in need of financial assistance and i applied to several loan offers which all turned out to be frauds. I lost my job and lost approximately $ 12,000.00 to an agency bearing the name: Eardley Financial Agency which is managed by Mr Mike Elderly Who is located in Russia.If you are in need of any personal assistance, i would advice you to contact my lender who finally delivered me from my financial trauma. The Agency is an English Agency located in Edo State, NG. you can contact him for more information about financial issues.

Manager: Sir Morgan Lam
Location: Edo State,NG.
Contact Address: morganlam.finance@gmail.com

I wish you a good luck.

Susan pat.

January 28 2011 at 7:51 AM Report abuse rate up rate down Reply
1 reply to Susan pat's comment

hello miss so-called susan pat, you're a thief - stop posting here!

June 12 2011 at 7:42 PM Report abuse rate up rate down Reply
Warren Goldberg

Although I'm not quite as pessimistic about the future of the housing market, the author is right on target about one thing: Government intervention has made things hugely worse.

Andrew Cuomo's Home Valuation Code of Conduct has done nothing to protect homeowners - but instead has decimated appraiser's income and has put many independent appraisers out of business.

Making Homes Affordable, and other Obama programs designed to help homeowner's save their homes, has been a huge failure, waste of taxpayer's money, and has succeeded in only frustrating many homeowners and ruining their credit.

And the Frank/Dodd Financial Reform Act promises to cripple a mortgage industry already decimated by what has occured these past few years. And the very consumers it was proposed to protect will likely find themselves unable to obtain financing.

A much better solution would have been to keep their hands off. The real estate industry has already self corrected and most of the crooks and incompetents that caused many of the problems have moved on to other industries.

Closing the barn door after the horses have left, never solves any problem.

Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)

December 31 2010 at 4:53 PM Report abuse rate up rate down Reply
drew snyder

I am shocked and disgusted to think at a 100,000 people a month are losing their homes in America....and that some how that is all right. An the sickening fact that our government has helped the process along by allowing the forclosers to take place and allow the banks to steal peoples homes makes me sick....we forget get we are fellow americans...WHY WOULD WE DO THIS TO OUR PEOPLE...any system take take from others during hard time is evil..why are we not marching in the streets? Shame on all of us for not demanding better from our system..."Kill the Banker" and make my day....

December 31 2010 at 1:28 PM Report abuse rate up rate down Reply

In 1980 the working class bought into the whole Regan revolution Trickel Down theory.........Give the rich all the tax breaks, Free trade is good for the country, Pardon all the illegals in the country, Spend zillions on our World Police Dept Military, Deregulate everything especially Wall St..................Well 30 years later you got what you voted for and the Middle Class is going away.............Don't blame the politicians for this you bought into the whole plan and elected every one of them.....How is that Trickel Down thing working for you all now ???????????

December 30 2010 at 5:25 PM Report abuse rate up rate down Reply

Where I live, I routinely see houses bought in 2003-2007 that are being short sold today for at least $100,000 MORE THAN THE ORIGINAL SELLING PRICE. That means these people plucked the equity out of their homes to finance their kids college educations, and cars, and home improvements (decks/pools/finished basements/etc.), and furniture, vacations, jewelry, and whatever else they wanted to buy. Now that they've sucked the blood out of their home, they throw up their hands, and whine that they can't afford to make payments anymore, and they drive away in their $45,000 cars and a moving vans full of expensive stuff bought with their home's former equity.

How is that anything other than theft?

December 30 2010 at 4:34 PM Report abuse rate up rate down Reply

This entire mess wont even begin to clean up until 2014 or so. No demand vs. huge inventory, unempoyment, interest rates which will be climbing soon, gas at $3.00 plus etc... etc... etc... We ahve the slimy bankers raping the population every chance they get. We have slimey loan agents and realtors doing whatever it takes to suck in their commissions and a government which for the last twenty years has been snowballing us towards this mess. If we need yto point fingers lets look at these people and institutions first and then look in the mirror because we let it happen!!

December 30 2010 at 4:08 PM Report abuse rate up rate down Reply

The problem is greed. People in this country think ther owed by there degree not by what they do. CEO's upper manament ,politians,Doctors,Laywer's. LET me explain first Ceo's and upper management - Wages,bonus's,and secuity blankets drain so much off the business they supposedly run they are not able to compete in a global market so it is the people below them Blue And White collar that take the cuts (wages,cost of living increases,health care JOBS.) eventualy shipping over seas. Managment is a necessary evil and should be kept to a minimum they make or poduce nothing. Second the politians that are bought and paid for by the CEO's,not the business they represent witch make bogus laws and policies to provide more state and federal jobs witch those people become loyal subjects to the government also to protect and keep intact the upper managments rape and pillaging of american industry . Third Doctors witch should be paid well and are but if we don't get a handle on it we will be bankrupted period it's almost 20 % of our GNP and going up. And making it unlawfull not to have health ensurance will drive the costs even higher. Last but not least the lawyers and may I add there are some honerable lawyers but the system is set to keep them in business defending us from the tyranny of the government's State and Federal bestow on us. The result housing market is where it should be by what these jackass's more or less do and think.

December 30 2010 at 2:11 PM Report abuse rate up rate down Reply
Doug Eco

Foreclosed or facing forclosure? A suggestion to the wealthy rich who have most of the money. The wealthy should consider buying homes at foreclosure sales and leasing or selling them back to the occupants with a 20 to 30% markup. They would hold the lease or sale contract with a ballon payment due in 5 - 7 years. The rate and term should be 3% amoritized over 40 years. The borrower needs no credit but must show income (cash or bona-fide) of twice his house payment. Also the borrower will need to report quarterly on a universal financial statement form to the lender showing improvement of his credit report. This will help the borrower to re-fi with a Bank in 5 to 7 years with qualifing credit.

What do you think Gates and Buffett? You in?

Doug Eco

December 30 2010 at 2:07 PM Report abuse rate up rate down Reply

The Making Homes Affordable program worked for me, thankfully!! I can breathe easy now that I won't even reach the 5% interest rate until at least 5 years from now. I'm sorry to hear that the results are so dismal for the program. Not sure why I got it and others didn't.

December 30 2010 at 2:04 PM Report abuse rate up rate down Reply


December 30 2010 at 1:57 PM Report abuse rate up rate down Reply