It should come as no surprise that the housing market recovery is slow to take place. And it follows that the economy is slow in recovering. In fact, the two are very much intertwined. The recovery in housing will fuel the recovery in the economy. And the recovery in the economy will fuel the recovery in housing. It sounds a lot like the "You need a job to get the experience and you need the experience to get a job" oxymoron. Has the government been of any help in this situation? Or have they caused more harm than good?
Well, rates for mortgage loans are very low and housing prices have gone back down to levels not seen since the rampant escalation in values from 2001-2006. A lot of money was directed to assist in the area of problem loans with the Troubled [or Toxic] Asset Recovery Program. In theory, these funds were to have helped lenders by offsetting loans that had higher balances than the homes used as security. In practice, those funds never hit that target. They bailed out investment bankers, insurance companies, funded bank takeovers, went to automakers, etc ad nauseum.
What would have happened if those funds simply had been applied to individual loans in that situation? We surely would not have as many short sales & foreclosures. And values of homes would not be as affected by the increasing inventory of this type. Tighter underwriting standards would certainly help with loans written going forward as long as people had jobs to provide income to make the payments. But, housing sales would not have stalled. Banks will have had funds applied to the troubled assets which would help their balance sheets. The investors may have taken a bit of a bath, but they took the risk in investing in securities backed by poorly underwritten loans.
It may have rewarded some consumers in a sense, since those who paid their bills on time were not gaining the same benefit, but by not having their homes decline in value, they still would come away with something. We might not be seeing the over-regulation that is occurring right now, had the Federal Reserve not been given free reign over the TARP funds. Housing drives the economy and provides many jobs. When housing stalls, jobs are lost. And when jobs are lost, there are fewer consumers who can qualify for mortgages. It appears that the Federal Reserve now wants even more control and that is bad news for us all. Given their track record, less responsibility is what is deserved.