Up to now, the Bay Area — even more so than the rest of California — seemed to be in a kind of paradisiacal bubble of immunity from the slumping nationwide home market. But the summer real estate statistics released this week show a more ominous story.
It is true that Bay Area home prices still hold steady or even continue rising slowly and slightly. But the secondary ripple effects are obvious enough. Total sales volume sputters. As homeowners fear putting their residences up for sale in a slow market, nervous lenders increasingly refuse loans to would-be buyers who could ordinarily qualify easily, and builders see no point in adding to a housing inventory already overstocked with foreclosures on defaulting subprime loans.
This means housing-related jobs are evaporating. In California alone, during the last 12 months some 17,000 such jobs were lost, and the state’s July unemployment rate jumped to 5.3 percent, now higher than the national 4.6 percent average.
The housing market fallout also means that local and state tax revenues are falling, putting popular programs and even basic services at risk. Everything from permit fees to general sales taxes is in decline, as fewer homeowners withdraw equity to make purchases or remodel.
These Bay Area ripple effects are actually more like being at the far edge of monster-wave surf that could conceivably escalate into an economic tsunami that swamps us all. We are no longer isolated here from the possible bursting of a national housing bubble.
On Tuesday, the National Association of Realtors announced that July’s pending sales of existing homes and condominiums plunged 12.2 percent in a month, sinking to the lowest level since the index began in 2001. Pending sales are defined as transactions where the contract has been signed but the loan hasn’t closed yet. The July decline was worst in the Western region, falling 20.8 percent.
At the same time, the Federal Reserve, the Federal Deposit Insurance Corporation and numerous other banking regulatory agencies issued a joint statement urging mortgage lenders to become proactively flexible about restructuring at-risk home loans in order to avoid foreclosures. This call amplified recent recommendations by President Bush and congressional lawmakers.
Mortgages could be restructured by converting adjustable-rate loans to fixed rates that wouldn’t rise, extending the loan’s duration or rolling missed payments over into the total debt. None of these methods would write off any of the mortgage amounts owed and would be invaluable in returning much-needed stability to borrowers, investors and a marketplace that presently runs the risk of dragging the entire U.S. economy into serious recession.
Keeping American families in their homes is not only sound public policy; it is also good business and an essential factor for maintaining the global financial exchanges on an even keel.