As Barack Obama was sworn in as the 44th President of the United States on January 20th, many financial analysts focused their attention on the current economic crisis. At the forefront of that crisis is the real estate market. The day after the inauguration, the National Association of Home Builders and Wells Fargo released the findings of their Housing Market Index for January. The survey canvasses nearly 420 builders in the housing industry for their opinions about how confident they are about their industry. It was at its lowest point since 1985, which is when the index started. The confidence of builders in the industry has been declining for over 2 years. Builders were some of the first and most drastically affected by the declining real estate market and crisis in the credit industry, as they struggled to compete with lower prices and the glut of unsold homes. In spite of historically low rates for mortgage loans, most experts do not anticipate an increase in interest for new properties in 2009. In fact, many analysts anticipate that the slump will continue for at least another year. Some in the industry think the only thing that will pull the housing sector out of the slump is government intervention. Offering consumers tax incentives or low mortgage interest rates to purchase a new home are some examples of such intervention.
Home building is just one industry expecting a slow 2009. Mortgage insurers, most notably MGIC, are not anticipating much profitability either. As the recession worsens and unemployment continues to rise, many mortgage insurers will struggle as mortgage defaults increase. Risky mortgage practices undertaken by many banks and investors came to head in 2008 and left many homeowners holding the bag of declining home values. Many under qualified borrowers were able to obtain subprime mortgages during the housing boom. Other consumers simply bought a home priced beyond their means, sometimes with an adjustable rate mortgage that has since reset, and are now struggling to make those mortgage payments. As a result, mortgage insurance companies like MGIC are paying out claims from lenders more and more as defaults rise. It is hard to believe, but just a couple years ago, mortgage insurance was the most profitable line of insurance in the business. Mortgage insurers like MGIC are hoping to utilize some of the $700B from the federal bridge loan to help them through 2009. The new President has made it clear that any economic stimulus plan will need to help stem mortgage foreclosure rates, if there is any hope for a revitalization of the housing market.

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by: marciafreeman
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