According to the Democrats you are better off than you were four years ago.  They offered the graph (nearby) of Household Debt Outstanding as one argument supporting that thesis.  “And household debt levels have come down significantly”, 

If you’re thinking to yourself right now, “How come I don’t feel ‘richer’?” you’re not alone. This absurd supposition doesn’t hold up under examination. It’s just the attempt by the Democrats and Obama Administration to, ah, Hide the Decline.

Obama’s Own Hide the Decline Hockey Stick Fantasy Graph

Some $10.5 Trillion of the above household debt is represented by outstanding residential mortgage debt.  Yet it’s a giant leap to suggest this drop in household sector debt means American households are better off today than when the Democrats ascended to power in early 2007 by winning Congress and then taking control of all three branches in 2009. The housing and housing finance industries are worse off today than they were 3 ½ years ago.

Investor’s Business Daily details a number of ways in which Americans are worse off than 4 years ago (here), but let’s deal specifically with the deception posed by the Democrats over dealing only with the ~$700 B reduction in household debt shown in the above graph ($1 Trillion reduction in residential mortgage debt)  and the implied deleveraging they suggest results in better overall improvement in the balance sheets of the American consumer.  They present only half of the American consumer’s balance sheet.  Assets are omitted.  It is not surprising that the Democrats would omit assets,  since they haven’t been able to come up with a tangible budget over the same time period either. 

The above graph hides the fact that American homeowners and consumers are distinctly worse off than 4 years ago.  Missing is the massive destruction of wealth most of it through the decline in the value of housing.  Some $7 Trillion in asset value has disappeared of American balance sheets in as a result of falling real estate values over the past 4 year. “Since home values peaked in 2006, homeowners have lost more than half their home equity—about $7.3 trillion—and expectations of future gains have also declined. At present roughly 11 million households are in negative equity with the aggregate amount of negative equity estimated to be roughly $700 billion.”   Compared to the $1 Trillion decline in residential real estate mortgage debt over the same period, Americans have taken a $6 Trillion dollar hit and furthermore, deleveraging is a myth.  Debt currently represents a  far larger portion of total value of the housing stock and consumers’ net worth stand significantly lower than they did when Obama took office.  American households have not only taken a massive hit, but are also struggling under far greater levels of secured debt than they can sustain based on their existing wealth.  Facts that this Administration and its leader don’t care to acknowledge.
 Despite the Democrats “mystical” reality, the real estate and real finance industries are far worse off today than when Obama took office.  Despite all the recent “good” news in the press, housing sales are still down near recession lows, bumping along the bottom. 

Prices which the press suggests of late are skyrocketing stand 3% above year ago levels but are actually 1% below mid 2009 levels on (based on Case Shiller numbers) on a real basis )  despite the billions the Fed Government has spent since then on a variety of housing programs.

Note the mid 2009 housing price levels shown by the Federal Reserve compared to the current 2012 price levels.   And mortgage financing volumes are over 50% below the 2007 and 40% below the 2009 levels, respectively.  Yet even these numbers mask the extreme weakness in the residential mortgage markets which have been dominated by refinancing which  accounts for  80% of volume, rather than by home purchases.  Nor does it disclose the dependence of the financial markets upon “wards” of the Federal Government, Fannie, Freddie and FHA which further tarnishes the vibrancy of the residential capital markets proposed by the Press.  Private lenders have nearly vanished.  Further amplifying uncertainty in the real estate and real estate financing markets is the still largely elusive and  unknown number of homes subject to delinquency and foreclosure, composing the shadow inventory; both of which are compounded by re-defaults in modified mortgages and the level of underwater borrowers that represent some 30%+/- of all mortgaged homes outstanding.

The economic and labor markets continue to languish, but the housing market as well as Americans wealth and credit has suffered dramatically during the tenure of this Administration.  The Democrats and mass media can happily trot out their simplistic graph on falling consumer liabilities and live in their self-absorbed fantasy world, but struggling Americans are not better off than they were in February 2009, nor are real estate and real estate finance industries.  It is not surprising that the Democrats said little about housing and their plans for housing/housing finance during their convention.  Their past actions have been ineffective and they seem unwilling to confront the problems, many involving government itself, that confront residential real estate. 

Emerging from the promise of hope nearly four years ago, the policies of this Administration have helped turn the once hallowed ideal and dream of homeownership into, as Huffington Post so aptly  described it, “An American Fantasy”!! 

 

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