Barack Obama launched a new effort last night to revive the moribund US housing market, in the hope of putting the world's largest economy on a path to recovery and shoring up his shaky re-election bid.
Travelling to the state of Nevada, which has the highest rate of foreclosures in the US, the President promised a string of executive orders and administration actions to boost the US economy under the mantra of "We can't wait" for a divided Congress to act. In the first wave of measures, the administration will make it possible for more borrowers to refinance their mortgages, even if price falls mean they have no equity left in their homes. Tackling the US foreclosure crisis is vital to improving the sinking fortunes of the country's economy, analysts say, and critics of the administration have argued that trying to engineer a robust recovery without stabilising the housing market is like trying to build on quicksand.
House prices, after briefly reviving when the worst of the credit crisis passed, are falling again across the country, and potential home buyers are sitting on the sidelines because they believe the glut of foreclosed homes could push prices lower still. Almost one in three home sales is a forced sale or the auction of a foreclosed home.
Within the Obama administration, the housing market has received renewed focus since it became clear that much of the rest of the president's economic agenda will fail to make it through the divided Congress. A $447bn jobs bill, for which Mr Obama had high hopes, has already fallen foul of Republican opposition, and any legislation that does emerge in the coming months will produce an economic stimulus that is much smaller than originally planned, if it produces one at all. Mr Obama, whose approval rating has hit a low for his presidency, is seeking to shift the blame for the economic gloom to recalcitrant Republicans.
The ability to influence the housing market is uniquely within the president's gift, since the administration runs Fannie Mae and Freddie Mac, the mortgage finance giants that had to be nationalised during the credit crisis. The pair own or guarantee the majority of US mortgages, including almost 100 per cent of new loans, and will sharply reduce their fees to allow for more refinancing of existing mortgages under the administration's new plan. Borrowers will be allowed to refinance with loans worth more than 125 per cent of the value of their home, unlocking the programme for people in hard-hit states such as Nevada, Arizona, California and Florida, where housing prices fell most sharply after the speculative boom. Kevin Logan, HSBC's chief US economist, said: "The plan may move us closer to a rebalancing of supply and demand, but it will help only at the margin. The US has been over-building for many years and demand has dropped."
The two-year-old Home Affordable Refinance Programme, created to help struggling borrowers into more easily affordable mortgages, has aided fewer than 1 million Americans despite expectations that it would provide relief to many times that number. One problem has been the complexity of getting agreement between borrowers, lenders, federal guarantors and the ultimate owners of the mortgages, while a majority of homeowners who refinance have defaulted even on their new loans.
The inability of underwater borrowers to refinance is a main reason why rock-bottom market interest rates are failing to revive the US housing market. According to the latest Case-Shiller house price index, home values are down more than 4 per cent in the past year, and a survey last month showed a fall in the number of home sales.