LIANE HANSEN, host:
This is WEEKEND EDITION from NPR News. I'm Liane Hansen.
In July of 2008, the crumbling housing market was starting to pull down the entire economy. By September of that year, millions of mortgage defaults had touched off a meltdown on Wall Street. Today, the financial markets have stabilized, but the housing market is still a mess.
NPR's senior business editor Marilyn Geewax is back to discuss what happened and why. Good to see you again, Marilyn.
MARILYN GEEWAX: Good morning, Liane.
HANSEN: Let's start with that first-time homebuyers' tax credit. It was supposed to jump start the housing market and it ended April 30th. But the impact seems to be temporary at best. What went wrong?
GEEWAX: Well, you know, Congress created that tax break early last year when foreclosures and short sales, they were just pounding down the housing prices. And, you know, very few people want to buy a house when they can see that the prices are still dropping. So Congress thought it really needed to do something to step in and help.
And the idea here was that if taxpayers would just help make housing a little more affordable, young families could buy houses, and that would start to put a floor under prices. So, Realtors predicted that once the prices started to rise on starter homes, the whole market could stabilize and heal itself from the bottom up.
And it helped a bit, but it's just not clear at this point that those gains are sustainable. After that tax credit expired at the end of April, the market crashed again. We saw new home sales plunge 33 percent in May, and that's very discouraging. Now, the companies that track real estate say the prices are starting to slide again in a lot of cities.
HANSEN: Well, can Congress create a new round of tax credits this fall?
GEEWAX: In theory, you know, Congress, they can do what they want. But it really doesn't suit the mood in Congress. Right now, they're focused on reducing the budget deficit, not on reducing tax revenues. So no, I just don't see anything on the horizon.
HANSEN: Are there any good indications for the housing market?
GEEWAX: We've got one bright spot. Just this past week, we got fresh data from Freddie Mac, the mortgage giant, and it showed that interest rates are at the lowest level we've seen in a half a century. Right now, the average fixed rate, 30-year mortgage is just a little bit over 4 and a half percent - which, you know, that's just incredibly low.
So, if you've got prices really depressed, and interest rates at rock-bottom levels, then you'd have to think that, you know, housing is very affordable and maybe it can start to come back from there. But the big problem, really, is just this lack of confidence in the economy. People don't want to buy a house and more importantly, they're fearful about their jobs.
And another problem out there is bad credit. You know, in the past two years, lots of people have put more of their spending on credit cards, and that debt is hanging over them. So lenders, even when the interest rates are low, they're just not going to loan to people with poor credit scores.
HANSEN: It sounds like what the housing market needs is a healthy job market...
HANSEN: ...to make people feel confident.
HANSEN: But what does all of this mean for people who aren't trying to sell a house right now?
GEEWAX: Well, it's still hurting you. When we have depressed home prices and slow sales, consumers just aren't out there. They're not buying appliances and furniture and drapes for new homes, and that hurts the retailers. And when you've got houses sitting there empty, you don't have builders creating new construction jobs. It's just a downward spiral that pushes down on the whole economy.
But problems like this have a way of healing themselves. Eventually, people do get job transfers, people get married, parents find themselves with a third child they weren't expecting. Life just happens and sooner or later, you might need a house or a bigger house.
So, if we've got low interest rates and low prices, eventually there will be a new generation of homebuyers who will rise up. What we're finding out right now is just that that's going to be a very slow process.
HANSEN: Marilyn Geewax is NPR's senior business editor. Marilyn, thanks a lot.
GEEWAX: Oh, you're welcome, Liane.
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