Still Ground Zero

The Lehmann Letter ©

The stock market jumped this morning and all the indicators remain higher three hours before the market’s close.

But ground zero – the foreclosure crisis – remains ground zero.

Foreclosures continue to mount and about one-third of the nation’s homes are now worth less than the mortgages that financed them. That, combined with unemployment’s continued rise, spells future trouble.

It’s true that buyers are swooping in to snap up troubled properties as previous owners abandon them to foreclosure. But that has not yet been sufficient to stabilize home prices or stop additional foreclosures. Since effective preventive legislation no longer seems likely, it appears that the foreclosure crisis will gradually work its way out. Too bad, because there was an alternative: Mortgages could have been crammed down to affordable levels while the government saved the mortgage-holders harmless. Now that does not appear likely.

Housing is this recession’s root, as this blog’s author said in an article appearing in yesterday’s San Francisco Chronicle:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/17/INH117INUT.DTL

Until the housing crisis is resolved, it’s hard to see how the overall crisis will be resolved.

© 2009 Michael B. Lehmann