Snapshots of the Housing Situation

It’s a new year, which always prompts reflection about the year before–which may explain the recent abundance of "state of the housing market" news articles.

While some contain things we’ve heard before–the industry is down, the end of the slump is unclear–a few articles paint an interesting picture of the housing decline’s status–and the echo effect it’s having on other parts of the economy.

Two notable picks:

• From Mortgages to Other Meltdowns: The focus on the U.S. mortgage industry’s questionable lending standards–which secured loans for many homeowners who couldn’t afford them–prompted industry-wide reform last year; and now, according to an article from Reuters, could shine a spotlight on standards used to secure car loans, student loans and  credit cards, which many feel will be the next industry to crumble.

Our take: Credit cards aren’t completely unlike mortgages. Without accurate measures to judge factors like income, risk can’t be assessed in either industry, Reuters says–and that’s a good point. We’re an overspending society–the average household had $6,600 in credit card debt in 2007, according to CardTrak.com–but overextending expenses is what nailed many of the defaulting and already foreclosed-upon homeowners after the housing boom.

Both American Express and Capital One last week posted lower-than-expected quarterly profits, but–as the economy weakens–it seems those days are over for credit card companies. The Federal Reserve reported that consumer credit grew at an annual rate of 7.5 percent in November; an Associated Press poll in December showed that credit card delinquencies had jumped 26 percent from 2006, according to NPR. Could Americans be spiraling into irreversible credit card debt? If so, we’re likely to be asking later this year why they were given enough credit to do so.

• Who Can Buy Homes, and Who Can Let Them: A separate article in The New York Times discusses the changing identity of the U.S. homeowner–one that favors young first-time buyers with nothing to pay off or unload before trading up.

The article also suggests banks–many of which stumbled in 2007 and already this year due to subprime issues–are in danger as home values drop further, causing them additional losses and eventually reducing the amount of loans that can be offered to potential homebuyers.

Our take: Regional banks had fared well during the slump, offering homebuyers more flexible lending standards because their loans are funded with customer deposits rather than capital markets,  like big banks, who had tightened lending practices.

However, a major regional bank index released Thursday showed that may no longer be the case. The KBW Regional Banking Index, compiled by New York-based financial services company Keefe, Bruyette & Woods, fell 3.1 percent to 66.80.

That’s likely to make the lending market even tighter–which means less loans, less home purchases, less need for new housing and, in turn, less construction. Which would imply that the state of the industry is pretty much where it’s been–or, given the increased credit card debt we’re mixing with housing debt, are we actually worse off?