TEXT OF COMMENTARY
TESS: Our Economic Editor, Chris Farrell is here for the audio op-ed we call the Straight Story and Chris, recently we got a lot of confusing information on the housing mess didn't we?
CHRIS: That's an understatement Tess.
TESS: Yeah; you know on the one hand the government released a report that found the average price of new homes was up 3-percent in April from the previous year.
CHRIS: All right; that's not too bad.
TESS: But there's some other figures from the S&P Case Schiller Index that says home prices were in a free-fall; more than 14-percent down.
CHRIS: [Laughs] It's--now that is bad news.
TESS: So what's going on here; are we in a market turnaround or not?
CHRIS: Okay; here is the safe forecast and the forecast that I believe. We're going to continue to see a downward spiral in prices. Look; a lot of buyers are out there but they're looking for really good deals, and foreclosures, they're on the increase. But I actually think we're seeing some signs of life in the market. It's faint but I think the market has a pulse.
TESS: So what are some of those signs?
CHRIS: The big price drop that you mentioned, the Case Schiller Index, well recently we've seen an acceleration in the price decline and what that reflects is the banks have thrown in the towel. They're just slashing the prices of foreclosed homes; they want to get that stuff off their books. Another sign, one of my favorite columnists, Floyd Norris, Business Columnist for the New York Times had this really good article about the private mortgage market--now here's a stunning figure; I have to give you the numbers. In the final quarter of last year, the private mortgage market was only 18.6-percent or less than 19-percent of the mortgage market.
TESS: Well who else owns them?
CHRIS: It's the Department of Veterans Affairs, Freddie-Mac, Fannie-Mae, Federal Housing Administration--but what he points out, the private share recovered to almost a quarter in the first quarter of 2008. So in other words, we're seeing a little more activity on the private end. So again I take that as we're going to see a very slow, very slow turnaround in this market.
TESS: It is concerning at all that the federal government, Fannie-Mae, Freddie-Mac, the FHA, the Department of Veterans Affairs, they all hold such a big chunk of the mortgage market?
CHRIS: It's a real concern and there are also some serious issues about the financial health of Fannie-Mae and Freddie-Mac.
TESS: I mean essentially even though they are called quasi-government entities, the taxpayers would be on the hook if mortgages fail all over the place under these agencies?
CHRIS: There's no question about it. The way that I look at them right now, they're a big part of the housing rescue plan. That's one part of what the government is doing and it's had this stuff like what--Hope Now and Optimism Tomorrow--whatever you know--you want--want to say and most of those--those programs--
TESS: [Laughs] I think you've come up with a brand new program, Optimism Tomorrow.
CHRIS: [Laughs] I think I have; they haven't worked very well, however Freddie-Mac and Fannie-Mae that's actually worked pretty well. That's why I do take it as an optimistic sign that the private market is starting to stir, but it's not healthy to be in the situation that we're in right now.
TESS: All right; the Straight Story from our own Chris Farrell. We will check in--in perhaps the next few months to see if you were right.
CHRIS: Yeah; I know one problem with this is you have it on tape.
TESS: Thanks Chris.
CHRIS: Thanks a lot.