Is 11% This Election's Most Important Number... And If Not, Why Isn't It?
With the US presidential election looming in just two months, there is hardly a state that is as critical to the outcome of who America’s next president will be, as Florida. As Bloomberg vividly summarizes, Florida - and specifically its five swing counties: Hillsborough, Orange, Pinellas, Seminole and Volusia - was the state that determined the president in all of the last 3 elections: set between the Republican-dominated North Florida and the more Democratic southern counties, these suburban communities of middle-class voters are known for their shifting allegiances. In 2008, Obama took four of the five counties to capture Florida. George W. Bush won three of the counties, and the state, in 2004. In 2000, Volusia’s vote count was disputed by Vice President Al Gore. Gore won the county yet lost Florida by 537 votes, giving Bush his first term as president. It is quite fitting then that these five counties are very much indicative of the primary malaise that has plagued the country for the past 4 years: the inability of the housing market to rebound no matter how many trillions in printed dollars are thrown at it. Which brings us to the key number that probably should (but most likely won’t in this age of ultra short-term attention spans and constant redirection and focus shifts): 11% - this is the foreclosure rate in these 5 critical counties, double what it was 4 years ago, and three times higher than the national foreclosure average rate of 3.4%.
Some more numbers: a stunning half of the mortgages are underwater, double the US average, according to CoreLogic.
In other words, if there ever was a time and place when economics, through its sheer failure to restore “household wealth” in this most decisive region, was a key issue, now is the time. And just as importantly, if it is Romney’s prerogative to focus on the shortcomings of Obama’s economic policies (and if it isn’t it certainly should be) it is precisely these 5 counties that should be the focal point of any campaign that not only identifies the weaknesses of the current administration, but also proposes workable alternatives. Because by now the people in America are tired of mere jawboning (and if they aren’t they certainly should be) about who did what, even as the plight of the rapidly disappearing middle class gets worse and worse by the day.
Overbuilding, population growth and speculators helped fuel the state’s housing boom. Now the bust has been drawn out by a court system unable to handle the glut of foreclosures. The average Florida foreclosure takes 861 days, second only to New York, at 1,001 days, according to RealtyTrac Inc.
“We’re used to leading out of a recession instead of lagging,” said Susan MacManus, political science professor at the University of South Florida in Tampa. “You have a lot of impatience here.”
Here, the irony abounds: As Bloomberg suggests, “nationally, the improved housing picture has helped push the subject off the short list of talking points for both presidential candidates. Neither President Barack Obama nor Republican challenger Mitt Romney gives housing much play, even in the Sunshine State.” Alas, the housing picture has not improved, and as we have shown before what we have experienced is merely the latest dead cat bounce in what is now a quadruple-dip, soon to be quintuple, in housing prices.
Of course, what little improvement there is, is in the ultra-luxury segment where the NAR continues to have exemption from anti-money laundering provisions, and gladly obliges any and every foreigner willing to launder their criminally-procured cash via US real estate, ostensibly primarily at the high end of the market. In the meantime, the foreclosure freeze not only continues but is getting worse despite the robosigning settlement which was supposed to unclog the foreclosure pipeline and achieved anything but.
This means banks hold increasingly more housing on their books, but for one reason or another are unwilling to release it, pushing ever more inventory into those unkempt “shadow" regions, and in effect subsidizing the housing market by keeping (tens) of millions of housing units off the market thus artificially pushing prices higher until such time as the true housing inventory picture is unleashed on the market.
All this, coupled with the imminent failure of the most recent shadow subsidization attempt by the government in the form of REO-to-Rentals, which is essentially converting housing into commercial REITs using government funding, for the simple reason that the US consumer is more tapped out by the day, means that the fifth leg lower of the housing market is imminent, but likely not before the November election day. In the meantime this most critical component of US household wealth will get precisely zero mention in the upcoming campaign debates, as will any discussion of what the next administration’s policy is when the secular housing decline resumes its deleveraging downward slope.
“You can’t talk about improving the economy in Florida without talking about improving the housing market,” said Brian Crowley, a principal at Immediacy Public Relations Inc. in North Palm Beach and author of the Crowley Political Report. “Both of these candidates, when they come into Florida they tend to talk in sweeping terms,” he said. “If your house is about to be foreclosed on, you don’t care about the macroeconomics.”
While campaigning, Obama touts an existing program that has helped some borrowers refinance their mortgages to low interest rates even if their homes have lost value. Romney says a broader economic fix that creates jobs is the first step toward healing housing.
Neither message holds much appeal to homeowners still waiting for the housing recovery to reach them, and the political price could be high, said Brent Wilkes, executive director of the League of United Latin American Citizens. In 2008, Obama won Florida by 2.8 percentage points.
Curiously, despite their economic plight, Floridians appear to be siding with Obama, although the margin is thin:
A CNN/Time poll last week showed the Florida race almost deadlocked, with likely voters favoring Obama by 4 percentage points, with a margin of error of 3.5 percent.
“So much of the way people vote is based on their personal situation,” Wilkes said. “If you’re a homeowner and you’re in trouble, or you were a homeowner and lost your home, that’s going to be at the top of your mind.”
Finally, it is only a matter of time before one or both of the candidates have to discuss housing, with such key states as Florida and Nevada still in a housing price shock:
Florida holds 29 of the 270 electoral votes needed to win the election. Nevada, another toss-up still reeling from the collapse, has six. The two states top Trulia Inc.’s Housing Misery Index, which tracks delinquencies and home prices. “If we’re going to hear about housing at any point in the election it will probably be in Florida,” said Jed Kolko, chief economist at Trulia Inc. in San Francisco.
So far none have, as if housing will magically fix itself, and instead America’s future president and his challenger continue to
snipe nonsensically at each other over who paid what taxes and who was born where.
Yet what is most surprising is that the US electorate has allowed the presidential campaign to proceed for as long as it has without such critical issues being addressed. Perhaps it is for the better: after all in a time of central planning there is nothing anyone can promise, or do, that would have any significance on the final economic outcome, and perhaps America simply enjoys deluding itself using every known fudge factor in the book that this time, housing has finally bottomed. It bottomed in Japan too... And hasn't stopped doing so for over 30 years!
But perhaps none of the above really matters. The bread may be in short supply, but at least the circuses are flowing 24/7. Just as the average US voter likes it.
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