At the beginning of March, President Obama set out to improve the housing market by creating the Making Home Affordable Plan.  The plan allows borrowers to pay only 31% of their overall monthly salary on their mortgage payment.  It also assists those who do not have a great deal of equity in their home to refinance at the historically low rates we are now seeing.  Later in the month of March, Ben Bernanke announced that the Federal Reserve Bank was going to buy up to $1.25 trillion in mortgage backed securities.

Both of these moves were made in an attempt to put a bottom in housing prices.  The mindset of our current administration is that the housing market will lead us out of this recession.  If Americans see their home price continue to plummet, they are less likely to go out and spend money to stimulate the economy.  If the opposite holds true and home owners see the price of their home start to appreciate they will be likely to spend rather than save.  Unfortunately, home owners have yet to see home prices bounce with any significance.

The Case-Shiller housing data for March was recently released and illustrates the fact that March was no better than any other month in the recent past.  With all the money being injected into MBS mortgage rates are going to fall which should put a bottom in home prices.  Since the beginning of March mortgage rates have steadily declined from 5.15% to 4.82%.  If low mortgage rates were helping the housing market, it should have started happening in March when mortgage rates started to fall and the Making Home Affordable plan was put into effect.

The Case-Shiller Index is a composite of twenty major US cities and shows prices changes versus the same month last year as well as month versus previous month.  The data for March showed that every single U.S. city in the composite was down versus last year.  The smallest drop was Dallas at 5.6%.  The month versus previous month data illustrated that only two cities were up from February to March; Charlotte and Denver.  To compound matters, these two cities were up only 0.3% and 0.1% respectively.  There were several cities down over 4% month versus previous month.

If the Making Home Affordable Plan and lower mortgage rates were actually helping the housing market, there is no way that only two cities should have risen in value from February to March.  If things were getting better, the majority of cities should have seen an increase or at least much less of a decline.  This month’s data also showed the second major United States city to break down over 50% from the all time highs of June 2006.  Las Vegas joined Phoenix as the two cities that have seen home prices lose over half their value.  It looks like Detroit, San Francisco and Miami are well on their way to this mark as well.

If low mortgage rates and the Making Home Affordable Plan did not work in March, is it likely that it will work in April or May?  I sure hope so!  This decline in home prices is absolutely killing the United States economy.  Anyone can get the false sense of hope that the current stock market is giving them, but until home prices bottom, we are not out of this mess.  My biggest concern is that there was a surge in mortgage applications shortly after Ben Bernanke announced that the Federal Reserve Bank was going to purchase such a large amount of mortgage backed securities.  If there was a true surge in individuals buying new homes, shouldn’t prices go up versus February when there were no plans intact and mortgage rates were around 5.3%?

What this data tells me is that the majority of those mortgage applications were actually refinance applications.  If most of the interest is in refinancing, it is likely going to be the case that home prices do not see a bounce.  Until new home buyers come into the market and gobble up some the the housing supply there will remain a supply/demand imbalance.  The government can try as hard as they want to control the prices of homes but the free market will work itself out.  If there is a strong demand for homes, prices will go up; if the opposite is true, prices will continue to sputter or head south.

It may take some time for the data to show that low mortgage rates and Making Home Affordable are working.  Maybe the application for the month of March is a bit delayed due to the surge in interest.  Many mortgage lenders were struggling to go through mortgage applications because of the great interest.  If some of the applications were not completed until the end of the month, the improved home prices might be delayed until April.  Unfortunately we will not know the answer to this for some time.

From a personal standpoint, I have yet to see home prices find a floor at all in North Carolina and I live in the state that has one of the cities that saw an increase from February to March.  I cannot imagine bubble states like California, Las Vegas, Arizona and Florida.  From what I have seen, individuals are still finding it very hard to find a decent offer.  Many of my friends and family are showing their homes that are on the market, but they are getting absolutely no offers.  Individuals who are looking at houses are not able to dump their homes in other parts of the country.

Overall, it seems that the government is doing everything they can to force low mortgage rates to help home prices but it just hasn’t happened yet.  This is not to say that it won’t eventually help, but the Case-Shiller March data showed that we have yet to see a true bounce in overall home prices.  Maybe the data for April or May will create a much more clear picture but we are going to have to wait quite awhile to know if this is the case.