Yesterday’s momentary bright news in the housing market turned out to be even more transitory than first thought.  Sales jumped by 7.6% in April, but home prices fell by 0.5% in March despite the efforts of the Obama administration to incentivize home purchases.  The new Standard & Poor’s survey shows a “renewed weakening” in home prices — which may have consumers once again on the defensive:

Home prices fell in March from the previous month, a sign of a weakening housing market despite historically low mortgage rates and now-expired tax credits. …

The numbers are especially disturbing because they show that improved sales due to the tax credits didn’t translate into higher prices, said David M. Blitzer, Chairman of the S&P index committee.

“When you loot at recent trends, there are signs of renewed weakening in home prices,” he said in a statement.

In a healthier economy, extraordinarily low mortgage rates would pump up demand for homes. But economists say the job market is too weak and credit is too tight.

Sales of previously occupied homes rose 7.6 percent in April, theNational Association of Realtors said Monday. But the sales were boosted by government incentives that have now expired and economist don’t expect the improvements to last.

A separate report by Bl0omberg yesterday shows how fragile the housing market has become.  FHA has moved ahead of the combined efforts of Fannie Mae and Freddie Mac in guaranteeing mortgages in the first quarter of this year, giving direct government support to most of the home lending occurring in the US.  It’s a market on life support, analysts conclude (via the Daily Caller):

Loans guaranteed by the Federal Housing Administration, the U.S.-owned mortgage insurer, may be involved in more home-purchase transactions than borrowing financed by Fannie Mae and Freddie Mac.

FHA lending last quarter may have topped the combined volume of government-supported Fannie Mae and Freddie Mac in a home-lending market that’s still a “government-financed market,” David Stevens, the agency’s head, said today at a conference in New York, citing research by consultant Potomac Partners.

“This is a market purely on life support, sustained by the federal government,” he said at the Mortgage Bankers Association conference. “Having FHA do this much volume is a sign of a very sick system.”

The FHA, which backs loans with down payments as low as 3.5 percent, insured $52.5 billion of home-purchase mortgages in the first quarter, compared with $46 billion of purchases of the debt by Fannie Mae and Freddie Mac, according to data compiled by Washington-based Potomac Partners.

What could go wrong?  Seven months ago, Edward Pinto — who ran Fannie Mae in the late 1980s — warned that FHA would be the next bailout:

A former Fannie Mae executive warned a House panel Thursday that the Federal Housing Administration is destined for a multibillion-dollar taxpayer bailout in 24 to 36 months, an analysis that the agency’s top official immediately dismissed as “completely unfounded.”

At a hearing before a House Financial Services panel, Edward J. Pinto predicted that the FHA will suffer $40 billion in losses, leaving it unable to cover its bad loans without taxpayer help. Pinto, a real estate finance consultant who served as Fannie Mae’s chief credit officer from 1987 to 1989, said he testified so lawmakers would “not be able to say that no one told them of the magnitude of the impending losses.” …

In his testimony, Pinto called the audit’s underlying assumptions “overly optimistic.” The FHA’s escalating default rate, its rapidly eroding reserves, and a recent dramatic increase in the amount of money people can borrow on FHA loans will have disastrous consequences, he warned the panel. FHA loans are especially vulnerable because they require only a 3.5 percent down payment — well below the 10 to 20 percent private lenders demand.

Pinto compared the FHA loans with Fannie Mae’s book of loans in 2006, which he said have similar characteristics, and he applied the default rate on the Fannie loans to the FHA mortgages. By that measure, the FHA was short $40 billion on its main financing account as of Sept. 30, in effect stripping the reserve account of its required funding and leaving it $14 billion in the hole, he said. The FHA, based on its history, will not be able to modify enough loans to thwart the losses.

The Obama administration is using FHA in the same manner Democrats used Fannie and Freddie from the late 1990s to the crash of 2008.  Obama needs cheap lending to continue and especially wants to encourage lower-income entry into the housing markets.  In order to do that, the White House has pushed FHA to broaden lending in exactly the same manner as Fannie and Freddie, right down to the mortgage-backed securities that triggered the 2008 panic in financial markets that threatened to destroy the Western banking system.

History is repeating itself at FHA, all to postpone a rational revaluation of the housing market.  We’re extending the pain rather than eliminating it, and we’re positioning ourselves for a completely unnecessary second collapse in the process.