AMERICA'S INSOLUBLE HOUSING CRISIS WON'T EASE UNTIL AT LEAST THE NEXT
DECADE!

SO, GO AHEAD, YOU DUMB'UNS, DENY OBAMA ANOTHER FOUR YEARS!

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"Americans assume that all problems have 'fixes.'

"But some don’t.

"History suggests that it will be hard to overcome the housing bust’s
powerful undertow."


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"Housing woes won’t yield to quick fix"

Op-Ed
By Robert J. Samuelson
November 13, 2011




WE AMERICANS THINK of ourselves as problem-solvers, but the housing
collapse has so far eluded all solutions. Perhaps 10 million homes
have gone into foreclosure since 2006; millions more will follow. From
their peaks during the real-estate bubble, home prices are down 30
percent, new housing construction has dropped 75 percent and existing
home sales are off almost 30 percent. Housing’s collapse is one reason
the economic recovery is so weak. Construction remains depressed, as
are the appliance and furniture sales spurred by home buying.

It may be that patience is the only cure. Home prices have to find
bottom; only then will more buyers return. Almost all efforts to
accelerate that process by stemming foreclosures have come up short of
promises. The Obama administration originally hoped that its Home
Affordable Modification Program — lowering some homeowners’ monthly
mortgage payments — would help up to 4 million borrowers; at last
count, the number was 850,000.

Housing’s collapse is usually laid to too much unsold supply, which
depresses prices and construction. Normally, the inventory of unsold
homes equals about six months of actual sales, says economist Sam
Khater of the market research firm CoreLogic. Today’s inventory
exceeds 14 months. This includes homes already for sale and
CoreLogic’s estimate of “shadow inventory” — homes in foreclosure or
headed that way. Mortgage relief aims to help individual homeowners
and prevent more houses from being dumped onto the market.

The huge overhang must be worked off, it’s said. We shouldn’t make
matters worse. Fair enough. Unfortunately, the real problem is too
little demand. One reason is that the recession curtailed new
household formations — a key driver of demand. Young adults returned
to their parents’ homes and crowded into group houses. Immigration
slowed. Before 2008, household formation totaled 1 million or more
annually. Since then, it’s dropped to 400,000 to 700,000, says Dan
McCue of the Harvard Joint Center for Housing Studies.

A larger cause of weak demand is the bubble’s aftermath. Falling
prices keep people on the sidelines. Who wants to buy a $250,000 home
that may be worth $235,000 a year later? About 11 million homeowners
are already “underwater” with mortgages that exceed their house value,
CoreLogic estimates.

The scandalously lax lending standards of the bubble years have also
been tightened. Down payments have increased; loans made without
documentation of borrowers’ incomes are gone. But some economists
argue that lenders have overcorrected. “If [lending] standards just
went back to normal, we’d have 10 to 15 percent more sales,” says
Lawrence Yun of the National Association of Realtors. Interestingly,
Federal Reserve Chairman Ben Bernanke is in this camp, complaining
that the Fed’s low interest rates have been neutralized.

“One area where monetary policy has been blunted,” he said recently,
“has been the mortgage market, where very tight credit standards have
prevented many people from purchasing or refinancing their homes.”

Finally, plunging prices of existing homes mean new homes need to get
smaller and cheaper; otherwise, they’ll be unattractive. This is
slowly occurring. Since 2006, new homes have dropped about 5 percent
in size. “Disappearing are formal living and dining rooms, two-story
foyers and second staircases,” reports the Wall Street Journal.

Home prices have to stabilize before many potential buyers will
venture forth. Slowly subsiding mortgage delinquencies suggest the
worst might be past. But the big supply-demand imbalance indicates
another 5 percent to 10 percent price drop, says economist Patrick
Newport of IHS Global Insight.

Can anything be done? The Obama administration is considering
proposals to sell up to 200,000 foreclosed homes held by Fannie Mae
and Freddie Mac to private investors, who would commit to renting them
for a fixed period. This would achieve two goals, says Sarah Rosen
Wartell of the liberal Center for American Progress. First, it would
take properties off the market and help stabilize prices. Second, it
would provide rental housing for the growing number of people needing
it.

A more controversial idea is for lenders to reduce the principal of
mortgages now “underwater.” It’s argued that this would both cut
monthly payments and encourage people to stay in their homes — rather
than defaulting — because they’d have a stake. But who would be
covered? Lenders usually oppose principal reduction as inciting “moral
hazard.” Many borrowers capable of paying would maneuver to qualify
for the write-down.

Americans assume that all problems have “fixes.” But some don’t.
History suggests that it will be hard to overcome the housing bust’s
powerful undertow. Pent-up demand and attractive prices may be the
only cure. Economist Khater has studied regional housing collapses and
finds that it takes seven to nine years before prices regain previous
peaks. If anything, he says, today’s bust looks much worse.

http://www.washingtonpost.com/opinio...BJN_story.html