After several years of false starts, there finally appear to
be more green shoots appearing in the nation’s housing market which indicate a
slow yet actual rebound. Sales of both
new and existing homes are on the mend, affordability is at generational highs,
and the dreaded tsunami of foreclosures expected to lower prices even further
have largely been bought up by investors to re-purpose as rental properties. Even better, according to Moody’s housing
analyst Celia Chen, homeowners will begin to favor newly built homes versus
distressed homes which are damaged.
Nonetheless, because the economy remains the top concern of
most voters in the 2012 Presidential election, how President Barack Obama and
the GOP’s presumptive nominee Mitt Romney influence housing policy is of
critical importance to homebuilders and homeowners alike. As a political Independent for well over a
decade, I may have no abiding loyalty towards either major party, but I do
certainly want what’s best for the industry and, by extension, the country.
According to the NAHB, the housing sector normally accounts
for 15% of the nation’s GDP, and is one of the few sectors which cannot be
out-sourced to other countries across the globe. Based on population growth and demographics,
the nation will have to build 17 million new residences just to keep up with
demand over the next decade, and yet for now the industry remains largely hamstrung
by deferred household formations, limited construction financing, and a flawed
appraisal system in which new homes erroneously get compared against deeply
discounted distressed and foreclosed units.
So can market forces alone help guide this all-important
sector of the U.S. economy to health, or will it continue to need more
help? The answer to that question
depends on whom you ask.
For Mitt Romney, while there is nothing on his campaign Web
site which specifically addresses housing, he seems to rely more on the private
market to sort things out. According to
Glenn Hubbard, an economic adviser to Romney, the domination of housing finance
by government entities such as the FHA, Freddie Mac and Fannie Mae is simply not
sustainable and must be phased out in favor of private lenders.
At a recent campaign event in Florida, Romney also
reportedly mused about getting rid of agencies such as the Department of
Housing and Urban Development (HUD) as part of his plans to simplify the
federal government. As for foreclosures,
he prefers to let the free market let prices hit ‘rock bottom’ as opposed to
government policies which would seek to make such declines more orderly.
President Obama, on the other hand, seems to believe that
continued intervention by the federal government – at least in the short to
medium run -- is essential to providing adequate mortgage capital and even to
help underwater borrowers refinance, with restrictions, to today’s historically
low rates. He probably doesn’t have much
choice: given that his previous attempts
to bolster the housing market haven’t worked at even close to the scale that is
necessary – with less than 20% of homeowners eligible for loan modifications --
if government intervention is to work at all, the policies must be more
aggressive.
More recently, Obama seems to have absorbed this criticism,
unveiling more than a half dozen plans to encourage refinancing, to reduce the
overhang of debts owed by underwater homeowners, and to expand existing aid
programs even to borrowers who were speculators or simply took on too much
debt. These latest moves seem as much
practical as they are political, since the previous obsession with refusing to
help those who made financial mistakes has really acted as a structural brake
on the economic rebound.
Schadenfreude may feel good to the
individual, but it does nothing to fix the housing market.
Since the Obama Administration has put the housing market
back on its front burner, I’d expect the Romney campaign to do the same. But given that the federal government
continues to guarantee or insure more than 90% of all home mortgage activity
through FHA, Fannie Mae and Freddie Mac, candidate Romney will have to offer
specifics on just what, when and how the private sector will successfully step
up to the plate.
Please click here to see the edition of BuilderBytes for 5/30/12 on the Web.
