Where do they stand? Obama vs. Romney on housing policy

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.