The U.S. Housing Market
http://thedianerehmshow.org/shows/2011-10-24/us-housing-market
Later today President Obama is scheduled to announce an expansion of an existing program aimed at helping struggling homeowners. The new federal rules will allow more homeowners current with their mortgage payments to refinance at a lower rate. The U.S. housing market continues to struggle, and its recovery, many say, is tied to an uptick in the overall economy. Despite historically low mortgage rates, 3.5 million homes are in some stage of foreclosure, nearly 15 million homeowners owe more than their homes are worth, and existing home prices continue to fall. Please join us for a conversation about the road ahead for the U.S. housing market and the U.S. economy
Guests
Martin Feldstein
professor of economics, Harvard University,
chairman of the Council of Economic Advisers, 1982-1984 under President Ronald Reagan.
Kathleen Day
spokeswoman, Center for Responsible Lending; ethics teacher at Georgetown University’s graduate program in real estate studies.
Dean Baker
co-director of the Center for Economic and Policy Research and author of a new book, "The End of Loser Liberalism: Making Markets Progressive."
Mark Zandi
chief economist of Moody's Analytics and author of "Financial Shock" and the forthcoming book, "Paying the Price."
Comments
Please familiarize yourself with our Code of Conduct and Terms of Use before posting your comments.
"What To Do About the Housing Market"
NOTHING! the most beautiful word the government never uses and the word that describes what government should do most of the time.
For a change can we let the market repair itself, this constant federal government interventionism can no longer be tolerated if we ever hope to get our fiscal house in order.
The sooner we let things seek there natural course the sooner we can recover.
The failure of an existing homeowner is an opportunity for the next the next homeowner.
I own three properties, 1 home, 1 vacation cabin, and 1 plot of unused land(thinking about renting out to farmers, or growing trees for paper or lumber(poplar or Pine respectively) my wife and I choose to buy only when prices and interest rates were advantagous. We have also purchased properties that we could afford and fit our needs not our egos. Why should I have to fund those persons that have made unwise purchasing decisions. Or should I take this as incentive to buy a mansion and get everyones tax dollars to pay for it instead of me, the one who made the commitment. I hope I didn't miss the boat, I could enjoy a giant home with all the requisite toys. Also would like a luxury or sports car let me know when I should expect a government bailout for those so I can have one. Heres the plan go out and out buy for your financial circumstances, then put hand out and decry the banks as giving me a loan, "It's their fault, they made it sound good, so I didn't perform my own due diligence".
Before a 'fix' is put in place, some unfinished 'business' is in order, that both Occupy Wall St. and the Tea Party could agree on. Yes, consumers were foolish to bid-up prices on homes to frenzied levels, but few paid cash. Largely, flippers/investors/buyers relied on loans from 'professional' bankers. Those bankers broke every rule of prudent lending practice; no documentation loans, no money down loans, interest only loans and loans to buyers who could not possibly afford homes they were purchasing. Yet, nearly all of the CEO's who presided over the disaster are STILL at the helm- still making staggering salaries and bonuses for performance which can only be called incompetent.
Serious people can, and should, debate the prudence of bailing out financial institutions (or any corporation) who risk someone else's money (shareholders/ depositers, and now taxpayers) to chase what upper management had to know was a house of cards (because I knew it and I am NOT a genius). If they DID know, managers should have been fired for negligence. If they DIDN'T know, managers should have been fired for stupidity.
As a citizen and taxpayer, I am outraged! Keeping upper management of failed banks intact is lunacy.
Eric,
You are correct about the banks being responsible for their own financial decisions. But shouldn't people also take responsibility for their decisions, if a good sales person talks you into a car you can't afford is it that persons fault that you made an emotional decision, or is it yours for not realizing the limits of your income. Now in the above described circumstance, where I contend you are responsible for your decisions, if you are unable to pay for this car then the bank/dealer is also responsible for having entered into a poorly vetted contract. My point being that if you buy a home you can't afford, even if you were talked into by anyone anywhere, you still have the free thought and chose to do it, you get no sympathy from me. I also have no sympathy for the bank that financed you. The only difference is, unfortunately, that from a US economic health perspective. A large bank going under would have huge negative effects. Any particular individual going broke has so negliable an impact(on the overall economy) as to be unquantifiable. So although I do not agree with bailing out the banks, if you are going to bailout some entity, then it should be done in a way that has the most positive impact. As for the CEOs and upper management, pull your money out and place it in a community bank or Credit Union, both by an large were conservative enough not to get involved in these risky propositions. The CEOs are hired and fired by the board of directors not by the government.
The big banks were very involved in creating the mess we are in now. They loaned money to people they knew couldn't afford loans, on houses they knew were overvalued all in the name of profit. Now that we have bailed them out, they should be required to allow struggling families to refinance at more reasonable rates at the same prices they would sell these homes at today. Letting these homes sit idle for months and years makes no sense if they are going to later resell them at a lower price and a lower rate anyway. What are they waiting for!
Will any consideration be given to small investors or homeowners who were forced to rent out their properties that have gone "under water"? There is a large pool of properties here that could also flood the market as foreclosures.
To Kathleen,
Modifying principle is ABSURD. Why would anyone continue paying their mortgage if your neighbor gets a bailout. NO MORE bailouts. Meet your obligations or suffer the consequences- no other solution is ethical.
We Need Help!
1) Bought my house as a single mom and lived there for years.
2) Remarried and could not and cannot sell my house b/c it is underwater.
3) Have continued to pay my loan and renting the house to do so.
4) FRUSTRATION - This is NOT an investment property. I have been repeatedly told that I could not refinance b/c it is being rented. Also now I cannot simply b/c its value at the current time is under! I continue to work to pay the difference on the rent and the mortage.
I will still own the LOAN!! But why am I not free to refinance and take advantage of these historically low interest rates which would help me tremendously financially.
A good citizen is being penalized and those who default are being rewarded!!!!!
Thank you.
Thank you for bringing such important issues to the forefront.
Beth
I think it was a lack of government intervention, by way of lax regulations that allowed predatory lending. Capitalism is like driving in traffic, people expect others to drive like jerks. If we all anticipated that everyone is trying rip us off, the way they do business on Wall Street, we'd be a little safer financially. Unfortunately, the smartest guys in the room can create complex derivitive schemes, designed to, first and foremost (and only) make money. They know there will be collateral damage, usually the poor, undereducated and they know they can skew the media to make the poor and undereducated look like the bad guys. The poor and undereducated are the ones the government intercedes on behalf of. And before you blame them for being poor and undereducated, visit a public school in any major metropolitan area. Seriously, spend the whole day in an inner city school. You'll walk away thinking "Somebody has to do something about this!" Of course, who gets blamed for being unable to learn in such an environment? Who, according to Cain, could be millionaires if they wanted to? I'll bet there are third world countries that have better supplied schools than we have in our urban areas.
But I suspect, rather than go and visit a school and see for yourself, you'll enact that "most beautiful word" and do nothing.
my family built a modest home, with payments we could afford. However my family has taken a huge income hit and although we can still make our payments it takes a larger % of our take home pay.
We are unable to refinance to a lower interest rate because:
Our home has decreased so much in value we owe about what it's worth
My partners credit score is in the upper600's due to being unemployed more of the past 7 years although he has had a job for the past 2.5 years it pays much less than the previous job.
I am self employed and even tho my credit score is upper 700's, being self employed is a big red mark.
Our mortgage holder (one of those "to big to fail" banks) will refi if we come to the table with $5000 in closing costs. With 2 kids in college, I just don't have that kind of money.
I read Dr. Feldsteins editorial in today's Wall Street Journal. In my opinion, he cherry picked the data to reach his conclusions.
Martin,
Yes, falling home prices are NOT good for the economy. But I for one, have been patiently waiting for this bubble to burst and am interested in buying 5 homes in my area to rent-out as a way to prudently deploy my savings to produce income in my retirement. CD's aren't paying enough to cover my banks account fees, stocks are 'managed' by the same caliber of professional as the bank CEO's and bonds are likely to receive 'haircuts' by imprudent borrowers. Does anyone still believe in capitalism?
Jobs !1! Jobs!!! Jobs!!!!! This will fix housing
We should take our medicine now as the ONLY lesson that will keep this economy from so recklessly indulging in "Bubble" economic behavior.
I think the current Making Homes Affordable Act is useless, its for those who just don't want to be underwater in their current home. It in no way helps those that lost their job. I realize we all have different situations but not everyone that is asking for assistance made a bad financial decision and took on more than they could handle.
I had a great job that I had for years, bought a very reasonably priced starter condo at a decent fixed rate (for 2006) and two years later my company (the largest employer in the county) went bankrupt. 40% of their employees lost their jobs. I had to move 5 hrs away for a new job. This is the case for most all of my 30-something friends that have career-track jobs.
My house is now considered an "investment property" because it isn't my primary residence so I qualify for nothing! My house is worth half of what I owe, and my salary is 20% less than it was in 2006. My lender jerked me around for 4 months on an "in house adjustment" and lowered the payment $10/month. I have tried to sell it, I've tried to rent it ... and nothing!
I have not bought another house, I now live with a roommate in order to keep this property from being foreclosed on. The only assistance I've been given by the MHA counselors is that they advised me to short sale.
The reason that i believe that the economy is in trouble is because we spend half of our check trying to pay our mortgage.. its take us almost 30 years of our lives to pay for a place to call our own. The system is set up to keep us in debt and if we try to refinance the interest starts all over. And if they take away tax break we get from our homes i believe it will make it worse.
Diane,
Great show! But i have to say i get really get frustrated hearing many of these issues over and over. Every time i meet with a Seller to review their value they are under water and can't seem to even begin to market their home for sale - i have been doing real estate for the past 7 years - this is a struggle for homesellers and homebuyers - the banks, the promises from government - and the timing it takes for all of these new systems to be implemented and corrected are untimely. I would be interested in hearing a show hosting full time Professional Realtors so we can discuss the pitfalls of our position throughout these economic housing crisis with regard to our Sellers and Buyers.
Thank you.
Karen at Prudential Carruthers
Absolutely, let the market handle this...as it is now. These houses are not worth what people paid for them. Let the folks who took ridiculous risk deal with the consequences. Many people did NOT take those risks. We bought within our means, did not borrow against our homes just because a bank would let us, and we should not bail out the homeowner side of those silly purchases. We should not have bailed out the banker side either. See how the banks are now playing hardball with the homeowners. The best chance for a fairly negotiated solution was when their fates were shared.
We are in the same situation as "We need help" My husband and I moved 5 years ago because of employement. We are unable to sell our old house in SW florida because it is underwater and now rent one in North Florida. We are stuck because we can not modify because we do not live there, bank will not refinance because we owe more than it is worth, what are we to do? There are many of us in this situation. We will never be able to retire.
I am in the same situation (see above). I guess when I lost my job I was expected to commute 5 hrs to a new job. It is so frustrating to deal with the lenders and these useless federal programs.
Until there are jobs this can not be fixed. That is the problem where my house is, the economy depended on tourism and there are no other jobs there so no homes will sell or even rent.
Banks helped to get us into this problem and now they are keeping us in it. As the wife of a small builder, it's hard to accept the value that banks say our homes are worth. People have asked if we would build a home for them because they can get lots for a fraction of what they sold for before the crash, but I tell them no because the banks won't value a new home at the cost of the materials - much less labor or heaven forbid a meager profit. There will be no small home builders left if this continues. I think that the realtors and banks are both happy where prices are now - the banks have no risk when they value a home at 1/2 what it costs to replace and realtors have an easier time selling people homes that they could never have afforded if prices were fair to both buyer & seller. The public in general has gotten very greedy when it comes to home value. How long will we let them appraise our homes at the price that the last foreclosure or short sale sold for. They want to bring down all homes to the level of forclosures that may need tens of thousands or more to repair to make livable. The greedy investors that drove up home prices with their flipping are now keeping them low so they can buy these same homes and rent them to the people that used to be owners.
If we forgive these buyers loans that they couldn't afford, perhaps we should also give them an obligation. When they eventually sell the home, they should have to repay what was forgiven on their loan.
People should take responsibility for their decisions, but that argument goes out the window in the case of fraud. Most first time home buyers do NOT know what level of income they should expect to pay on a mortgage. They do NOT know what is a reasonable expectation for house price appreciation. They probably do NOT know what is a reasonable forecast of their own incomes.
Banks DO know these things. It is their job to know these things. When someone goes to a bank to get pre-qualified for a loan, they are asking a professional "how much can I afford?" When that professional takes advantage of the consumers lack of knowledge and responds with a number that is well higher than professional standards would dictate, that is FRAUD.
Victims of that fraud should be able to adjust their principle to the amount that an ethical and competent bank WOULD have pre-qualified them for. The current loan holder should be able to recover that loss from the originating bank.
i pay all my bills and my mortgage but my home has been devalued by about 15000 dollars. I called my bank to see about a refinance when i saw an ad on the website about a government plan to help people like me . I called the bank and they offered me a refinance at 4.5 percent from my current 5.8 percent and they want over 3000 dollars in refinance fees, they will roll back in the loan since i dont have the closing costs. This does nothing to help me it only makes me even deeper underwater . The banks are only trying to make more money off people who think they can trust the bank to help them if the government is going to help the bank help you.
Banks are keeping housing prices down by their now overstringent requirements. We bought a home earlier in the year, but our initial loan was rejected because the appraisal came back less than 5% lower than the agreed upon rate. My mother's home sale just fell through because the appraisal came back 4% low. She wouldn't go lower, and the buyer couldn't come up with the difference. If two parties agree on a price, and the bank confirms that the price is very close to their appraisal, they should allow the loan to go through. They are killing sales and growth.
Why is moral hazard such a concern when little people are involved. It wasn't a problem when we bailed out the banks. When a home is underwater, the bank should have to forgive some of the principle. This won't cost taxpayers money. Shareholders will lose but the bank management was negligent and that's just too bad.
Modifying the mortgage princple and even reducing interest rates, still does not address the problem that many people would still be living in houses that they cannot afford - as said earlier, they bought not for their needs but rather their ego. It isn't just the mortgage, but utilities, furniture, upkeep, heating, yard upkeep, and on. And here I am assuming that the owner(s) have employment.
I could not have said it better myself. I can't beleive Diane's guests are so ready to give my tax money to someone else who made a foolish decision on buying a home they could not afford. I am fairly certain the people on her show were also against the bank bailouts. Tough to understand how they now are so ready to bailout homeowners who also took the same ridiculous risks that the bankers took.
We are becoming a society of "no risk" where we beleive government is supposed to protect its citizenry and businesses from their own bad decisions. This cannot happen. Those of us who played by the rules - live within our means, save for the future, guard our credit scores, and accept consequences of our own decisions, are sick and tired of these bailouts - ALL OF THE BAILOUTS.
As to the argument about allowing bankruptcy judges the right to adjust principal balances - to heck with that. This is will cost us all by higher interest rates.
Diane in the spirit of transparency, how much do the authors you interview pay you/your show to be on your radio show?
It is apparent to me that interviewers like you, can sway the debate on any subject by choosing authors that meet the interviewers point of view. I have yet to find show hosts asking the hard questions. They usually soft pedal their questions so as to not upset the interviewed authors.
Just saying.
How is the homeowner at fault if their house loses so much value that it is upside down? Also, the major cause of default is loss of job and illness.
For the last 2.5 years it has amazed me when people discuss the housing market and mortgages and never mention Chinese Drywall. It is estimated that there are between 60,000 and 100,000 Chinese Drywall homes in this country. Chinese Drywall is a product that puts off toxic gases destroying the home, health and finances of American families. Many of the families, in order to be able to move their families into a safe living environment, were forced into foreclosure, bankruptcy or short sale. Now these homes are back on the market and back in the hands of Fannie, Freddie and many other banks who are in turn trying to sell these toxic homes to other unsuspecting American families. As families that still own their toxic, unlivable homes see that there is less and less chance for legal coverage on this toxic disaster they will have no other choice but to continue to dump these homes back into our already devastated housing market. In most states it has already been ruled that insurance has exclusions in their policies and they do not have to cover this disaster. All that is left is suing the Chinese manufacturers and they have refused service. When will this disaster be acknowledge and when will it's ongoing and ever spreading impact on these individual families and our American economy be discussed?
www.victimschinesedrywall.com