Jan232015

Did Obama reverse 100 years of housing policy by saying nothing?

The US needs to rethink it’s policies toward home ownership and housing subsidies. Some are suggesting Obama’s silence signals a radical change.

Preserving_the_American_DreamEvery presidential administration of the last 100 years has promoted home ownership. The ideal of homeownership has become so sacrosanct that we never abandon this ideal even when the policies it spawns turn out disastrous. Instead, we clean retool our policies, pretend they weren’t a failure, and begin work on the next housing catastrophe. We have a long history of supporting home ownership.

When the 1920 census revealed a small dip in ownership rates since 1910, from 45.9 percent to 45.6 percent of all households, Herbert Hoover, as secretary of commerce, initiated the first major Washington campaign to boost homeownership. According to Hoover, “Nothing is worse than increased tenancy and landlordism” — except perhaps a massive housing bubble that destroys the collective wealth of America’s middle class and traps millions in their underwater homes.

Franklin Roosevelt formed the Federal Housing Administration to promote home ownership through extending credit with 30-year amortizing mortgages. It was the last reasonable innovation in home finance, and it boosted home ownership rates to about 64% where it remained for about 60 years.

Each administration since Roosevelt launched housing initiatives and contributed to the bloated bureaucracies that expound the virtue of home ownership without managing to increase the rate of home ownership in a sustained manner. We temporarily boosted home ownership from 1995 to 2005 under both Clinton and Bush, but the collapsing housing bubble wiped out those illusory gains and left us with the same home ownership rate we had under Roosevelt.

Perhaps it is time to rethink our obsession with home ownership.

death-of-home-ownership

The Quiet Shift in Housing Policy

Nela Richardson, January 21, 2015End-Of-The-American-Dream

It’s hard to discuss middle-class economics without more than a passing reference to the housing market. Housing has been the primary engine of wealth creation for the middle class since World War II and has underpinned middle class economic mobility. Yet, in last night’s State of the Union, housing policy took a back seat to other economic issues: the minimum wage, free access to community college and child care tax credits. …

…In recent months the Obama administration has announced lower down payment requirements and a decrease in FHA annual premiums, which will both help middle-class buyers. Rather than a significant change in policy, these announcements mark a return to underwriting protocol from before the crisis.

(See: Mortgage standards of 1990s were normal and prudent, and Lowering FHA insurance fees will spur the housing market)americandream

Freddie and Fannie’s chief regulator has proposed keeping the 2015-2017 goals for low-income households at a much more modest 23 percent.

What has been permanently altered, however, is the White House practice of escalating affordable housing goals for Fannie and Freddie to increase middle-class homeownership.

Does the fact that Mel Watt didn’t try to increase the GSE share of low-income loans really a sign of a permanent shift in housing policy?

It’s more likely a reflection of the current political environment where proposing to increase subsidies low-income and subprime borrowers would set off a political firestorm, particularly with a Republican Congress.

I think Ms. Richardson jumped the shark. This is not evidence of any permanent shift in housing policy, but rather a patient waiting for the political winds to blow the other direction. Wouldn’t a seismic shift in housing policy, a dramatic change to an ideal embraced by every presidential administration of the last 100 years, wouldn’t that change at least be accompanied by a speech or a public statement?Norman_Rockwell_mortgaged_children

In a speech packed with policy aimed at middle class economics, homeownership received barely a mention — and that is the true legacy of the financial crisis.

For almost 20 years we’ve had housing policy in which affordable access to homeownership through purchase goals for Fannie and Freddie was a central tenant of middle-class economics.

Last night we heard a quiet, and perhaps permanent, shift in that approach. Homeownership used to be the means by which middle class economic security was obtained; from now on it will be the ends by which that economic security is measured.

Does anyone have any idea WTF she is talking about? Does anyone else read this into the President’s silence?

For as much as I would like to believe America would seek to find a more balanced policy toward home ownership and renting, nothing in the President’s silence even implies any change occurred.

Perhaps there were other reasons Obama didn’t mention housing….

Economist Breaks Down Why Obama Omitted Housing Policy From State of the Union Address

Author: Brian Honea January 21, 2015HELOC_needed

So with all the administration’s talk and actions surrounding housing policy in the last year, why was the topic noticeably absent from the State of the Union Address?

Trulia chief economist Jed Kolko suggested three reasons why housing policy was omitted from the address: the urgency has faded; the most pressing housing challenges are local, not national; and the best housing policy is economic policy.

  • The urgency has faded. In Trulia’s latest housing barometer released last week, home sales, home prices, and delinquencies were measured at more than three-quarters of the way “back to normal” (i.e. pre-recession levels). The GSEs and the FHA are enjoying profitability again and the excesses of the housing bubble (overbuilding and loose lending) have been corrected, according to Kolko. “And, with the homeownership rate near two-thirds, most of the middle class are homeowners who care about their home values, which areup year-over-year in 97 of the 100 largest metros,” Kolko wrote.

In my opinion, this is the most likely reason Obama said little about housing. The political crisis is past, and there is little to be gained by announcing an initiative now. Plus, with a hostile Congress, Obama isn’t going to get anything done over the next two years anyway.4.2.7

  • The most pressing housing challenges are local, not national: Kolko asserts that the challenges facing today’s housing market such as foreclosures and affordability are “ultimately local.” The states with the highest foreclosure rates are generally judicial foreclosure states (such as Florida and New Jersey), meaning the process has to go through the courts to be completed and therefore takes much longer. Affordability has returned to near pre-crisis levels in many major metros in New York and California, according to Trulia. “An essential solution to high housing costs – building more – depends on local rules and regulations, not national policy,” Kolko wrote.

This is also true. There is no grand federal policy that will benefit housing right now — other than perhaps to reduce the subsidies already in place.

The federal government can’t force local officials in California to approve more housing construction, and the federal government can’t force the judicial foreclosure states to process foreclosures any faster.too_little

  • The best housing policy is economic policy. Many analysts and economists, including Kolko, believe that full housing recovery depends on millennials (the 25- to 34-year-old age group) finding good jobs and moving out of their parents’ houses. It also depends on income growth that will allow first-time buyers to save enough for a down payment, which is the top obstacle to homeownership. … “The housing market depends most on the economic recovery – and economic policy was a centerpiece of tonight’s speech,” Kolko wrote.

He is right again. I’ve said on many, many occasions what the housing market needs is more jobs and higher wages; until those features manifest, housing will go nowhere.

no-jobs


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