housing

Yale Professor Robert J. Shiller spoke to the National Economists Club at lunch today in Washington, D.C. He expressed concern of slow growth until the next recession, his definition of a double-dip. His 20-city Case-Shiller real home price index declined 35% from its 2006 peak until early 2009, when Fed mortgage backed securities purchases and the homebuyer tax credit pushed it back up just over half as much, but he expects further housing price declines with the expiration of those government interventions on March 31 and April 30 respectively. 

That's the headline on David Kocieniewski's article on the front page of the business section of this morning's New York Times. Successful is defined as giving $12.6 billion to 1.8 million taxpayers who have enough income and a high enough credit score in this economy to buy a house.  Most of them would have bought that house without the credit, but its very difficult to prove because we'll never know how many homes would have been purchased if the credit had not been enacted.  We do know that the Treasury Inspector General chided the IRS last September for allowing many taxpayers to claim the credit without having to prove they purchased a home.  We also know that housing prices have stabilized in many markets where the credit seems to have been used by many purchasers, and we'll soon find out whether those prices start sliding again when the credit expires at midnight Friday, April 30.

That's what Laurie Goodman told the National Economists Club today in D.C. 7.2 million are already in the delinquency pipeline, and 250,000 are going delinquent each month bringing the total to 12 million. "Once you're 60 days delinquent, a foreclosure is highly probable," she said. Goodman is a Senior Managing Director of Amherst Securities and is widely recognized as the best housing finance economist on Wall Street.

Felix Salmon posts the latest idea in alleviating the burden of foreclosures through options for current owners to become renters:

What happens when you cross right-to-rent with mortgage principal reductions, and turn the whole thing into an entirely voluntary private-sector program with no government involvement whatsoever? It might look a little bit like American Homeowner Preservation, a for-profit company which has a very interesting idea for keeping people in their homes.

 Doug Duncan told the National Economists Club at lunch today in D.C. that "We're not there yet [on stabilizing the housing market]." "So many things are going on that it's hard to sort out the effects." The most important driver of the housing market is private sector payroll. With the unemployment rate stuck above 10% for most of the rest of this year, the housing market turnaround will await stronger jobs growth.

When you have bad news to announce in Washington, do it just before a holiday. Christmas Eve, the Treasury Department announced it would lift the present law $200 b. limits on the “Preferred Stock Purchase Agreements” for Fannie Mae and Freddie Mac to make sure they will have positive net worth over the next three years. Through the third quarter of 2009, Treasury had purchased $60 b. of Fannie preferred stock and $51 b. of Freddie’s, but, as the holidays approached, market participants were concerned that $200 b. might not be sufficient to keep each afloat. Since Fannie and Freddie are the primary suppliers of mortgage market liquidity, they are a crucial support for economic recovery. Treasury was also faced with the expiration of its authority to lift the PSPA limits at the end of 2009, so it acted to reassure the markets.

It took two years, but Dean Baker's own to rent idea for how to mitigate the disruptive impact of widespread foreclosures is gaining some traction.  From the Wall Street Journal:

Fannie Mae will allow homeowners facing foreclosure to stay in their homes and rent them for as long as a year, as part of the government's latest effort to help troubled borrowers, while keeping more foreclosed properties from hitting the housing market.

The "Deed for Lease" Program lets borrowers who don't qualify for loan modifications transfer their property to Fannie Mae in exchange for a lease. Borrowers-turned-tenants will pay market rents, which in most cases are lower than the cost of mortgage payments, and might be offered extensions when their leases expire.

Felix Salmon has been a one-man lifeline for an idea called "Own to Rent" originally proposed by Dean Baker and which I happily co-signed in an op-ed in August 2007.  In a nutshell, the idea is to allow homeowners who would otherwise be foreclosed to stay in their homes as renters paying a fair market value.  The mortgage holder would own the property, but the value of the individual property probably would be lower due to the option granted to the former owner.  In this post, I consider how my thinking about the issue and the relevant context has changed in the past two years.

Today's New York Times details how the 1996 presidential election campaign created a capital gains tax cut for homeowners that came back to haunt us a decade later.  This is a rare glimpse of how some political necessity and a second best tax policy choice helped fuel the 2005 housing bubble.

One of today's headlines in The Washington Post is "Homeownership Mission Vulnerable After Rescue."  The worry is that with Fannie and Freddie in trouble, there will be less government support for affordable housing:

But the overarching question is about the future of the companies' founding purpose and long-standing mission to promote homeownership for lower-income families.

Regulators have made clear that they see Fannie Mae and Freddie Mac as essential to the health of the whole mortgage market, not just the lower end. James B. Lockhart III, director of the Federal Housing Finance Agency, barely mentioned affordable housing Sunday as he described an eight-point plan for the companies. Instead, he chose to underscore a broader mission: "the critical importance each company has in supporting the residential mortgage market in this country."