In the end, we can’t dodge housing.
The U.S. recession and financial crisis of the late aughts began with housing and the scourge of subprime mortgages, which were so messily dispensed. It spread to Europe and its banks.
For a few years we tried to work around the paralyzed housing sector – the drip, drip of steadily lower home prices, the unresolved status of the wounded Fannie Mae and Freddie Mac — and it seemed to be working.
With the help of a super-easy Federal Reserve, fiscal stimulus and much else an admittedly weakish recovery took hold.
Now that worries mount about an ever more likely return to recession amid a significant equities markets decline, we are hearing again about housing.
There’s the foreclosure mess, the underwater mortgage mess, the tight mortgage lending standards and all the rest. There’s displaced construction workers. There’s consumers unwilling to spend as their perceived real estate wealth evaporates.
There’s housing, traditionally the leader out of recession, still generally in decline, and harder to ignore.
Just today, two well-known commentators on the U.S. economic scene weighed in on housing, and it wasn’t encouraging.
Warren Buffett, chairman of Berkshire Hathaway Inc., was generally upbeat about the economy. He cited record carloads at the company’s railroad, Burlington Northern, and same-store sales increases at Berkshire’s retail outlets.
But he was downbeat on housing. The company’s housing units are “as bad as they’ve ever been during this period.” The usually sunny Buffett said he likely would have to amend his view that housing would recover by year-end.
On Capitol Hill, Fed Chairman Ben Bernanke talked about housing as he urged Congress and the administration to in effect join the Fed in attempting to spur the economy.
He said Congress should develop a “future path” for housing, Dow Jones reported.
Given political realities, it’s hard to imagine much of a fiscal push, in housing or elsewhere.
But there are reasonable proposals offered from many corners that don’t spell stimulus in capital letters but would do some good.
As has been widely pointed out, the “Operation Twist’ effort by the Fed to drop long-term interest rates even below their historically meager levels won’t do much for housing if too many people won’t qualify for mortgages or can’t refinance because the value of their home has declined or they don’t have much equity.
That has to change. By regulatory fiat, where possible, more people who are current on their mortgage payments have to be able to refinance their mortgages to take advantage of rates near 4%.
That savings for many would go into additional spending, a stimulative measure, and would boost their economic psychology, which is important. Even if they used the savings to pay down their own debt it would do long-term good.
Someone also has to take a hard look at standards for initial mortgage qualification. Obviously, things became absurdly easy as the housing bubble inflated. But pendulums swing too far and experts should determine if there’s a middle ground that would allow more to qualify without excessive risk to lenders.
It’s time to stop trying to work around housing, and take it on.
By Neal Lipschutz, The Wall Street Journal