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Congress Must Address Housing Crisis, Economists Say
In a sobering presentation on how the housing slowdown is playing out across the country, Mark Zandi, chief economist for Moody’s Economy.com, said that home price declines will remain significant in the once super-heated markets of California, Arizona, Nevada and Florida, as well as parts of the Eastern seaboard that include the Washington, D.C. and Boston metropolitan areas.
“The only areas of price gain are in Texas, parts of the Southeast and the farm belt, which is benefiting from selling more corn oil for ethanol,” Zandi told the NAHB Spring Construction Forecast Conference in Washington on April 24.
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Zandi |
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Bernard Markstein, NAHB’s director of forecasting, offered a similar, though slightly more upbeat assessment, noting that quite a few housing markets are experiencing mild price declines and a few are actually posting modest gains.
Between the fourth quarter of this year and the fourth quarter of 2009, Markstein said, housing starts should be up by more than 10% in nearly every state, with the notable exceptions of Florida and Nevada, which will still be in the red. He added that the gains will come on top of notably low levels of residential construction in the final quarter of 2008.
Zandi expects housing to begin to rebound in the spring of 2009, and he said that “three-quarters of the nation’s housing market will have experienced a significant decline in price when all is said and done.”
The problem, he said, is that the market is awash in inventory, with 2.25 million homes vacant or for sale, which is 1 million above normal market conditions.
The situation could deteriorate even further, Zandi suggested, because stringent mortgage requirements continue to weigh heavily on demand and foreclosures have reached an all-time high of 2.2 million, adding more inventory to an already bloated marketplace.
“Tighter lending standards have acted as a drag on the housing market,” agreed Markstein. The foreclosure problem, he added, has been primarily centered in the subprime adjustable-rate mortgage market. Foreclosures among prime loans have been showing little upward change, he said, and the subprime fixed-rate loans in foreclosure are actually lower than in past years.
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Markstein | California, Nevada and Florida, which were at the epicenter of the overbuilding during the housing boom in 2003 to 2005, are among the states now experiencing the highest rates of foreclosures. The problem is also particularly pronounced in the Midwest, where the economy has been suffering from a weak manufacturing sector and ongoing layoffs in the auto industry.
Even more foreclosures are in the offing, Zandi said, although interest rate reductions by the Federal Reserve have helped to limit increases in monthly payments for the adjustable rate mortgages being reset this year.
“The issue now is negative equity,” he said. “The ‘underwater’ value of mortgage debt is worth more than the house price. I estimate that 8.8 million home owners are in zero or negative equity positions.”
Zandi said that a prolonged recession and additional home price declines beyond the 5% to 10% range would add challenges for the industry, perhaps delaying recovery even further than he expects. Also, he said that the annual pace of housing starts needs to slow to 900,000 units from 1 million currently.
“This is a crisis. Policymakers should be more aggressive going forward,” he said.
Zandi called for Congress and the Administration to act on a housing stimulus package containing a temporary tax credit to spur home sales and a voluntary mortgage write-down plan to help millions of home owners who need relief. Also needed is further action by the Treasury Department and Federal Reserve to inject liquidity into the securities market, he said.
“In times of crisis, we should use the triple-A credit of the U.S. government to help. If we don’t, this will be a prolonged housing downturn that runs through the end of the decade,” said Zandi.
Photos by Morris Semiatin
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