“I take a great deal of solace in recent numbers,” said Moody’s Chief Economist Mark Zandi. “The stability in nondistressed prices is encouraging and suggests an underlying stability in the overall housing market. If you can implement policies that reduce the share of distressed sales of the total market, housing should see a dramatic recovery quickly.”
Zandi says that there are three fundamental problems with the housing sector today:
1. Valuation: Housing values until recently were very high compared to incomes and respective rents, he explained. Housing prices are back to normal in relation to income, but still a bit high compared to rents.
2. Overbuilding: There’s been some debate about how much excess inventory actually exists. Zandi speculated that it could take a couple of years to work through that surplus, if there were no major changes in supply and demand.
3. Foreclosure: There are about 3.4 million first-mortgage loans in foreclosure right now, he said. “I do think we’re going to have more price declines, but I think the share [of distressed sales of the total market] will go down over the next year.”
Although these are significant problems, a mix of simple solutions should go a long way in alleviating those issues. First, government-sponsored enterprises Fannie Mae and Freddie Mac should make it easier to do refinancing and principal reductions, said Jared Bernstein, a former economic policy adviser to vice president Joe Biden and a speaker on that panel.
Second, the attorneys’ general suit against banks that improperly handled mortgage documentation must reach a resolution, Zandi said. Once that’s complete, the number of distressed sales will go up in the short run as foreclosures and REOs that were held up by the suit hit the market, but will decline long term.
Finally, credit needs to get back to normal, pre-boom and -bust levels. The loans being made right now are of “outstanding quality,” said panelist Brian Chappelle, a partner with Potomac Partners in Washington, D.C. He added that the average credit score of an FHA borrower today is 705. However, there aren’t enough qualified borrowers to absorb the current supply of properties.
“Our problems are not drastic,” he said. “We don’t need to do one big thing to fix all of this. We’ve gone a long way to right the wrongs in this industry. There’s just a few things we need to do around the edges. If you can implement policies that reduce the share of distressed sales of the total market, housing should see a dramatic recovery quickly.”
(Source: Brian Summerfield, REALTOR® Magazine)