WASHINGTON — After six straight years of bad news, a panel of economists offered a more upbeat picture of the U.S. housing market during congressional testimony Thursday.
Nationally, home sales and housing construction have started to rebound, and while housing prices remain weak, they also appear close to a turn-around, according to Mark Zandi, chief economist at Moody's Analytics.
"The key to house prices is the change in the share of home sales that are distressed," Zandi told the Senate Banking Committee. "We just need to get another half million, million homeowners on solid footing, get that share of homes sales that are in distress moving south and … we'll start making progress on house prices."
Christopher Mayer, a real estate professor at Columbia Business School, argued that house prices have actually fallen below their post-bubble equilibrium as a result of inefficiencies in the market for vacant properties.
"In many parts of the country, house prices are below construction cost of comparable homes," Mayer said. "What determines house prices is: is there somebody who can sort of buy that home and either provide a rental or someone else who's going to occupy the property? And that sort of transition … is a place that I think policy-makers can and should be focusing on."
A more downbeat assessment came from Phillip Swagel, a Treasury Department official during the Bush administration who is now a professor at the University of Maryland's School of Public Policy.
Swagel said that another huge wave of foreclosures is likely to occur in the next year or two, and that many of these foreclosures were delayed by government policies aimed at helping the housing market.
He argued that the Obama Administration's recent proposals to heal the housing sector — including a mass refinancing plan that would require congressional approval — may not be effective.
"It would be better instead for Congress to consider steps that would hasten the housing market adjustment, facilitate the return of private capital into housing finance, and bring the housing sector more quickly to the point at which home prices and construction activity lift off the bottom into recovery," Swagel said in written testimony.
The other two economists who testified gave more positive reviews to the Obama administration's proposals. Those proposals also include changes to the government's mortgage modification program and a plan to sell government-owned foreclosed properties in bulk to investors who promise to rent them.
Referring to the administration's plan to use the Federal Housing Administration to refinance more residential mortgages, Zandi said, "I think that's a slam-dunk idea in the context of record-low fixed mortgage rates."