Partners in Gloom
During the housing boom Robert Shiller, co-creator of the Case-Shiller Home Price Index, stood out (and endured taunting) for his pessimistic views on the market. Now he's in good company.
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Nearly 50% of economists surveyed expect a double-dip in housing prices this year and not one expert forecasts a recovery in housing prices to the pre-bubble trend in the coming five years.
The expectations from the survey, conducted in the first two weeks of March, are the most pessimistic MacroMarkets has collected so far, the firm said.
"Actual home prices at the national level are now less than 1% away from establishing a new post-crash low," said MacroMarkets, a Madison, N.J., financial technology company that was co-founder by Shiller, who is also the firm' chief economist.
"Persistently weak market fundamentals" such as "high unemployment, supply overhang, an unabated foreclosure crisis, and constrained mortgage credit" led the panel of housing experts to their pessimistic view, Shiller said in a press release. "Now they are expecting only a weak recovery, and even that is not until 2013."
Back in the heady days of 2005, a housing trade group
Another Blueprint
The 30-year fixed-rate mortgage would still be a viable product even in a largely privatized housing finance market, a
The paper, written by Ed Pinto, Peter Wallison and Alex Pollock — all well-known proponents of scaling back federal involvement in the mortgage industry — endorses the first of the three reform options laid out by the Treasury Department in its recent report to Congress: relegating the government's role to narrowly targeted programs like the Federal Housing Administration. But the AEI pundits dispute the Treasury's
"It is a myth that only a government guarantee can make a 30-year fixed-rate mortgage available," the report says. "On its face, this is not true, since anyone can go to the Internet and find lenders offering jumbo fixed-rate 30-year loans — which, by definition, have no government backing."
The authors acknowledge that without government backing, interest rates on the traditional prepayable 30-year fixed-rate mortgage would rise. But they argue that the product is hardly deserving of a taxpayer subsidy, since its slow amortization schedule means it can take years for borrowers to make a dent in paying down their obligations, and the "free" prepayment option encourages the extraction of equity through "serial refinancing."
For the AEI's trio of scholars, getting the government out of the housing finance market by doing away completely with Fannie Mae and Freddie Mac is the most critical reform.
"Whether one looks at this debacle as a failure of regulation or a failure of housing policy," states the paper, "it is undeniable that large parts of the U.S. housing finance system were guided and guaranteed by the government and that once again the taxpayers will pay the immense costs of government failure."
The U.S. housing market should function like those in other countries, which function without government support, according to the AEI researchers.
Only prime-quality mortgages should be allowed into the securitization system, they write; there should be regulations requiring that only prime loans be securitized and that loans with a loan-to-value greater than 60% should have mortgage insurance if they are to be securitized.
Nonprime loans could be held on bank balance sheets but there would have to be greater transparency.
While there is a place for the subprime borrower in the AEI's new world of housing finance, all programs that assist low-income families should live within their budgets and limit risk to the homeowner and the taxpayer.
Ready to Rebound?
Among the states, North Dakota will recover most quickly from the housing downturn, according to Tree.com Inc.'s LendingTree.
Economists at the lender and lead generator have created a "
Cameron Findlay, LendingTree's chief economist, looked at issues such as unemployment rates, front-end debt-to-income ratios, home ownership rates, and loan-to-value ratios to assess the health of each state and the District of Columbia. The jurisdictions were then assigned a ranking between 1 and 51, with the healthiest ones rated at 10 or above.
A grade of 51 indicates a state is on life support, Findlay said. Unsurprisingly, Nevada won that dubious distinction, followed by California (50), Florida (49) and Arizona (48). New York ranked a shaky 40. Other states with poor showings include Georgia, Kentucky, Louisiana and West Virginia.
New Hampshire, Maine, Minnesota and Iowa ranked in the top five.
Quotable …
"The pendulum has swung a little too far to the side of risk management over the last couple of years. It is important that we all focus on growth initiatives and risk-taking. Above-average creation of shareholder value requires significant risk-taking."
•"The aggressiveness of the sales team and in many cases inappropriate, rude and/or insulting behavior towards the underwriting staff is infectious and dangerous."
