Housing market turning a corner? Signs of hope for homeowners.
Rising home values and declining foreclosure rates indicate a slow but steady recovery for the US housing market. Obstacles remain, however, including negative equity due to 'underwater' mortgages.
(Page 3 of 3)
• Construction. Home building is starting to revive. Combined with the turn in home prices, which provides a wealth-effect boost to consumer spending, this means that housing is now contributing about 0.5 percentage points of growth to the economy this year. That estimate, from Moody's Analytics, contrasts with six straight years in which housing had a negative impact on gross domestic product.Skip to next paragraph
Amid the overall trends, conditions vary substantially from one locale to another – and even within different parts of a given metro area.
Rhode Island, the smallest state in land area, is notable for its higher-than-average unemployment rate – caused in part by the loss of manufacturing jobs and public-finance woes in cities such as Central Falls.
"The unemployment status in this state is staggering," says Franklin Daniel, a Providence-area housekeeper who says he's committed to renting rather than buying. "I don't expect the economy to get any better for the next two years."
In many ways, though, Rhode Island's experience has paralleled the nation's – with the rise and fall of home values looking like a parabola over the past decade.
With a housing recovery under way, but far from complete, should policymakers do more to promote a healthy market?
It's a question that's not getting much attention on the presidential campaign trail, perhaps because potential answers defy easy bullet-point enumeration. President Obama can point to modest success with programs designed to save troubled loans from foreclosure. In one set of programs, some 2.5 million home loans have been modified to reduce monthly payments, but a high share of the revised loans still go into default. Republican challenger Mitt Romney hasn't spelled out detailed alternative plans.
The nation's central bank, immersed in its own policy efforts to lift the economy, issued a report in January that amounted to a strong nudge for more actions by Congress and the White House.
While conceding that new steps wouldn't be easy or without costs, the Fed report enumerated a range of possible actions including: (1) reducing barriers to converting foreclosed properties to rental units; (2) giving loan-servicing firms greater incentives to seek foreclosure alternatives, which may be in the interest of both lenders and borrowers; and (3) avoiding foreclosure by means such as short sale deals, when a borrower default is unavoidable.
The Fed also said that the lending standards by banks may have become tighter than necessary. And it suggested that it might be in the nation's interest for the mortgage agencies Fannie Mae and Freddie Mac to offer loan modifications to more at-risk borrowers. This would be controversial – a trade-off of some near-term losses that would potentially fall on taxpayers in an effort to reduce foreclosures.
Perhaps the biggest thing elected officials can do for housing is to avoid bad policy that would impair economic growth. The "fiscal cliff" of expiring tax cuts at year end could tip the United States back into recession, many economists warn. Unless Congress takes steps to adjust current law, the resulting tax hikes would put a significant dent in consumer spending power – including for houses.