The Mortgage Bankers Association’s chief economist rejects the idea that today's home price recovery and improvements in housing are the result of artificial market lifts such as legislation and federal intervention.
Jay Brinkmann, who also serves as the MBA’s senior vice president of research and education, admits he has read reports claiming market manipulation is occurring, but he rejects this theory as a reason for recent boosts in housing activity.
For starters, foreclosures are concentrated, and local data shows individual metropolitan statistical areas have been in a recovery phase for a while, the economist asserts.
"More than half of the foreclosures are in five states," Brinkmann told HousingWire. When looking at the MSAs within individual states, "prices have been coming up for some time."
Brinkmann admits a large percentage of those homes are going to investors.
The good news is while investors may be driving up prices, possibly causing true homebuyers to become frustrated by quick appreciation, Brinkmann doesn’t see the speculative activity that took place right before the housing bubble.
Instead, he sees investors reading the market landscape, and the growth of rental demand is prompting them to invest in single-family real estate.
Many potential homebuyers have shifted to renters. In fact, the single-family rental product is now dominating the rental marketplace, Brinkmann said.
As for how long rentals will remain in high demand depends on credit access for homebuyers and the job market, Brinkmann suggested.
"We are better than we were," Brinkmann said on the jobs front. "But we haven’t seen robust job growth."
As for whether credit will be loosened in the near future, Brinkmann mentioned a few barriers stemming from new rules and concerns among lenders about staying in compliance with federal and state guidelines.
The most recent example is a HUD rule that denotes "disparate impact" as the standard that will be used to determine if a lender discriminated against a borrower.
For years that legal standard was "different treatment of the borrower," not disparate impact, according to Brickmann.
"It may not ultimately survive judicial scrutiny," he said, but it still puts the industry "between a rock and a hard place and conflicting imperatives from Washington D.C."
Brinkmann was one of the few economists who early on tied the housing crisis to the nation’s struggle in creating jobs.
While the Fed’s purchase of mortgage-backed securities and accommodative policies are intended to help with employment, Brinkmann suggests the connection between the two is perhaps “tenuous.”
"What promotes job creation is entrepreneurship … pro-growth tax policies and a reasonable approach to capital gains," he said.
As for whether an elimination of the mortgage interest tax deduction will be part of Congress’ plans to cut the deficit, Brinkmann is unsure at this point.
But he notes, cutting the deduction would impact a portion of the tax base that the president has already committed to shielding from further economic strife or steep tax adjustments.
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