Recent media reports indicated that Ed DeMarco, the former head of the Federal Housing Finance Agency, roundly criticized moves by the current administration to boost credit availability while attending a private event. His comments mirrored concerns by many lawmakers that such policies could [will, in my opinion] further endanger the housing market – meaning that a new bubble may be forming – not as large as the last one, perhaps, but a bubble nonetheless. There are many other warning signs, as well.
One media report quoted DeMarco as saying that in the past year we have seen a renewed policy focus on questions regarding access to credit, which, in his view can risk repeating the approach that contributed to the financial crisis; the government’s vigorous concern about expanding access to credit.
DeMarco also made the case that Congress’s failure to pass meaningful housing finance reform legislation continues to pose a real threat to our country. He was also quoted as stating that, “The mortgage finance system has worked to promote housing debt rather than home ownership.” I couldn’t agree more.
The administration’s focus on HAMP, HAFA and other loan modification programs that only forestalled the inevitable for so many underwater homeowners, the GSEs competing for borrowers which might lead to unnecessary risk-taking, and the cutting of FHFA mortgage finance premiums to allow lower-down payment loans to be purchased by Freddie Mac and Fannie Mae, are among the policies in question.
But, also contributing to the growing risk to the housing sector and our economy is the pressure being put on mortgage lenders by government agencies to make low-down payment loans to low- and moderate-income individuals and families. It is a not-so-subtle comparison to the early 1990s when “red-lining” was a hot topic and the government pushed hard for mortgage lenders to make loans to people who might not be able to afford the homes they purchased. That pressure led directly to a massive number of mortgage defaults across the country.
Taxpayers should again be alarmed.
In addition to risky housing policies, a major factor that has kept us from experiencing a real, rather than illusory, housing recovery is the lack of meaningful job creation, the underemployment of millions in our country, and the still shrinking work force.
The headline unemployment rate of 5.5% which was reported for February by the U.S. Department of Labor Statistics on March 6th, is meaningless, as were the number of “reported” long-term unemployed of 2.7 million. With the underemployed and those able-bodied individuals who have stopped looking for a job altogether included, the real unemployment rate is somewhere above 10%, according to most economists. It is estimated that more than 10 million men between the ages of 25 and 64 are not employed and are making little if any effort to find a job. And that’s just men.
In fact, the civilian labor force participation rate, today at 62.8%, is among the lowest it has been since before World War II.
And, with so many formerly productive baby-boomers retiring daily, our economy is further at risk because there are fewer and fewer workers paying taxes to support Social Security, Medicare, Obamacare, and the other long laundry list of government-mandated entitlements. This will also put a major strain on the housing sector.
Since the so-called recovery began, the economy has averaged 2.3% GDP growth and created 183,000 jobs per month. In stark contrast, adjusting for a smaller economy in the 1980s, the recovery under President Reagan achieved twice that progress. Without meaningful job creation there is no hope of a real recovery for the housing sector.
As evidence of this, confidence among home builders has dropped again and housing starts were off by 17% month-over-month in February. While “weather” is a factor in the upper-mid-west and east of the country, housing starts were flat elsewhere.
While there does not appear to be “another” Ronald Reagan in our future, it would be wise to support national candidates who will reverse course with respect to housing policies and effective efforts to create meaningful jobs across the country.