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2011-10-06 11:14:09
We Can’t Ignore Housing

We Can’t Ignore Housing
Anymore

By Neal Lipschutz

In
the end, we can’t dodge housing.

The
U.S. recession and financial crisis of the late aughts began with housing and
the scourge of subprime mortgages, which were so messily dispensed. It spread
to Europe and its banks.

For
a few years we tried to work around the paralyzed housing sector – the drip,
drip of steadily lower home prices, the unresolved status of the wounded Fannie Mae and Freddie Mac — and it seemed to be working.

With
the help of a super-easy Federal Reserve,
fiscal stimulus and much else an admittedly weakish recovery took hold.

Now
that worries mount about an ever more likely return to recession amid a
significant equities markets decline, we are hearing again about housing.

There’s
the foreclosure mess, the underwater mortgage mess, the tight mortgage lending
standards and all the rest. There’s displaced construction workers. There’s
consumers unwilling to spend as their perceived real estate wealth evaporates.

There’s
housing, traditionally the leader out of recession, still generally in decline,
and harder to ignore.

Just
today, two well-known commentators on the U.S. economic scene weighed in on
housing, and it wasn’t encouraging.

Warren Buffett,
chairman of Berkshire Hathaway
Inc., was generally upbeat about the economy. He cited record
carloads at the company’s railroad, Burlington Northern, and same-store sales
increases at Berkshire’s retail outlets.

But
he was downbeat on housing. The company’s housing units are “as bad as they’ve
ever been during this period.” The usually sunny Buffett said he likely would
have to amend his view that housing would recover by year-end.

On
Capitol Hill, Fed Chairman Ben Bernanke talked about housing as he urged Congress and the
administration to in effect join the Fed in attempting to spur the economy.

He
said Congress should develop a “future path” for housing, Dow Jones reported.

Given
political realities, it’s hard to imagine much of a fiscal push, in housing or
elsewhere.

But
there are reasonable proposals offered from many corners that don’t spell
stimulus in capital letters but would do some good.

As
has been widely pointed out, the “Operation Twist’ effort by the Fed to drop
long-term interest rates even below their historically meager levels won’t do
much for housing if too many people won’t qualify for mortgages or can’t
refinance because the value of their home has declined or they don’t have much
equity.

That
has to change. By regulatory fiat, where possible, more people who are current
on their mortgage payments have to be able to refinance their mortgages to take
advantage of rates near 4%.

That
savings for many would go into additional spending, a stimulative measure, and
would boost their economic psychology, which is important. Even if they used
the savings to pay down their own debt it would do long-term good.

Someone
also has to take a hard look at standards for initial mortgage qualification.
Obviously, things became absurdly easy as the housing bubble inflated. But
pendulums swing too far and experts should determine if there’s a middle ground
that would allow more to qualify without excessive risk to lenders.

It’s
time to stop trying to work around housing, and take it on.

 
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