The housing collapse has been the dominant economic story for more than five years, but we’ve heard very little about it during this year’s presidential campaigns.
The decline in real estate values and plunging new home construction are largely to blame for underwater homeowners facing foreclosure, investors going into bankruptcy, banks failing, tax collections eroding, unemployment roles increasing and Americans’ net worths declining.
We’ve sure seen all that fallout here in Savannah, and it would be good to hear a substantive, vigorous debate about recent federal housing policy.
The homebuyer tax credit was one of the signature moves under the Obama administration. While it might have been a boon to some homebuyers, it was bad policy for many reasons.
Locally we saw a surge in activity before the credit expired. That came with a false sense that both sales and prices had bottomed.
Even before the expiration, anyone looking closely at the numbers knew the tax credit was not part of a true solution. According to Zillow’s Home Value Index, Savannah metro prices fell another 15 percent after the homebuyer tax credit expired in summer 2010.
In other words, because of the tax credit, we ended up with even more homeowners underwater than we would have had.
The credit might have given banks some much-needed breathing room, but the ultimate effect was to drag out the bottoming process for a year or more.
That delay has also contributed to the slowdown in new construction. As I noted in this space on Sunday, construction remains one of our lagging sectors for local employment despite generally positive labor market trends.
There are certainly other federal policy moves that could have softened the blow from the housing bust.
We could have seen programs that mandating mortgage “cramdowns,” principal forgiveness and refinancing of privately backed notes.
We could have seen a much more aggressive implementation of refinancing programs for mortgages backed by the federal government.
Of course, all these efforts would have required a more activist federal approach. I’m not sure that would have been politically possible in the ultra-partisan climate of the past few years.
And that’s true for the economy generally, not just the housing bust. The policies that would have boosted the recovery the most would have required more federal action and spending, not less.
Over the long run, we might want to unwind some of the federal role in mortgage markets and in housing generally, but if we took such steps in the short run, we’d risk another housing-led recession.
City Talk appears every Sunday and Tuesday. Bill Dawers can be reached via billdawers@comcast.net and http://www.billdawers.com. Send mail to 10 E. 32nd St., Savannah, GA 31401.