Federal Reserve Governor Elizabeth Duke gave a lengthy speech today regarding the still-ailing housing market, and put forth a handful of solutions worthy of consideration.
Anyone looking for clues as to future policy possibilities should read the entire statement (which is available at The Fed website.)
But I read this sort of thing so you don’t have to – here’s a few key points made by Duke:
- Regardless of how we got here, we, as a nation, currently have a housing market that is so severely out of balance that it is hampering our economic recovery.
- Lack of sufficient numbers of buyers and sellers may limit price discovery, which heightens uncertainty about the “right” price for a given piece of real estate and further limits activity. In addition, the large number of foreclosures and a protracted foreclosure process have led to an unprecedented level of bank-owned homes, a level that is likely to persist for some time.
- Removal of barriers to refinancing would boost the impetus to recovery provided by lower long-term interest rates. Thus, finding different approaches to the policies that are hindering refinancing would likely provide some support to the economic recovery while improving the circumstances of homeowners and reducing the overall level of credit risk borne by the various holders of the risk.
- Weak demand in the owner-occupied housing market and the relatively high demand in the rental housing market suggest that transitioning some REO properties to rental housing might benefit both markets.
In a nutshell, she’s doing two things here:
Advocating expanding refinance initiatives to give creditworthy homeowners a better shot at reducing their interest rates (and payments) to current market levels, which will both stimulate the economy, and avoid some foreclosures.
Ackowledging that there have to be better methods to deal with foreclosed homes, that many are worth more as income generating rental property than “for sale.” To attack this she suggests a multifaceted response involving converting REO’s (bank owned homes) to responsibly mananged rentals in large, geopgraphically concentated chunks, and the use of land-bank or similar entities to purchase and curate severely distressed and devalued properties that are worth less than it would cost to repair, yet threaten to blight the communities in which they are located.
Both of which are good ideas, and should find implemantation in some form, for sure, but know this:
No amount of policy wonkery targeted at housing will fix the market outright.
Think of it this way: If we could wave a magic wand, and “fix” housing tomorrow, there is still a huge unemployment problem, and our economy is barely above stall speed. That is not a recipe for long term health in ANY market, housing or otherwise.
The only sure path to a better housing market? Create more potential and successful homeowners by putting the 15 million+ discouraged and un/under-employed back to work.