Guest Commentary by Peter Fugiel, Ph.D.
Congress is now facing its third housing law in a year. But it’s time to consider a new U.S. housing paradigm that brings more state regulatory and local market elements into the system.
There is no doubt that the agencies of the federal government should help solve the immediate liquidity crisis brought on by the sub-prime and home mortgage mess. Time is of the essence when it comes to this kind of a capital market crisis. However, Congress is making an important distinction between the current capital market crisis and what it will take to begin to re-structure the mortgage-backed securities industry.
Although the U.S. housing industry can expect a new federal presence in the housing finance system, there is no need to expand the federal government’s presence any further into the housing markets. U.S. housing has always been characterized as a decentralized market system.
It is an industry that has always been substantially financed with private capital. If anything, it is time to recognize and to strengthen the inherent roles that state supervision and local production should play in the housing industry.
State Administrative Oversight:
No one would argue with the crucial role that the federal government will have to play in stabilizing the housing finance market. But if there is anything we have learned from the old housing system, it is that there was insufficient oversight of loan underwriting and loan origination. Proper oversight relies on the training, licensing and supervision of mortgage industry professionals.
State governments already regulate the licensing and training of various other professions. And even though it makes sense for the national government to continue to promote sound lending standards, the regulation of industry professionals properly belongs at the state level. It might be said that the new housing paradigm requires a blend of federal standards and state government oversight. We should never allow the innovations of the national government’s financing role to usurp the common sense oversight of an industry’s professional practices.
The Local Community Role in the Housing Industry:
The new housing paradigm should recognize the strong role that local communities play in the housing industry. Local demand for housing has to be met with an appropriate housing industry supply of such housing.
Financing innovation alone cannot solve a local market problem. In the U.S. housing industry, it has always been a mix of public policies and local markets that brings progress. Too many U.S. housing markets are struggling with inattentive national policies that have mistaken financing innovation with production need or financing needs.
So much of what has happened recently in some of the country’s growth markets has been an over-supply of speculative units. In addition, in many East and West Coast markets, housing prices are far too expensive, relative to incomes. And finally, in older urban markets, foreclosure losses are tied to unprofessional lending programs. In the future, we have to be concerned with the issues that exist in these different kinds of American markets. Each ‘market problem’ requires its own solution.
Over-production is a local government problem. And the question for the national financing system is: how do we keep speculative and investor properties out of the federal guarantee process? The lack of affordable housing on both coasts is a national production problem. The lack of affordable lending programs in older urban areas is both a national and a local problem.
About the Author
Peter Fugiel, Ph.D., is a realtor with Keller Williams & Fox Associates on Chicago’s north side. His housing research web site, Chicago Realtyscape.com, provides a detailed look at the Chicago real estate market. For more information about specific properties, visit Peter’s Keller Williams real estate site.
Prior to joining Keller Williams, Peter was a vice president and senior housing analyst with Nuveen Investments for many years. At Nuveen, he specialized in housing development financings and mortgage pools in all regions of the country.
Chance for Continuing Price Declines in Select U.S. Housing Markets
One of the more famous market-to-market analyses done in recent years was a comparison of the fifty largest U.S. housing markets.*
Although the study used first quarter 2006 and 2007 home prices, the report predicted a great deal of the subsequent foreclosure activity that has occurred in 2007-08.
The study also indicates how radically over-priced and over-supplied some of the various U.S. markets had become.
- Riverside-San Bernardino: 65% (expensive Los Angeles far suburbs)
- Phoenix: 64% (retirement and past speculation hot spot)
- Las Vegas: 61% ( speculator & now expensive market)
- Orlando: 56% (over-supplied Florida alternative to Miami)
- Long Island: 44% (in NYC market, it is affordable housing that’s needed)
- Seattle: 34% (land scarcity and high incomes drive prices too high)
- Chicago: 17% (metro area continues to grow, reliable lending needed)
- Denver: 15% (regional center with plenty of land, few young buyers)
- Pittsburgh: 6% (ongoing slow growth in a smaller metro region)