Housing

PHOENIX – The American Action Forum released today a study examining the current state of the housing market in Arizona and an analysis of the policies that have influenced recovery there. The paper, “Boom, Bust, and Beyond: A Look at Housing Market Data in Arizona” was released in conjunction with today’s event, the U.S. Housing Recovery: Lessons from Arizona, featuring Senator John McCain and top housing and economic experts across the political spectrum.

For roughly six years home prices have fallen steadily in markets around the country.  However, in the past few months there has been speculation that there are signs of hope.  There is evidence that local markets around the country are finally improving, but others still face further declines in home prices.

WASHINGTON – A new paper by Forum President Douglas Holtz-Eakin and Forum expert Andrew Winkler shows that the recovery of the housing market will likely remain tepid until robust economic growth is achieved nationally. The paper, “The U.S. Housing Market: Metrics of Recovery & Links to Economic Growth,” was released in conjunction with today’s Forum event, Are We There Yet? The Bumpy Road to a Housing Recovery, featuring top housing and economic experts from around the country and across the political spectrum.

Many analysts have noted that the housing market is far from recovered. Economy-wide construction spending remains depressed, loan delinquencies are elevated, house price indices remain below the long-run trend, and housing starts and sales are sluggish (see here).

The Case-Shiller Index shows that home prices nationally have fallen more than 33 percent since the housing market peak in 2006. The bursting of the market bubble resulted in billions upon billions of lost home equity. Enter the worst economic recession since the Great Depression, financial crisis, and subsequently weak economic and housing market recoveries. Unsurprisingly, people have and will continue to ask, “What caused it?”

Today brought a flurry of mixed news on the future of the housing market and its recovery. Here’s what we found out:

1. We will all have to wait with bated breath a little longer for a plan from HUD on how to reform the GSEs, according to Bloomberg.

A central feature of the recent macroeconomic landscape is the housing market boom and bust. While many housing markets in the U.S. shared this experience, perhaps nowhere was it more dramatic than in Nevada; and the Las Vegas metropolitan area in particular.

In this short note, we compare the housing market performance of the Nevada/Las Vegas market to the U.S. as a whole. We find that the housing cycle in Nevada has had a greater magnitude, damaged household balance sheets more dramatically, and lags the U.S. in removing excess inventory and stabilizing prices.

There is little doubt that the U.S. housing market is hurting; the latest S&P Case-Shiller index shows residential values declined 4.2 percent in the first quarter compared with the previous three months.

The nation’s housing markets continue to struggle and underwater mortgages are a big deal. According to recent estimates by CoreLogic, 23.1 percent of mortgage borrowers currently owe more on their mortgage than the appraised or estimated value of their homes and approximately 10 percent owe more than 125 percent of the value of their home. Nationwide, mortgaged homes are over $750 billion underwater.

The housing GSEs Fannie Mae and Freddie Mac are long overdue for reform. For years they made extraordinary profits using the taxpayer as backing for cheap debt, they figured prominently in thefinancial crisis of 2008, and now they are de facto government agencies that the Obama administration keeps stealthily off-budget. Enough is enough.