Housing bill passes in House
The housing bill appears on its way to becoming law. Host Kai Ryssdal asks Nic Retsinas of Harvard's Joint Center for Housing Studies what impact the bill will have on the housing market.
Nic Retsinas, director of Harvard University's Joint Center for Housing Studies. (hbs.edu)
More on Housing - Real Estate
TEXT OF INTERVIEW
Kai Ryssdal: Today, the White House announced that the president's changed his mind. He is going to sign the housing bill Congress has been working on after all.
Treasury Secretary Henry Paulson said this morning he convinced the president to set aside his objections and focus on the bailout for Fannie Mae and Freddie Mac instead. The House passed the bill this afternoon, the Senate probably tomorrow.
So now that it looks like the rescue package is going to happen, we thought it'd be smart to figure out what's going to happen in the housing market as a result.
For that, we've called Nic Retsinas at Harvard's Joint Center for Housing Studies.
Mr. Retsinas, good to have you with us.
Nic Retsinas: Nice to be with you.
Ryssdal: Summarize your thoughts on this bill for me, would you?
Retsinas: It was a better idea six months ago. It will help. It won't hurt. It's certainly better than chicken soup in terms of the housing market. It's not going to do any damage to the housing market. I think at best, which is not a bad thing, this should soften and slow down some of the continuing problems in the market. Whether it helps with a rapid recovery, that I'm a little more skeptical of.
Ryssdal: Let me ask you about some of the things the President specifically mentioned when he stated his opposition to this bill. The first is that $4 billion worth of Community Block Grants to buy up foreclosed properties. Now that that's going to actually be spent, is that going to change the market?
Retsinas: Well, it'll change in a couple different ways. One of the fundamental problems in the housing market is we have too many homes for sale. Every time a property is foreclosed, that adds one more home to the inventory. If and when this legislation becomes law, state and local governments can use these funds to acquire these properties. At the least, it'll start to eat at some of that inventory overhang in the marketplace.
Ryssdal: If I'm out there shopping for a mortgage in the next couple of months, is this bill going to make my mortgage any cheaper, lower the interest rates?
Retsinas: It won't lower the interest rate. It probably, depending if one, you have good credit and two, you do have a down payment, it will probably mean that there'll continue to be mortgage money available. So it'll probably prevent the mortgage rates from rising very much, but it's not really going to do anything to lower the mortgage rates.
Ryssdal: It's also got a provision for a new regulator for Fannie Mae and Freddie Mac, the two mortgage giants that have been in such trouble. What was wrong with the old one and why do we need a new one?
Retsinas: Well, that's been a debate for some time. Many people have agreed that having a strong regulator gives confidence to the marketplace. As we have seen over the last several weeks, investors are leery of whether Fannie Mae and Freddie Mac will fall prey to this sort of market. What the plan that has been put forward by Secretary Paulson and is likely to be in this bill says: "Not to worry. If that happens, the government will sort of step in." Having a good regulator, a strong regulator, is part and parcel of restoring confidence to these very importance institutions.
Ryssdal: And in fact, it was Treasury Secretary Paulson who said today that he convinced the President to sign this bill over the President's own objections. So now we have a package which will eventually become law that will let the Treasury Secretary decide when to invest in Fannie Mae and Freddie Mac, how much money to lend them. Is there no risk in the blank check that he's been given?
Retsinas: Of course there's a risk. Everything the government has done transfers some of the exposure of this sort of failing market to the taxpayer. I think the judgment call that's being exercised, and I think in this case it's a prudent one, that the avoidance of a much larger problem if nothing were done is much more worrisome. So the chance of some more activist intervention as opposed to waiting for the sky to fall on the housing market I think is probably a good choice.
Ryssdal: Is this going to stabilize the housing market as the White House said today?
Retsinas: Well, it's going to help. The larger issue in the housing market as I indicated is the glut of homes that are for sale, both overbuilt as well as foreclosed homes. We have to work that out. Both borrowers and investors have to have some confidence in the market and that it's not going to get worse. This is an effort to bring some stabilization to that market.
Ryssdal: Nic Retsinas runs the Joint Center on Housing Studies at Harvard University. We reached him actually on Cape Cod today on vacation. Mr. Retsinas, thanks for your time.
Retsinas: Nice to be with you.
Comments
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From Orlando, FL, 07/28/2008
This part of the bill is total bs. Why should people who bought out of their means get to keep their McMansions at a discounted price. The govt. should have let the pieces fall where they may.
Read this article:
The "bailout" part of the housing bill comes from the section allowing homeowners to rewrite their existing mortgages into 30-year fixed mortgages for an amount equal to 90% of the market value of their homes. Obviously, this provision helps those with mortgages for over 90% of the market value of their homes. However, 10% is not all that's at stake here, given that many homeowners at 100% mortgages based on much higher market values. So, someone with a $300,000 mortgage on a $300,000 house whose value has slipped to $250,000 can swap for a mortgage for $225,000. Sweet, huh? Except that your lender has to agree. So of course I'm interested in knowing whether lenders will take the bird in the hand of the $225,000 mortgage (which must be qualified for and will be guaranteed) rather than take their chances in the foreclosure process that they will get a better deal. It may be that bill saves all parties these transaction costs and creates a win-win situation, but if that's the case, wouldn't the parties have negotiated a settlement on their own? Is the federal guarantee really the deal-maker? For homeowners to take advantage of this renegotiation, their mortgage payments must be 30% or more of their monthly income, but they must be able to qualify for the new loan. I have seen figures that this provision would help maybe 300,000 out of the 3 million facing foreclosure. (Borrowers also must be residents of the house, not "flippers" or other investors.)
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From MA, 07/28/2008
C'mon. Do they really think they can hoodwink the renters by including a measly $7500 (or 10% of home price whichever is less) into the bill? Remember this is not even a giveaway like they are doing for the homeowners. And btw, what the hell are they thinking with the 10% of home value max? Like you can actually buy a home for 75000 these days? Maybe in some dumpy rust belt violent neighborhood. Of course, the 7500 is actually going right into the seller's (read mortgage bank) pocket. You as a renter have to pay it back. They just don't give a flying crap for renters.
From NY, 07/27/2008
Dido Dido Dido! I WILL NOT PLAY THIS GAME! As renters in suburbia New York, my wife and I have been waiting to buy our first home for years. We each have 6 figure salaries and plenty in the bank. We STILL CAN NOT AFFORD anything but a complete DUMP. Especially with property taxes that average about $17,000. per year! And what does my government due for me? $7,500 bucks (if that), that I don't even get to keep! My new hobby is to offer hundreds of thousands below asking price on every house we go see. It's great fun! You should try it!
From Orlando, FL, 07/27/2008
This bill may not be so bad for first time home buyers. Please see the article I read today online and the source for same below. Housing Bill: New Help for First Time Home Buyers I wasn�t paying close enough attention to this housing bill. I thought it was all about mortgage re-negotiation and foreclosure prevention (and it certainly offers help in those important areas). But I was surprised to read in today�s New York Times that it also aims at stimulating housing demand among first time homebuyers by offering a tax benefit that is essentially a 15-year interest-free loan (up to $7,500 depending on your tax status) for first time homebuyers purchasing a home between April 9, 2008 and June 30, 2009. The benefit begins to phase out for single people earning more than $75,000 or couples earning more than $150,000. This loan (officially a tax credit/refund with required repayment over 15 years) will not make a huge difference for the average first-time home buyer, but it could have a meaningful impact on housing affordability and asset-building for lower-income home buyers. The critical task will be to make sure that the beneficiaries don�t look at this as a windfall and simply use it to spend above their means without recognizing that it will need to be paid back. What I hope is that asset development practitioners and community-oriented financial professionals can help first-time home buyers set up appropriate savings or investment vehicles that allow them to put the money away, earn investment/interest returns, and have sufficient funds available in future years to make the required repayments. No-interest loans will surely help grow the pool of capital available for asset-building strategies, ranging from home repairs and maintenance to small business development to retirement savings. With some creative thinking, financial professionals (especially in the nonprofit asset development field) could play a huge role in helping new homebuyers maximize the value of this opportunity. We could design initiatives in which income-eligible new homebuyers receive an additional financial incentive for putting their refundable credit into a restricted investment vehicle like an IRA or a 529 college savings plan or an IDA-like custodial account. That might only impact a select number of beneficiaries directly, but it could build awareness within the broader population of new homeowners about how to responsibly invest the refundable tax credit. I could imagine some financial institutions being excited to partner on such initiatives. Does this temporary legislation allow enough time for the field to respond in creative ways? We�ll see. Source: http://assetalmanac.wordpress.com/2008/07/25/housing-bill-new-help-for-first-time-home-buyers/
From ON, 07/26/2008
The President will sign this bill and yes it is open ended unlimited cash to bail out these thieves. President Bush realized the economy could collapse even before he leaves office, therefore he will leave the next President and all future generations with all the problems. I feel sorry for who ever wins the next election, they are inheriting the worst economical shape the US has been in since the Great Depression.Oh and by the way we are on the hook now for up to 5 trillion in debt not the rich Countries and rich people which were holding the debt; it has been shifted over to us the taxpayers with this vote. Bush just pretended not to want this bailout all the while he couldn't get his pen out of his pocket fast enough, now he can stop sweating hoping to get through the next 5 months with his finger in the dike so he can pull it out and run.
From Yorba Linda, CA, 07/26/2008
I live in Yorba Linda, CA. The median home price is $819,000. Our combined family income is $200,000. I have a credit score of 795, and we have $80,000 towards a down payment, documented income, etc etc - and WE CANNOT AFFORD A HOUSE. I cannot believe that this is American government doing this to it's own citizens. It's just disgusting.
From Brunswick, GA, 07/25/2008
Does anyone have a clue what our deficit and debt are up to with all these bailouts? Do we (taxpayers) have that kind of money? Shouldn't we be wise enough not to borrow money we can't repay? Who will bail us out?
From Vancouver, BC, 07/25/2008
Boy when the dog wages his tail little brother feels it. Prices in Canada are stalled...nothing is selling...I would personally say buy gold and silver and wait this one out??? Ron Paul is excellent...If I were a US citizen I would vote for he.
From Orlando, FL, 07/25/2008
I am very disappointed in learning the housing "bail out" bill will soon be a law. This only further delays my hopes of being a first time home buyer. We have two modest incomes and a reasonable down payment and still cannot afford the monthly payment on a medium single family home. I agree with other comments made to NOT buy until the government steps in and deflates this bubble. Sadly, first time home buyers are suffering.
From MD, 07/25/2008
I say we get back at them the only way we can. Start a movement to refuse to buy a home till the prices come back to normal (3.5 times median income of the locality!!). How dare they take money from the prudent renters to bail out the foolish or the greedy homeowners.
From chico, CA, 07/25/2008
I live in a small town where the average home price is more than 8 times the median income, and 23 times rent. We also have a high income but refuse to throw our dollars away on an overpriced home. Our friends tell us daily how foolish we are for throwing our money away in rent, and I can't wait until they wake up and realize how foolish they have been for throwing away money on taxes and interest on ridiculously overpriced shelter!
From HOLLYWOOD, FL, 07/25/2008
Has everyone forgotten about the fact that our property taxes are still to high and that lowering home prices is not the only solution.... I remember, that one of the proposals of reducing property taxes was to increase sales tax and even maybe eliminate property taxes. Well, we got a whooping aprox. $ 200.00 reduction to our current bill... Far cry from the original plans to reduce current prop. tx;s. How dissapointing.......
07/25/2008
My household combined income is $250,000. That means we can afford about a $600,000 property (based on traditional, responsible estimates). Except that we live in the San Francisco Bay Area, and $600,000 buys you a run down tiny dump in an unsafe neighborhood. If a family who by all definitions is on the upper end of income scale cannot afford to buy a decent place to live, how can anyone else? That is the core of the problem. The only way people were buying homes was to over-extend, and now we are all living with the consequences of that irresponsibility.
It is a shame that Mr. Ryssdal threw such softballs at this bought and paid for mouthpiece of the real estate and building industries. The end result of this horrific bailout will be that I continue to rent, and when I get fed up with it I'm going to start looking into a transfer to another country. The United States will never be addordable for me.
From Arlington, MA, 07/25/2008
If you really want to know the direction of the housing market, why not ask people who saw this coming, as opposed to Retsinas who very publicly argued that there was no bubble?
Everyone, before you give Retsinas any respect, please follow this link to an article Retsinas wrote in September of 2006
http://www.jchs.harvard.edu/media/housing_wail.html
Retsinas: "the expected price corrections mark a slowing in the rate of increase -- not a precipitous decline. This will not spark a chain reaction that will devastate home owners, builders, and communities. Contradicting another gloomy seer, Chicken Little, the sky is not falling."
For someone in his position to be as wrong as that in his core 'competency' is mind-boggling.
You also might want to see who the 'Policy Advisory Board' of the Harvard Joint Center for Housing Studies is. These are all the Builders, Realtors groups and many lenders who created this bubble and dictate the opinions of the JCHS.
We all must think for ourselves.
07/25/2008
High (inflated) housing prices are the root problem. High inventory is merely a symptom of inflated prices. If and when prices go down the overhand in inventory will too. Simple, really. Amazing how economists/politicians fail to grasp this fundamental issue and keep addressing the symptoms, rather than the root cause, of the problem. Sorry to say, people will inevitably be financially harmed by ill-advised and/or irresponsible decisions regarding housing. Trying to bail them out will fail and spread more pain to all taxpayers and future generations of taxpayer/citizens who had nothing to do with this mess.
From Lafayette, LA, 07/25/2008
What is to stop state and local governments from using these block grants to purchase properties in foreclosure and then give them away to individuals who have made large campaign contributions to certain politicians?
Worse yet, what is to stop political officials from using this money to "sell" their own homes and walk away with a profit?
There is no oversight here--and no way to control the rampant corruption that will result.
From Arlington, MA, 07/25/2008
So $4B is going to 'Community Block Grants' so they can buy foreclosed properties from lenders and fix them up. And this is going to help reduce housing inventories? Tell me, what do these organizations plan to do with the houses once they are fixed up? Answer: they are actually, in the long-term, increasing inventories.
Also, why don't the lenders just lower the asking price? Ultimately, all of these properties would sell if the price is right. So most of that $4B just goes to irresponsible, avaricious lenders. Great use of our tax dollars when we still have important disease research going unfunded and children still dying of leukemia and other horrible diseases.
There is an opportunity cost for every dollar you spend.
From Oakland, CA, 07/25/2008
Home prices are too high. The only way to fix that is to lower prices or drastically devalue the dollar (a.k.a. inflation). This bill will bail out irresponsible lenders and speculators at massive taxpayer expense. If it has any effect on the housing market, it will be to delay the inevitable and postpone our return to a healthy market equilibrium. The government caused this problem with bad policies and it will continue to compound the problem and expense with more bad policies.
From Wilmington, NC, 07/25/2008
I totally agree with Bill Smith! Until house prices decrease, most renters are priced out of buying a house. I foresee many empty houses staying empty because of it.
I don't think people with bad credit should be bailed out. If one is not responsible enough to pay bills on time, why should they get a bailout? They shouldn't have bought the house to begin with if they couldn't afford the payments?
From Oakland, CA, 07/24/2008
Is this new housing bill going to help, struggling home owners, who are in default and in foreclosure of their current mortgage, will the assistance be available for individuals who has horrible credit, because they could not afford to pay their mortgage on time, due tO bad loans? Or is this assistance only good for people who have good credit? Please clarify, there are more people with bad credit than good credit, who are having financial problems with their mortgage, because of bad loans. Who is really going to help the people who really need it? The majority of people with good credit are not in foreclosure and the people with bad credit can't get a loan, so therefore they are forced to let their homes go!!
07/23/2008
Hi Kai:
You really let Nic Retsinas off easy! Next time someone talks about how the major problem with housing is that there are too many units out there, how about asking them if affordability is a problem too? Since 2002, house prices have tripled in a bubble, and they are still too high, leaving renters priced out forever.
Propping up the housing market keeps it unaffordable -- at taxpayer expense. It's a terrible policy goal, but does Nic even understand what's happening?
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