How to Resolve the Housing Crisis
During a recent interview Warren Buffet suggested a possible solution to the housing crisis, he wanted to halt all new residential housing construction. He felt that that would give the build up in the housing inventory a chance to be reduced to normal levels.
Part of the problem of the huge build up in the residential housing inventories across the nation, starts at the local planning board level. During the 2005 real estate boom the building growth rate average was around 6% rate. However the local population growth rate was at that time only 2 %.
There is too much supply for the housing demands of the population. The result was a dramatic decline in the local home property values.
One part of the housing solution can start at your local community level. Tie the number of approved new construction housing permits to the local population growth rate. For an example of that 2% population growth rate, the new approved housing construction permits should be limited to 1% or 50% of the population growth rate. This would give the local housing inventory on the Multiple Listing Service (MLS) a chance to get back to the historical norms.
According to RealtyTrac there is currently in 2020, 1.5 million properties in the US in foreclosure. That is a 15% increase from 2019. In July of 2020 there are around 9 million Americans who are in mortgage foreclosure or will soon be in foreclosure. That translates in 1 in 84 American home owners who are in trouble.
What are the contributing factors to this housing crisis? One of the primary factors is the national unemployment rate it is as of June 2020 at 9.5% and rising. Consumer fear of incurring large debt such as a new home mortgage is contributing to the increased housing inventory.
According to Bill Gross of PIMCO total return fund, over 90% of the new mortgage applications are now under, FHA, Fannie Mae, and Freddie Mac. Since the end of March 2020, the mortgage moratorium for FHA, Fannie Mae, and Freddie Mac has been lifted. The result is that you are seeing an increase in the mortgage foreclosure inventory on the (MLS)
The build up of the housing inventory on the (MLS) coupled with the increased mortgage foreclosure sales and properties that are languishing on the days on market are combining to drive down property values. Over 50% of housing sales are mortgage foreclosed properties. Those buyers are either investors or first time home buyers.
A second solution for the housing crisis is too reinstate the mortgage moratorium for the FHA,Fannie Mae, and Freddie Mac foreclosed properties. Those properties that have been on the (MLS) market for over 100 days should be taken off the market.
Those foreclosed properties should be brought up to section 8 housing standards and be rented to section 8 tenants for a 1 year period. This will accomplish a few things. First the housing inventory would be depleted and the local housing prices would be stabilized. Second many of the mortgage foreclosed properties have been vandalized and site vacant causing a blight to the local neighborhood. In the tenants lease there should be a section stating that the tenants will maintain their properties to section 8 housing standards and also market ready standards. This programs will stabilize the local neighborhood.
A third component to the solution to the housing crisis involves the Presidents mortgage loan modification program. That program does not require that the mortgage services and lenders participate in the program.
The result year to date is that only 325,000 loan modifications are currently on the table. The programs are set up to handle over 4 million mortgage loan applications. Many mortgage loan services and lenders are refusing to accept the principle reduction offers. Mortgage loan services and lenders are not properly staffed and have not committed the proper resources to serve the borrowers. The result is that many borrowers are facing long delays and bureaucratic red tape.
Congress needs to address, modify, and improve the Mortgage loan modification programs. The Congress needs to provide incentives to the mortgage services and lenders to participate in the program.
By utilizing a comprehensive approach to the housing crisis we can solve this issue. Our country sent a man to the moon, we should be able to solve the housing crisis here on earth. To summarize we need to address; 1) The unemployment issue 2) Start with our local community planning boards, and tie the new housing permits to the local population growth rate, 3) extend the mortgage moratorium at Fannie Mae, Freddie Mac, and FHA, 4) Take off the (MLS) housing inventory any Fannie Mae, Freddie Mac and FHA foreclosed properties that have been languishing on the market over 100 days, 5) Take those foreclosed government properties that have been on the market over 100 days, and rent them out to Section 8 tenants and bring those properties up to Section 8 housing standards, 6) Congress needs to improve and modify the housing loan modification program.