Nothing looms more ominously in the path of speedier U.S. economic growth and job creation than the housing market, which continues to sap American jobs and wealth several years after its collapse triggered the Great Recession. And perhaps no economic-policy issue vexes the Obama administration more than how to stabilize that market.
The administration has run short of politically and economically viable new options for cushioning the ongoing drop in housing prices, lifting the home-construction industry out of historic depths, and helping millions of homeowners avoid foreclosure and repossession. Meanwhile, the administration’s existing programs have drawn fire from consumer advocates and from a Congressional Oversight Panel, which ripped the Treasury Department this month over a foreclosure-prevention program that has fallen far short of its goals.
In interviews and public testimony, administration officials say they have explored – and discarded – a variety of new programs to aid the still-decaying housing market, which many economists call the greatest threat to more robust recovery next year.
Instead, administration officials have concluded that the best way to shore up the market is to act more broadly to help Americans find jobs.
“The most important thing to reduce foreclosures and stop falling housing prices,” Treasury Secretary Timothy Geithner told the oversight panel in a hearing last week, is “what the government is able to do to get the unemployment rate down much more quickly.”
Geithner called that judgment a reflection of the changing nature of the housing crisis: At its onset, the crisis was driven by the collapse of the 2000s housing bubble and the bad mortgages that fueled it. Now, the driver is long-term unemployed workers who can’t afford to pay even the most solid of mortgages.
But the decision to attack housing broadly, instead of with a new, narrowly tailored push, also reflects basic political and economic reality: Any policies that could make a big difference will likely cost too much for taxpayers, and incite too much anger in Congress, to have a chance.
For example, Geithner told the oversight panel that Treasury could push to modify troubled loans for approximately 3 million homeowners who purchased second houses or expensive homes they could not afford.
“You have to fundamentally decide whether you want to extend the benefit of these programs” using taxpayer money to that group of homeowners, he said. “We did not think that was a reasonable public-policy choice.”
New economic data released today underscored the fragility of the housing market and the risks it poses to the broader economy. New-home sales remain near historic lows, even after increasing 5.5 percent from October. Home prices are falling again after the expiration of tax credits aimed at homebuyers, and many analysts warn the prices might not bottom out until spring – or even 2012.
Lost housing equity saps consumer spending, as Americans sock money away in other places, and the construction sector looks to be years away from returning to its precrash employment levels.
Even as economists upgraded their growth forecasts in recent weeks to reflect optimism over the effects of the tax deal struck by President Obama and congressional Republicans, they issued renewed warnings over housing market “headwinds.” Earlier this year, Morgan Stanley called housing “the single biggest downside risk to the overall economic outlook.”
Researchers at the Federal Reserve Bank of Cleveland reported this week that because home equity provides a crucial source of financing for small-business owners, “the impact of the recent decline in housing prices is significant enough to be a real constraint on small-business finances.”
Foreclosures have slowed briefly, as banks reevaluate procedures that have led to foreclosures either wrongfully made or lacking due process. But analysts expect them to resume soon, with millions more Americans at risk of losing their homes. The oversight panel said this month that it expects between 8 million and 13 million total foreclosures through 2012.
In interviews, administration officials say they will forge ahead with a suite of programs aimed at keeping homeowners from losing their houses to foreclosure and repossession, and at slowing the housing price slide.
Publicly and privately, administration officials defend their current housing efforts as making slow but sure – and fiscally responsible – progress in moderating prices and helping Americans keep their homes.
They’re continuing to expand and implement existing programs, such as the much-criticized Treasury effort to modify troubled mortgages, and a recently launched HUD effort to allow some homeowners who owe more on their mortgages than their home is worth to refinance through the Federal Housing Administration.
Some of those programs have struggled to meet their goals, by the reckoning of the oversight panel and the administration’s own housing benchmarks. A variety of data show “recovery in the housing market continues to remain fragile,” the administration reports in the latest installment of its self-produced “scorecard” of housing-stabilization efforts, which the Treasury and the Housing and Urban Development departments released jointly today.
Last week, the oversight panel said that Treasury’s anti-foreclosure efforts are falling dramatically short, in terms of repossessions averted and money spent to help modify troubled loans, and are “unlikely to improve substantially in the future.”
Looking forward, it’s difficult to see what else, realistically, the administration could do.
The administration could declare a moratorium on foreclosures to allow banks to shore up their procedures and give the market time to work off excess housing stock. It could also pressure Fannie Mae and Freddie Mac, the government-sponsored mortgage giants, to write down principal on millions of troubled loans, a potentially enormous cost to taxpayers that could help break the foreclosure- and falling-price spiral.
“Aggressive policy options do exist, but the political will to deploy them is scarce,” Morgan Stanley analysts wrote last month. “Small wonder: None is a panacea, most reward ‘bad’ behavior, some involve government funds, and none will satisfy all parties. Yet all are better than doing nothing.”
The best opportunities for new administration action could come next month. The administration’s foreclosure task force, including Geithner and HUD Secretary Shaun Donovan, is due to issue findings and recommendations. Treasury is also preparing a congressionally mandated report on how to reform Freddie and Fannie – an effort that Republicans seem eager to launch.
E-mail Jim Tankersley at jtankersley@nationaljournal.com
Follow him on Twitter at @jimtankersley
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