WASHINGTON – Sept. 18, 2019 – At midnight on Monday, Sept. 15, 2008, Lehman Brothers filed what would become – and remain – the largest bankruptcy proceedings in U.S. history. It was a high-watermark of the Great Recession.
Today, a decade later, American financial and lending systems look vastly different, thanks in part to safe and sound lending and regulatory policy reforms, which the National Association of Realtors® (NAR) says it supported. Some of those regulatory changes include the Dodd-Frank financial reform law, Qualified Mortgage Ability to Repay rules, and newly adopted Subprime Lending Principles, all of which NAR supported.
NAR cites the following accomplishments
- Advancing policies that could help prevent a repeat of the financial crisis. NAR specifically points to the American Recovery and Reinvestment Act of 2009, which gave first-time homebuyers a tax credit of $8,000 that proved hugely beneficial to the real estate industry's recovery.
- NAR lobbied successfully to retain access for the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac in all communities during the crisis. FHA support was particularly critical, NAR says, because it guaranteed financing for countless American families when large financial institutions significantly limited market involvement.
- In an effort to free up capital for mortgage loans and keep interest rates low, NAR supported the Federal Reserve's ongoing program to purchase $1.25 trillion of Freddie Mac's and Fannie Mae's mortgage-backed securities.
Today, home prices are at or near record highs in many markets, and mortgage default and foreclosure rates are at historic lows. Overall, as the nation's homeownership rate continues to inch higher, the housing market has recovered from the financial crisis that began 10 years ago.
While some U.S. regions have seen sales declines in recent months, NAR Chief Economist Lawrence Yun says concerns about a housing market peak and possible slowdown are unfounded. He believes some of the nation's most overheated real estate markets will see sales slow in 2018, but says those are occurring because of insufficient supply and rapidly rising home prices – not weak buyer demand, a more reliable indicator of a true slowdown.
Yun calls this a much better problem to have than a shortage of demand, which remains high across much of the country.
"Over the past 10 years, prudent policy reforms and consumer protections have strengthened lending standards and eliminated loose credit, as evidenced by the higher than normal credit scores of those who are able to obtain a mortgage and near record-low defaults and foreclosures, which contributed to the last recession," says Yun. "Today, even as mortgage rates begin to increase and home sales decline in some markets, the most significant challenges facing the housing market stem from insufficient inventory and accompanying unsustainable home price increases."
Inventory levels have fallen for three straight years, and multiple bidding is still prevalent on starter homes in many U.S. markets. Some of the nation's hottest housing markets – cities like Seattle and Denver – are said to be slowing, but drops in homes sales can be connected directly to supply shortages and corresponding price increases.
"The answer is to encourage builders to increase supply, and there is a good probability for solid home sales growth once the supply issue is addressed," Yun says. "Additional inventory will also help contain rapid home price growth and open up the market to perspective homebuyers who are consequently – and increasingly – being priced out. In the end, slower price growth is healthier price growth."
While homebuilding increased 7.2 percent year-to-date to July, Yun contends that even more construction is needed to fill national shortages. Some unavoidable barriers stand in the way, but more deliberate and well intentioned policy decisions can help alleviate the housing shortages facing markets across the country.
"Rising material costs and labor shortages do not help builders to be excited about business," Yun says. "But the lumber tariff is a pure, unforced policy error that raises costs and limits job creations and more home building."
As a result of those headwinds, Yun forecasts existing-home sales in 2018 to decrease 1.0 percent to 5.46 million – down from 5.51 million in 2017. Despite the expected drop in sales in some markets, home price growth should remain strong in markets across the country and increase about 5 percent on a nationwide basis.
In 2019, with anticipated rise in inventory and moderate price growth, home sales should remain higher. Existing home sales are forecast to rise 2 percent in 2019, while home prices are expected to rise by 3.5 percent, Yun says.
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