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[Music]
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the US housing market has been wobbly
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for several years but showed some signs
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of perking up in recent months the
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latest reports show a setback however
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with median prices dropping slightly and
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sales well below the already depressed
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levels of 2009 yet a combination of
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remarkably low mortgage rates and
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apparent home price Bargains should be
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drawing buyers into the market
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especially firsttime buyers who don't
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have to sell one home before they can
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buy another knowledge at Wharton asks
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real estate Professor Susan M wer why
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the housing market is so slow to recover
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whether the recent slowdown and
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foreclosures is a factor and how the
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housing Market's poor performance
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affects the
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economy welcome Professor well the
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latest figures are showing a slight dip
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in home prices and sales are still well
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below where they were a year ago which
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was below where they'd been before is
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this just a sort of a bump in the road
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or or an anomaly in the figures or is
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this serious it's not just a bump in the
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road by no means uh we had this runup if
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you could call it that it was only a
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very slight runup uh During the period
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of the tax credit that was the anomaly
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we are in a period of uncertainty and
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the uncertainty is affecting consumer
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confidence and it's reflected in housing
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markets this was before the tax credit
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and we're back to that again and do you
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think there's a prospect for a dramatic
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drop in prices 10 20% the kind of course
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there's there's always a possibility
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that it would depend on the overall
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economy but with the overall economy
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slowly improving and I emphasize the
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word
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slowly then we should see uh this kind
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of bouncing along the bottom in the um
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overall housing market and uh what what
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are the various factors sort of a quick
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laundry list of the kinds of factors
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that are affecting the housing market
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and keeping it from Reviving faster it's
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mostly unemployment as long as the job
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market is recovering at this slow pace
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then we will likely continue to see a
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very slow to upce to uh some concern
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about even a decline in housing markets
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because on top of the unemployment
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picture there's also just overall
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consumer confidence which is very weak
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putting that in front of this large
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decision large purchase clearly people
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are hesitant to go over that fence to
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purchase at a period of such uncertainty
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on top of that in the overall economy
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there have been uh prices have been
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declining and you can get into an
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expectation situation where prices are
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anticipated that they are going to fall
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and then clearly the buyer is going to
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want to hold off now there's been a lot
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of news about foreclosures and it wasn't
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long ago everybody was complaining about
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the high numbers of foreclosures now
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there seems to be a lot of worry that
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they're not proceeding fast enough due
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to this paperwork problem that's been in
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the news to what extent is the overhang
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of foreclosures a factor in the market
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it's a big factor the overhang of
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foreclosures the heightened inventory
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the heightened vacancy rate uh even if
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uh foreclosures and they are slowing
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they were slowing and of course this uh
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potential uh discussion of moratorium
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but in any case a slow down in uh some
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of the uh Banks
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uh in the short run could actually lead
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to a slight spike in housing prices but
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the bigger picture is that it
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contributes to uncertainty and that is
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the negative at this moment and then
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another factor I take it is the high
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percentage of underwater mortgages
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somewhere around a quarter of the
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homeowners who have mortgages uh owe
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more than their homes are worth um why
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is that not resolving itself faster U
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well that's of course the shadow uh
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potential for closure pool right there
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and people don't want to strategically
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default on their homes some do but
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that's a very small percentage actually
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of overall uh borrowers who are
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currently in default um are usually
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simply unable to make their mortgage
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payments because of a lack of a job or
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because uh their uh their mortgage has
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repriced reset at a point where they
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can't their current wage income cannot
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cover it uh so so really again whether
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these um this overhang res results in
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increase in defaults and increase in
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foreclosures going forward uh depends
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very much on the overall economy and
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particularly we should take note of
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chairman Ben beran's recent move which
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is
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to absolutely make certain that markets
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do not anticipate falling prices uh the
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um commitment to preventing deflation is
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absolute that should help prevent a
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continuing slow slide in overhaul prices
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and housing prices but that doesn't
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really bring the full weight of recovery
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only job growth can do that and nobody
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wants to buy a home they think it's
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going to be worth less six months later
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correct uh now uh it seems it's been
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about a year and a half since the Making
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Home Affordable program was announced
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and the numbers have been very
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disappointing this was the the plan that
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was going to allow people people to
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recast their mortgages somehow with
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lower payments why have have not been
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more homeowners able to do that or
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willing to do that well it's really the
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banks modification process um banks are
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hesitant to modify this is a very
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difficult difficult uh negotiated
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proceeding and um uh the investors are
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over the shoulders of the banks there
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are conflicts uh this there is no simple
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answer to this problem of underwater
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borrowers if there there were we would
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have resolved it a long time ago again
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if people cannot make their payments at
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some point along the lines they are
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likely to be foreclosed and the
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modification can only help if there's a
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job in sight now uh a a prominent part
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of the housing and mortgage market for
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quite a long time has been the
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securitization process where mortgages
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are bundled and turned into Securities
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that investors buy what is happening in
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that market that's been troubled is it
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is it improving
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well there is no securitization other
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than Fanny and Freddy and FHA through
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jinny May and that is uh upwards of 90%
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of all the loans that are being
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originated today are basically coming
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with Federal support So in that sense
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the securitization Market is doing just
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fine if you're referring to the private
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label securitization Market that's gone
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any chance it'll come back oh absolutely
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there needs to be going forward a
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private securitization Market but that's
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going to take reform of fan Freddy and
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that's my next question is is there
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progress do you see that that them being
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more Reckless or less Reckless than they
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were in the past or uh uh should we be
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confident the way things are going well
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confident is exactly where we cannot be
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but that's not because of Fanny Freddy
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Fanny and Freddy are very much at this
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point uh uh if anything like other
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lenders they've raised the standards
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tremendously in fact the book of
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business that they are uh ensuring right
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now uh is being extremely carefully
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underwritten and Fanny and Freddy really
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were not the most egregious of the
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lenders by any means the the private
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label securitization was really the
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source of these um Infamous mortgages
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that were ninja mortgage no income no
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job no assets let's finish up just you
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have a projection of the prospects for
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this market and the medium and long term
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yes I think you know first of all it
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does depend on job growth you know we
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could be surprised we could have job
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growth clearly corporate profits are up
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at some point uh there is going to need
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to be a move on hiring and that will be
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the bellweather for the housing market
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to recover in the meantime uh as long as
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interest rates remain low I think we're
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finished with this plunge this downward
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plummeting of prices so we're bouncing
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along the bottom and if you're an
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investor there are very potential
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profitable opportunities in the multif
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family sector out there all right well
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we'll be watching it very closely thank
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you very much
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professor
