It would seem to me that the major inhibitor to job creation, at least in Arizona, is the slump in the housing market and prices. Is it really accurate to believe that current prices, which are at or below what homes sold for in about 1995, is an accurate reflection of "real" market value? Or is it realistic to believe that most resale homes are selling at well below what it would cost to rebuild them? I don't believe these scenarios can hold for long.
Let's analyze what a 20% increase in housing prices would do to the overall economy in Arizona. This of course is hypothetical but it is a great exercise to think about. I am not advocating allowing (this assumes some entity controls the market ) runaway appreciation but I also believe the over reaction of the housing market has our current prices far below what they should be.
A 20% increase in the average housing prices would predicably have the following effect.
- It would spark many builders to start building again or increase their current level of building which would, of course, put construction workers, suppliers, inspectors, contractors, manuafacturers, realtors, lenders, and all of the other facets of the construction industry either back to work or increase their current levels of work.
- It would encourage a huge number of people, who are currently underwater on their mortgages, to either stick it out on their home or be able to break even or actually make a small profit on the home they have paid on since 1997 (a little sarcastic). It would also invite a huge number of homeowners to not walk away from their homes because they can clearly see the direction of the housing market and can reasonably foresee that at some point they may not be underwater.
- It would increase the tax basis for many of our local schools and municipalities that budgeted base on both on ever expanding revenues due to increased home pricing and project expansion into either the district or city limits. This would eliminate many of the current governmental financial problems and allow most to survive by trimming their waste and still provide a satisfactory level of service.
- More than anything else, it would restore faith in what has always been the safest investment in the United States, the purchase of a single family home.
Many believe that this can't happen because there is insufficient demand to sustain this jump. I completely disagree with only one reservation. Currently, it is very difficult to get a home bought. I am not talking about unavailability of credit or lack of buyers. I am talking about writing 5-10 full price or better offers on a home for a potential buyer before they are lucky enough to be the winning bidder. If this does not indicate that demand exceeds supply, then we must be on another planet. My only reservation is that a significant portion of our current demand is investors, should the prices start to go up substantially, will they pull out or invest more vigorously. I think that if the politicians will allow the market to do what it is trying to do right now, then, we could see this amount of appreciation in just a few years.
Here are three things that could be done for no cost that would quickly spur our housing market.
- Remove the 3 year waiting period for buyers that have foreclosed or short sold and otherwise have credit viability to obtain a loan. This would instantly spur the market and lead to steady but manageable appreciation and stop the punishment of unfortunate borrowers who did not cause this crisis.
- Allow borrowers to factor in 75% of their projected rental income on their existing homes when attempting to qualify for another primary residence. We have done this since the 80's and probably before. This will promote retention of homes currently underwater and spur demand which should lead to upward price pressure.
- Eliminate some of the consumer protections and excessive guidelines for mortgages that either don't actually reduce the risk to the lender or are designed so narrowly to prevent fraud that they prevent 10 quality buyers from obtaining a loan for every case of fraud they prevent.
None of these things cost any money or require oversight and none of them will theoretically add any significant risk to the lenders or their investors. I think its called "Common Sense" but sense I haven't seen it in so long, I'm not sure.
