A rising tide usually does lift all boats, but the metaphor is foundering.
“Not this recovery,” national real estate writer Kenneth Harney told state Realtors on Wednesday.
And in housing, younger people are missing, missing out on the recovery and missing out on home ownership, he said.
“Not all the boats are rising,” said Harney, writer of the weekly column “The Nation’s Housing” for The Washington Post Writers Group. He was the luncheon speaker Wednesday at the Oklahoma Association of Realtors Legislative and Economic Summit at the Skirvin Hilton Hotel.
Harney, whose column appears in The Oklahoman’s Saturday real estate section, pointed to positives that kept Oklahoma housing buoyant during the Great Recession and since: low unemployment, at 5.2 percent according to the latest figures; and affordable housing, especially compared to the coasts.
Underemployment, harder to gauge, also affects markets, he said, and that, combined with skittish lenders and tightened government regulation of loan underwriting, is keeping many younger people from becoming homeowners across the country.
Harney said the biggest economic issue facing housing is the setback in first-time buyers since the housing bust.
First-timers accounted for 40 percent of sales before the bust and now make up just 26 to 27 percent of the market, he said.
Mortgage origination plummeted during and after the bust, of course. Increased regulation meant to keep another bubble from forming — meant to stop the kinds of unwise lending practices that Harney said lenders had already abandoned – has kept lending down.
Up to 1.2 million “missing loans” per year since the crisis can be attributed to limited access to credit, Harney said, citing a study by the Urban Institute.
Prospective homebuyers are missing out on what many people think is the opportunity of a lifetime in historic low interest rates.
“Loan officers and lenders say they’re afraid to take a chance on anyone who is a little close to the line,” Harney said.
The entire economy is affected, according to the Urban Institute study, available at www.urban.org/UploadedPDF/413052-Where-Have-All-the-Loans-Gone.pdf.
“It means fewer individuals will become homeowners at exactly the point in the economic cycle when it is advantageous to do so, depriving these individuals of the chance to build wealth,” the researchers wrote. “It means the housing market will recover more slowly because there is a more limited pool of potential buyers for each home.
“Ultimately, it hinders the economy through fewer new home sales and less spending on furnishings, landscaping, renovation and other consumer spending that goes along with home purchases. Indeed, this analysis speaks to the urgency of expanding the credit box, an issue that needs to be addressed quickly by policymakers.”
Tax benefits targeted
Meanwhile, the U.S. House is considering a move that would “decimate” tax policies beneficial to homeowners, Harney said. U.S. Rep Dave Camp, R-Mich., is touting his tax plan as chairman of the House Ways and Means Committee.
Republicans on the committee are “not against real estate, but they’re much more in favor of lowering tax rates for individuals and corporations, and that’s what this bill does, plus expanding the individual standard deduction,” Harney said in an interview before his presentation.
“So it has some really attractive aspects, but it pretty much decimates everything in the tax code for real estate,” Harney said.
The mortgage interest tax deduction would be capped at $500,000 of principal owed, which Harney said is “OK for the vast majority of homeowners, (but) it’s a big problem out on the West Coast and on the East Coast.”
Camp’s plan, Harney said, “just gets rid of the deduction for property taxes, which people, especially in higher-tax areas, appreciate.”
The tax benefits of home ownership are “built into prices,” accounting nationally for some 15 to 18 percent of home valuations, according to some studies, he said.
“That’s a lot, so you don’t want to do this overnight. And it won’t be done overnight. I’m not here to say this is going to happen real soon. But it can’t be ignored,” Harney said.