Tight credit and increased regulation have cost housing — and the economy at large — some 1.2 million mortgages per year since the housing bubble and bust, according to a new study by the Urban Institute.
Is that a bad thing?
It’s a hard question — especially in the inside-baseball world of mortgage finance and housing, with another refi boom over and big mortgage shops cutting back again because of hit-and-miss home purchasing, with builders in most parts of the country still dragging recession mud.
Increased regulation was meant to keep another bubble from forming — meant to stop the kinds of unwise lending practices lenders had mostly already abandoned. And it is keeping lending down, according to critics of reform, particularly the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act.
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. Not incidentally, the study says that black and Hispanic people have been affected more than non-Hispanic whites and Asians.
“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.”
Not much criticism has been leveled at the conclusions of the study. Bankers want to bank. Realtors want to sell real estate. People want to own homes — except for a big swath of people who got burned in the bubble-bust debacle and may avoid home ownership for good.
But here’s some. I went looking for it just to get your juices flowing — whichever side of the issue you find yourself. Hear Jon Van Wieren, investment adviser and data analyst for the Bryan Ellis Investing Letter in suburban Atlanta:
• “While the numbers reported here are likely accurate, the conclusions drawn are unsound. The number of people seeking mortgages with low credit scores should be low, not artificially inflated by mortgage products that convince anyone paying $800 a month for an apartment that they too should own a home.”
• “For much of the 20th century, when housing values grew, but at a much slower pace, down payments of 20 percent were the common requirement. This large down payment increased the likelihood, in the lenders’ eyes, that the borrower would be able to repay, and if they could not, that the lender could sell the house to make good on the loan.”
• “Housing prices increased too quickly in the 2000s, as super-easy credit made everyone a homebuyer. With this, home prices shot up, but not because of any real increase in the homes’ values, only because of added demand from a much larger base of people.”
“The housing bubble burst because most of these people, whether Caucasian, African-American, or any other racial group, could not keep up with mortgage payments. Lowering standards for mortgages is not the answer — it was the problem.”
See the Bryan Ellis Investing Letter here: tinyurl.com/BEILetter.
Now, what do you think?