Moody’s economist Mark Zandi emphasizes the need for government action in the housing crisis to help stave off further damage to the economy. Recent gains in the market suggest the threat of a double dip in home values has been avoided, but the five-year slump has taken its toll and policy changes are in order. Specifically, Zandi recommends more policy support for loan modifications and refinancing, and delaying a reduction in conforming loan limits. He admits these actions will be unpopular, but that securing the safety of the U.S. housing market is necessary for the broader health of the economy. For more on this continue reading the following article from The Street.
Moody’s Analytics’s(MCO) chief economist, Mark Zandi, says it’s time to stop fooling around with the housing market and take some aggressive — and historical — steps to keep Americans in their homes. He’s got three big ideas for the federal government to put into place, and they’re worth a closer look.
The U.S. housing market did show some signs of growth in the past month, as data from Freddie Mac released July 18 show the housing market probably won’t experience a double dip as some economists have suggested. Home sales, the agency says, should rise by 3% to 5% this year compared with last year.
“The single-family market will likely improve over the balance of 2011, in keeping with positive GDP forecasts for the United States,” says Frank Nothaft, Freddie Mac’s vice president and chief economist.
But Zandi says there’s always room for improvement, and that goes double for a housing market striving to avoid that double dip. He recently wrote a report for Moody’s that lays out a three-point plan to boost housing stability and put the market back on the road to recovery.
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After stating the obvious — that the housing market has been in a prolonged five-year slump — Zandi offers a prescription for what ails the housing sector.
“Policymakers may thus want to consider taking additional steps to support housing temporarily,” he writes. “These might include facilitating more mortgage refinancing, delaying a reduction in conforming loan limits and supporting more mortgage loan modifications — with principal reductions — more aggressively.”
Zandi notes that government home loan modification efforts such as the Home Affordable Mortgage Program just haven’t put a dent in the housing problem, but that the idea behind what the government is trying to do is sound.
By making it easier for homeowners to refinance to a lower interest rate, holding off on conforming loan limits and by adding principal reductions (Zandi admits this one is a “dramatic and costly policy step”), the housing market will at least stabilize, if not roar back to life.
“Although none of these steps are particularly satisfying or likely to be popular, the outcome will be worse if policymakers stand by while a weakening housing market undermines the economic expansion,” Zandi says in the report.
But considering the damage done to the U.S. housing sector in the past five years, stability sounds like a pretty good option right now.
This article was republished with permission from The Street.