In 2013 limited housing inventory was blamed on underwater mortgages, struggling affordability and difficulty getting mortgage financing. In 2014 homeowners not ready to walk away from limited equity and others with sub-4% interest rates topped the charts for reasons nobody wanted to sell their homes. 2015 may have been about people not being able to afford a move-up and the still lingering hangover of underwater mortgages.
And the blame forecast for the lack of inventory in 2016 already includes some of the usual suspects; move up buyers who can’t find move up homes and homeowners who are underwater or just barely above water on their mortgages. Add to that mix the many homeowners who actually have equity and can move up but are staying put and renovating instead.
It appears that inventory woes are poised to hamper housing market activity as we stand at the threshold of the Spring market. So what do we do? What can we do?
Much is at stake here. Limited housing inventory will mean fewer home purchase transactions needing fewer mortgage and real estate people, who may end up being forced out of the industries because they can’t make a living. The technical term for this is rising unemployment.
So less than two months into the year, two traditionally powerful economic drivers; the housing market and the jobs market may be shaping up to be short on anything resembling robust.
We need to do something and not just stand around and languish away another year of waiting for things to change organically. We don’t need fancy “outside the box” think tank thinking, we need what I heard someone else say; “forget the box, just think.” That’s what we need.
So here we go, let’s vet these ideas and kick start these markets:
- If a homeowner’s mortgage is underwater and their mortgage payments are current, facilitate a short sale and allow them to apply for new mortgage financing for a new home right away. The homeowner didn’t cause the value of their property to decline, economic forces did. If they kept their payments current even though they were facing potentially unrecoverable equity losses, that is a responsible homeowner/borrower and we should reward that behavior. Right now that homeowner has to wait 3 to 4 years before they are eligible for mortgage financing after a short sale. Fannie Mae and Freddie Mac can fix this with a simple underwriting guideline change and presto the underwater/little to no equity problem is fixed.
- We should rethink and reconfigure the PMI/MIP (FHA) mortgage insurance universe. Affordability for move-up and first-time homebuyers with limited down payment assets is hampered by expensive monthly mortgage insurance premiums. Reducing these monthly premiums will make buying a home more affordable and may just create homeowner candidates out of fence sitters. Additionally, allowing single premium mortgage insurance to be added to the loan amount regardless of down payment, will still protect lenders while at the same time reduce monthly mortgage payments for homebuyers. Affordability rises even in the shallow end of the buyer pool where assets may be limited.
- Buyers who have homes to sell as a condition of their ability to purchase, are sometimes seen as less attractive than buyers who do not. Competitive free markets will find what works and what does not work without any well intentioned engineering. There may even be situations where contingent buyers present better circumstances than non-contingent buyers. If we level the playing field and invite all comers, including those buyers who have a house to sell, we may see deals made that would not have happened otherwise.
Remember what Henry Ford said; “whether you think you can or you think you can’t, you’re right.”If people think they can’t move then they won’t, if they find that maybe they can then maybe they will.
Talk to a real estate agent or any of the multitudes of eager and frustrated buyers and you will quickly discover that there is no shortage of willingness in the buyer pool. What has changed is the home seller model and that may be the result of housing market forces that have zigged and zagged dramatically in a generation. A change in the model necessitates a change in the tools we use to navigate that model.
So 3 things that we can do right now; eliminate the undeserved penalty for short selling, re-imagine the mortgage insurance paradigm and open the contingent offer spigot. Will these changes bring more properties to the market? Maybe, maybe not. But we need to do something, we need to start somewhere and while we are waiting for better ideas, we can try these!
Let’s do something now before we trudge through another year of waiting for economic forces to magically alter the stumbling housing markets trajectory that we have been on for too long.