When will the Housing Market return to Normal?
by Henry S. Harrison

Last June, I answered an “Ask Henry” question from a reader: “When will the Residential Real Estate recession end?” My answer was that I thought that it would end beyond the term of whoever was elected President in November 2012. Between June and when Barack Obama was reelected President, the news media was full of press releases and commentator predictions that the country was well on its way to a real estate recovery.

On February 12, 2013, I listened to the President’s State of the Union Address. Here is what he said about the real estate recovery:

“Our housing market is healing, our stock market is rebounding, and consumers, patients, and homeowners enjoy stronger protections than ever before… Together, we have cleared away the rubble of crisis, and can say with renewed confidence that the state of our Union is stronger…Part of our rebuilding effort must also involve our housing sector. Today, our housing market is finally healing from the collapse of 2007. Home prices are rising at the fastest pace in six years, home purchases are up nearly 50 percent, and construction is expanding again… These initiatives in manufacturing, energy, infrastructure, and housing will help entrepreneurs and small business owners expand and create new jobs. But none of it will matter unless we also equip our citizens with the skills and training to fill those jobs. And that has to start at the earliest possible age…We’ll work with local leaders to target resources at public safety, education, and housing.”

This housing update was covered in 153 words in a one hour speech of 6,456 words — according to my HP-12c calculator, that is 2/10th of 1% of the speech — which is probably a good indication of what percentage of the government’s efforts will go into really solving the housing problem.

I continue to believe that the information we are being fed by the media, which leads one to believe the housing market will straighten itself out in the near future, is very misleading. It is going to take much longer than we are being led to believe.

Here are a few things I think could be done to speed up the recovery, that either could be expanded upon or started:

  1. There are about 11 million illegal immigrants in the U.S. My guess is that at least one million of them would buy houses if they were given some kind of legal status that would prevent them from being deported. It doesn’t have to be citizenship; all they need to know is that they are not going to be deported when it is discovered that they’ve bought a home.
  2. The hedge funds have discovered that they can make money by buying distressed houses, fixing them up and reselling them or renting them. They are skimming that housing stock. A government program that helped municipalities, foundations and private companies do the same thing would provide many jobs directly, and many more indirectly by increasing the market for the wide array of building materials that would be used and many more due to the sale of manufactured products such as appliances and furnishings that a housing recovery would promote.
  3. I remember back in the 1960s, when the federal and state governments successfully helped redevelopment agencies go into run down neighborhoods and revitalize them. The big difference now is that many blighted houses are in basically good and stable neighborhoods — so that such a program today would not have to be as deeply involved in neighborhood revitalization.
  4. Accelerate the programs that help homeowners who are under water (e.g., the value of their property is less that the mortgage). This program is now over 5 years old and still helping only a small percentage of homeowners who need help. The program should not only cover people who are being foreclosed (which has been a big stumbling block with the current programs). It should cover anyone who has gotten into this situation through no fault of their own. One thing that can be done is for the government to have a claim on any profits that are made when the house is eventually sold.

I believe related jobs would quickly become available by solving the housing problem and that the benefits to everyone would greatly outweigh the costs. At the pace we are currently going at, I predict it will take at least another 5 years for the housing market to return to anything like normal.