Housing Rebound In 2012?

The U.S. has gone through five years of foreclosed homes, vacant subdivisions and houses worth less than the owner's mortgage. Host Michel Martin and NPR Senior Business Editor Marilyn Geewax discuss whether predictions of a turnaround in the housing market are realistic or just new year optimism.

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MICHEL MARTIN, HOST:

I'm Michel Martin and this is TELL ME MORE from NPR News. Coming up, later in the program we are going to head to East Africa to find out why Somalia is seeing a dramatic rise in sexual abuse cases against women and girls. That's in a few minutes. But we are going to focus most of the program today by talking about money; why we spend what we spend and what we spend it on. And on a personal level if we're in a mood to make changes, how you can do that. But we want to start here at home - literally - to take note that this country's once hot housing market has now been in a deep freeze for almost exactly five years now.

And as 2012 begins, some economists say the housing sector may finally be ready for a turnaround. Some expect housing prices to stabilize but others say a new normal is emerging - a long period when housing prices will remain far below where they were before 2007. So, on the occasion of this five year anniversary, more or less, of the downturn, we thought it was a good time to check in with NPR's Senior Business Editor Marilyn Geewax. Marilyn welcome back. Happy New Year to you.

MARILYN GEEWAX, BYLINE: Hi. Thank you. You, too.

MARTIN: Now, there's been a lot of talk that the worst is over, that the market has hit its bottom and that prices were going to stabilize in 2012. Is that just wishful thinking or is that a distinct possibility?

GEEWAX: It is a possibility. Now, let's be clear. We're not talking about going back to 2004 with the flip-this-house mentality and soaring prices, but it is possible that 2012 could be a better year, and there are several reasons for this. For one thing - affordability. Prices are way down from what they had been. Interest rates are really at historic lows. In our lifetime, Michel, there hasn't been - you've never seen mortgage rates this low. You have to go back to the Depression for that.

So, there is also a kind of a pent-up demand. People haven't been buying houses for five years. So if you've got cheap mortgages, cheap housing prices, people who are looking, that's a good combination. And also there's another thing: rents are very high these days. If you've gone out to rent an apartment you know that maybe buying a house is a better option. And finally, we haven't really had new houses being built in any significant numbers for years now, since 2006.

So, you might see some builders out there putting new houses on the market and that'll catch your eye.

MARTIN: You know, we reached out to fans on Facebook to put some real stories to these market trends that you've been telling us about. We got some 500 comments, which is not bad given that it's the kind of topic where often a lot of people don't really want to put their business out there in the street, and we're going to hear from a couple of them. The first is Adam Clemmons(ph). He lives in Detroit, Michigan, and to the point that you were making about how renting, you know, rental costs are high enough than housing - buying a house is attractive again. Let's listen to what he had to say:

ADAM CLEMMONS: I'm Adam Clemons. I'm originally from Wausau, Wisconsin and I plan being a first time homebuyer this spring after I graduate medical school. Even though only being in one place for three years I found that buying a house and paying house payments is even cheaper than paying for rent, and when you buy a house it allows you to keep the money in the form of equity rather than just handing it to somebody else. And the only possible issue is being able to resell the property in three years after residency is over and I'm likely to move or upgrade to a different house.

MARTIN: Well, Adam we appreciate you writing, but that whole keep the equity is...

(SOUNDBITE OF LAUGHTER)

MARTIN: ...that's the point, that's supposed to be the point, Marilyn.

GEEWAX: But well, he is certainly the person that realtors are hoping to see all over the country this year, that they are sort of tired of renting. They're eager to buy. They see that prices are pretty good and the rents are pretty high. But he has something going for him. He's going to be a doctor and doctors tend to stay put. They may not be jumping around from city to city. So that calculus may work well for him, but we have to keep in mind for a lot of workers - let's say you're a blue collar worker who wants to get a job in North Dakota.

You may need to pick up and move, or you could be a high tech worker. Are you going to get a job in Boston or is it going to be Austin or San Francisco? You want to maintain that mobility that comes with just renting a house so, there are a lot of people who are pretty happy with the idea of continuing to rent.

MARTIN: If you're just joining us this is TELL ME MORE from NPR News. We're talking about what to expect from the housing market in 2012 with NPR Senior Business Editor Marilyn Geewax. Marilyn, here's another comment posted on Facebook. This one from Wendy North of Montclair, New Jersey. Wendy and her family moved to a rental home there from Portland, Oregon when her husband lost her job in Portland and then they moved, as just like you were talking about just now, for a better opportunity on the East Coast. Here's what she had to say:

WENDY NORTH: Renting doesn't feel so bad. It's nice to feel like we have the freedom to get up and go if we have to and it's also nice to know that when something goes wrong it's not our responsibility to fix it. So, initially I kicked and fought and hated having to hear neighbors in (unintelligible). But honestly, those neighbors have watched the kids, bought them Christmas presents and ended up being friends. So, we've learned to keep what we need and love and get rid of the rest because we just - we don't have time for the nonsense or room for it.

And ultimately this sums up our new life so, we're letting the Joneses stress about house upkeep while we go to the park and play.

MARTIN: Well, go Wendy well thanks for coming in from the park long enough to write to us. Marilyn, what do you think about that? This is an interesting perspective. This is also something you talked about earlier.

GEEWAX: Right. That's right so, this is the dilemma that a lot of people face. On the one hand, there's a lot to be said for renting. Other people feel like rents are too high. It's time to move. But here is one comment I'd like to - someone wrote in on Facebook and said: My husband and I have been renters since leaving our parents' home nine years ago. We love the freedom of renting but now that we have a daughter we're thinking about buying a home.

So, here we are in 2012 and this is what realtors and mortgage brokers and the homebuilders are hoping is that deep down still there's an awful lot of people who have that desire to own a home and they want to get into the housing market. Now, there are some negatives. There's some reasons to be worried. Unemployment is still high, credit scores are a problem. But if we start to see price stability, more people like this renter will say I've got a daughter on the way. I want to buy a house. We're going to move back into the market.

MARTIN: But I have to ask you though. No disrespect to this person who wrote in.

GEEWAX: Um-hum.

MARTIN: But isn't that emotional, as opposed to financial? Is the desire to buy a home, I mean, how much of that has been caught up in the emotion that has been created by whatever factors...

GEEWAX: Um-hum.

MARTIN: ...as opposed to the financial realities, and I suppose - or government policy or financial policy which has pushed people into home ownership whether or not it was appropriate for them, I mean?

GEEWAX: Yeah, you know, there's a reason we call it the American dream. It isn't necessarily smart financial calculus. There is a part of it that is kind of making your wishes come true. For some people no matter what the economics are, they have a desire to own a home. It's just the way people would like to live. So, right now we're kind of on that nice edge where a lot of people have been renting. They've gotten used to it.

It's the new normal for them and they want to stay renters and other people start feeling that tug of the American dream where the emotion comes out and they just want their own home.

MARTIN: OK, but policy has played a role in this hasn't it Marilyn?

GEEWAX: Yes.

MARTIN: I mean, for the fact of for example for, you know, perhaps immigrants coming from countries where they were discriminated against in home ownership. For African-Americans, for example. There are parts of this country where you could not vote unless you were a homeowner or you were a property owner. So, that effectively disenfranchised, you know, hundreds of thousands if not millions of people.

GEEWAX: Right.

MARTIN: I mean, haven't there been policies that have pushed people into home ownership?

GEEWAX: Right, there are both policies certainly the biggest policy is probably the interest rate deductibility. But there are reasons why we have policies that allow people to buy homes and try to encourage that and that's because we know that most Americans most of the time do like to own a home. So, we're going to have to see going into 2012 will people stick with the let's rent or will they start getting back into that mood to buy. And one of the things you have to see for people to really move into home ownership again is price stability.

Nobody wants to buy a house when the price is falling. So, if how do we achieve this stability this year? One thing is that sellers have to really capitulate. They have to admit that actually prices are down by about a third from what they used to be and once you accept the fact that the price is lower and you put the sign out there at a reasonable price, buyers do start to show up.

MARTIN: What about the areas that have been depressed for a while? What is going to happen to the existing housing stock in those areas? There are parts of the country where construction has halted...

GEEWAX: Right.

MARTIN: ...on new projects that had been going forward and that there are, because of the foreclosure issue for reasons of unemployment where there is literally - there is existing housing stock that is vacant. What is likely to happen in those areas?

GEEWAX: Four or five years ago, the sound you would often hear around this country is hammers and nails and saws as houses were being built. Lately, what you've been hearing is bulldozers knocking down a lot of those foreclosed houses. The fact is that houses, if they sit and sit and sit, they become kind of worthless, so we're seeing in places like Detroit and Cleveland and lots of places around the country in the Rust Belt where houses are just being knocked down. Cities are rounding up money to eliminate eyesores and dangers, but it's also the Sun Belt.

There are places in Las Vegas, Phoenix, California where entire subdivisions are basically going back to nature because we have to admit that some of those houses have just been vacant too long and no one is ever going to move in. So there's sort of capitulation in that sense, too, where we're just scraping it clean and starting over.

MARTIN: What about all these policies that have been so much advertised? When you see billboards in many cities saying, if you're in trouble, call us now. There have been various initiatives by state governments, by the federal government, to assist people who are on the verge of foreclosure, if they weren't there already. Are any of those bearing fruit in efforts to keep people in their homes who might lose them otherwise, either by adjusting, you know, the principle that they're owed or by adjusting the interest that they're owed or those initiatives? Are any of those bearing fruit?

GEEWAX: Not enough so far. I mean, this has really been a key problem. One of the big frustrations for the Obama administration - for everyone, really - has been that these loan modifications haven't gone forward very well. A lot of it just is paperwork messes, so another thing people are hoping for is that, in 2012, we'll finally really get moving on these modifications and lower those interest rates and, in many cases, even cut the principle, which is a really radical thought, but to get those mortgage payments down so that we can clean up some of this foreclosure mess.

MARTIN: And, Marilyn, final thought from you. We only have about a minute left. If you were in a position to - financially, you're in a position to afford to buy a home, is there an ideal home or is there a person for whom you would say, yes. You are the person who should buy a home at this stage of your life for whatever reason. And is there a rule of thumb you would follow in choosing a home at this stage?

GEEWAX: Yes. I think that the one thing that people really have to look for is not flip this house mentality, that the person who should buy a house is not somebody who's jumping from city to city pursuing a higher paying job, but someone who really is where they want to be and their timeline is more like 10 years.

So if you're looking at a place where your kids are starting school, you want to settle in, you want a community, you want that back yard, hey, this is a great time to start to look to buy. But if you're just 24 years old and you're not sure what city you want to be in, maybe it's a better time for labor mobility.

MARTIN: NPR's senior business editor, Marilyn Geewax, was kind enough to join us once again in our Washington, D.C. studios. Marilyn, thank you so much for joining us and Happy New Year once again.

GEEWAX: You're welcome. It's always fun to be here. Thank you.

(SOUNDBITE OF MUSIC)

MARTIN: Coming up, let's go from the big picture of the country's economy to the small picture of personal finances. But how do you start? Do you start with the rent, a big credit card bill, paying off the car note? We'll speak with our frugalista about getting our money in order in 2012. That's coming up on TELL ME MORE from NPR News. I'm Michel Martin.

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