Volatile Housing Market Baffles Homeowners

Guests

Mark Zandi, Moody's Analytics
Amy Bohutinsky, Zillow
David Streitfeld, New York Times

Tax credits for buyers, mortgage help for homeowners and new rules for lenders haven't stopped the slide in the housing market. Some economists argue the best way to balance the market in the long term is to let it crash in the short run. Many homeowners and prospective homeowners are unsure if it's time to buy, to rent, or to wait.

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JENNIFER LUDDEN, host:

This is TALK OF THE NATION. I'm Jennifer Ludden in Washington. Neal Conan is away.

Since the bottom fell out of the housing market almost three years ago, trying to understand what's going on in real estate has been confusing, sometimes terrifying - and for many Americans, a necessity.

So much of our wealth, as individuals and a nation, is bound up in the houses we own. We know we should make informed decisions about - say, buying versus renting, or refinancing or just walking away, but how to make sense of it all?

Today, we're going to leave behind the torrent of dense, jargon-filled economic reports, and do our best to understand what's going on in the housing market and what it means to us: the homeowners, buyers, sellers and renters.

We want to hear your questions about real estate and home ownership. How's the housing market affecting you? Have you changed your outlook on home ownership, or made different decisions than you once would have? Our number here in Washington, 800-989-8255. Or email us at talk@npr.org. And you can join the conversation at our website. Go to npr.org and click on TALK OF THE NATION.

Mark Zandi is chief economist of Moody's Analytics, where he directs research and consulting. He joins us from his office in Westchester, Pennsylvania.

And on the phone, we also have, from Seattle, Amy Bohutinsky. She's vice president for communications with Zillow.com. That's an online information source about real estate and home ownership. Welcome to both of you.

Ms. AMY BOHUTINSKY (Vice President, Zillow.com): Thank you.

Mr. MARK ZANDI (Chief Economist, Moody's Analytics): Thank you.

LUDDEN: Mark, let me start with you first, just a general question here: How bad is it out there?

Mr. ZANDI: Well, it's a very tough housing market. House prices are down approximately 30 percent from their peak, and their peak was just over four years ago.

Home sales - housing construction are about as low as they've been since World War II. So we did suffer and are still suffering an unprecedented housing crash. I think it's fair to say, this is the worst crash in the housing market since the early 1930s and the Great Depression.

LUDDEN: Now, you said down 30 percent from four years ago. But I've seen statistics that say July housing sales sank 26 percent compared to just one year ago, which was the lowest level. Help me understand that.

Mr. ZANDI: Right. The 30 percent is national house prices, so looking across the country and measuring house prices. The statistic you mentioned is home sales, the number of....

LUDDEN: So would that mean that those prices are down and falling, as far as we can tell?

Mr. ZANDI: Well, prices have fallen quite considerably over the last four years, and they over the past year, they've actually been relatively stable for lots of different reasons, most importantly being the fact that the government has provided a lot of different support, one of which was the housing tax credit, which helped juice up home sales, and helped to support house prices this summer.

LUDDEN: That was that credit worth up to $8,000, right, but you had to apply before April 30th. Is that right?

Mr. ZANDI: That's correct, and because of the expiration of the tax credit, that's had a very significant, negative effect on the housing market. And that goes to the statistic you just previously mentioned, that large decline in home sales in the month of July.

LUDDEN: You know, a lot of the attention, if not, you know, anger and blame for the housing woes, has been directed at Fannie Mae and Freddie Mac. How has their role in the market been evolving now?

Mr. ZANDI: I think that criticism is unfair in the sense that Fannie Mae, Freddie Mac, and of course the FHA, which is also part of the federal government, are now providing nearly all of the mortgage loans that people are getting.

In fact, 95 percent of all of the loans that are being originated today to purchase a home are made by those three institutions. So they've been very helpful.

I think most of the criticism of Fannie and Freddie revolve around their role in contributing to the housing boom, bubble, and the subsequent collapse. But in the collapse, in the last couple, three years, they've been very important to providing credit in keeping the housing market together - as well as it's been kept together.

LUDDEN: Right, which a lot of people are now wishing was a lot more. I mean, kind of the question of the day seems to be that - why hasn't it helped more?

Mr. ZANDI: Well, part of the reason is that we had a bubble. House prices got well beyond, rose well beyond household incomes and apartment rents, and that bubble burst. And there's nothing that anyone - no institution could have stopped the crash that we experienced.

And of course, the job market. We've lost 8 million jobs over the last - well, since the peak back in December of '07. Unemployment's 9.6 percent, and when you have that kind of a job market, there aren't going to be a lot of people out forming households and purchasing homes. So that's also contributed significantly.

LUDDEN: Amy Bohutinsky, can we bring you in here? I'm wondering how the housing market problems have maybe changed what people think about owning a home.

Ms. BOHUTINSKY: Well, it's certainly changed a lot about what people think about owning a home, but also the social implications of home ownership on our communities.

You know, we've become, over the past 15, 20 years, very transient generations - both the aging population of baby boomers, who are used to putting a lot of wealth into their homes and moving up to bigger and better, but also this younger generation that says, if I buy this two-bedroom home now while we have one child, well, the value's going to go up, and we're going to be able to buy a four-bedroom home in a couple of years.

We're used to moving every couple of years. And now, with one in five homeowners underwater on a mortgage, one in 10 homeowners at risk of foreclosure, people are staying put, and that's going to have a lot of social and, I think, economic consequences on our communities - when people aren't moving as frequently.

LUDDEN: Let's bring a listener in, someone who is about to get married and buy a house, I believe. Trevor(ph) in Tacoma, Washington. Hi there.

TREVOR (Caller): Hi, how's it going?

LUDDEN: Okay. So tell us about your, the big decision you're contemplating now - the home, not the marriage.

TREVOR: Well, obviously, marriage. And we're waiting until we're married because then we will be able to better combine our incomes. And one of the main reasons why we haven't bought a house beforehand - or at least, haven't started looking yet - is we have so much student-loan debt.

It actually takes up 30 percent of our income every month, and when we look towards mortgages, even though we have a sizable down payment, the - just the consumption of our incomes every single month by the student loans is enough for most mortgage companies to say, well, you have to think about this further because we're not going to give you a loan.

LUDDEN: So have you tried to get approved or pre-approved for a mortgage, and been told no?

TREVOR: Yes, and I still have to go to many more companies, but we've been denied by two - well, preemptively denied...

LUDDEN: So let me ask you...

TREVOR: ...just based on our go ahead.

LUDDEN: So let me ask you - but Trevor, if you've got 30 percent of your income going out to student loans, why do you think now is a good time for you to buy a house?

TREVOR: Well, at least in this neck of the woods, I think that the prices are getting pretty close to bottom. And even if it isn't going to be the bottom for another two or three years, I'm planning on having the house for seven to 10 years.

LUDDEN: Okay. Amy Bohutinsky, you're out there just a hop, skip and a jump from Trevor, in Seattle. Do you think the market's hit bottom? And I know this is speculative and I, you know - but looking at the situation.

Ms. BOHUTINSKY: In many places, the market still hasn't fully hit the bottom. I think the bigger thing to look at, though, is that once it hits the bottom, what's going to happen?

You know, we always assumed - or many homeowners always assumed, well, when the market hits bottom, home values are going to shoot right back up. And that's not going to be the case. I mean, most all economists are forecasting an L-shaped recovery versus a V-shaped recovery - meaning once homebuyers hit the bottom, they're going to stay there for many years.

So it's taking homeownership as a - looking at it long-term. Now, living in a home more than seven or even 10 years - and it sounds like Trevor's looking to do that, to be able to stay there - but it's looking at it as more long-term.

How long do you plan to stay in the home? That should be the number one question you ask yourself when trying to decide whether to rent or buy. And if it's less than, say, seven years, renting is probably the better option.

LUDDEN: Okay, so you wouldn't necessarily say hold off yet, just keep renting?

Ms. BOHUTINSKY: Well, you know, certainly since Trevor says he's going to live there for many years, homeownership can be more attractive because you can start to get the value back after that, when home values start to slowly appreciate.

But he does have this extra factor, of the student loans, that adds in the complexity here. So it's really much more of a complex decision of should I rent or buy. It's what are my financial obligations and where should they be going, and that does make it a lot more complex.

LUDDEN: Okay. Trevor, good luck, and thanks for the call.

TREVOR: Thank you.

LUDDEN: Let's hear now from Margaret(ph) in Sonoma, California. Hi there.

MARGARET (Caller): Hello. I was listening to the other callers, and I'm wondering if the government could do a better job in letting people know what the options are. I got I had a house, and my husband lost his job, and we weren't able to afford the mortgage anymore.

And I got most of all of my information on the Barack Obama program and the short-sell program through my hairdresser. So I'm wondering if the government could not reach out to people in a little more systematic way to let them know, so that they don't walk away from their homes; let them know that there are other options.

LUDDEN: Mark Zandi?

Mr. ZANDI: I think that's a reasonable piece of advice. I mean, I think it is important to recognize that these programs and part of the problem is that there is not just one; there are many programs are quite complex. And there's a lot of moving parts, and it depends on each, individual circumstance.

So probably the wisest thing to do is to contact your mortgage servicer, and try to work through, with them, all the different options that are available.

Now, the administration has a website - in fact, there are a couple, three different websites, that try to lay out as clearly as possible some of the options: who qualifies, who doesn't qualify, and how an individual homeowner can benefit.

But the caller is right. I mean, these are very complex, difficult issues and very hard to articulate, and it has been a problem getting that out, that information out to people.

LUDDEN: And is there also, kind of a lingering lack of trust in the system when people feel burned?

Mr. ZANDI: Sure. I'm sure that's the case and in fact, probably with good reason. The mortgage servicers, the folks that handle people's mortgage payments and who are on the front lines trying to figure out, you know, whether loans should be modified and how they should be modified so people can stay in their homes or not, had been overwhelmed.

The problem is so significant. There are so many millions of people that are struggling that and the servicers just weren't really prepared for this. And it's not until even now, they're not quite prepared for all the work they have to do.

LUDDEN: All right, Margaret, thanks for your call.

MARGARET: Thank you.

LUDDEN: We're trying to decipher the state of the real estate market. We'll get some more of your calls in a moment. How is the housing market affecting you? 800-989-8255. The email address here is talk@npr.org. I'm Jennifer Ludden. It is TALK OF THE NATION, from NPR News.

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LUDDEN: This is TALK OF THE NATION, from NPR News. I'm Jennifer Ludden.

Even after a federal tax credit for buyers, mortgage help for some homeowners and record-low interest rates, the housing market shows very little sign of improvement.

In July, sales of existing homes dropped more than 25 percent. Our focus today is on what this means to you. We want to hear your questions about real estate and homeownership. How is the housing market affecting you? Have you changed your outlook on homeownership or made different decisions than you once would have?

Our number here in Washington is 800-989-8255. Our email address is talk@npr.org, and you can join the conversation at our website. Go to npr.org, and click on TALK OF THE NATION.

We have guests: Mark Zandi, chief economist of Moody's Analytics; and also Amy Bohutinsky, with Zillow.com. Let's go straight to the phones and take another call - from Andre(ph) in Oakland, California. Hi there.

ANDRE (Caller): Hi, how are you?

LUDDEN: Good. What's your issue?

ANDRE: Well, my girlfriend - my partner, rather, has a house. She paid, in Oakland, she paid like $560,000 for it. And best guess, it's worth like $350,000.

LUDDEN: Ouch.

ANDRE: And try to figure out: Can she qualify for there was one program through a group called NAKA(ph), but I'm not quite sure if that's going to work. But just like, folks like her find themselves in a difficult situation, and then me and her trying to figure out, you know, our situation in terms of renting or owning, and what it's going to require in terms of credit.

So are there any tax write-offs for loss of the value of the house so that we could start to rebuild the nest egg, the savings -

LUDDEN: Amy Bohutinsky, do you want to take that?

Ms. BOHUTINSKY: Sure. So there are, you know, a number of private and government programs that can help you figure out if there can be a mortgage modification that you could make. To find out more about the government one, you would go to the makinghomeaffordable.gov website. You can also contact a counselor through that website who can talk you through the various issues for loan modification.

It's also always a good idea to call your lender and say, this is our financial situation. We're significantly underwater. We're having trouble making payments. What should we do?

It works for some people; it doesn't work for others. And it's very hard to say, you know, who would qualify for the government program because many people haven't been able to make it through.

But that should be your first step, is to talk to your lender, and to call and find out more about the government programs that are available and see if you might qualify there.

LUDDEN: All right. Go ahead, Andre.

ANDRE: And follow-up was whether or not there was a tax benefit, the loss of the value. Is it a write-off?

Ms. BOHUTINSKY: I mean, there are so many individual things that will go into your own financial situation, and you can't really make a blanket statement for everyone. So I would call the lender and look into the programs, and see there what it can do for you.

Many, many people are in these situations. There's so many different financial levers, personal financial levers that'll draw into this. We can't really say for everyone.

ANDRE: I appreciate your call. Thanks for the subject. It's very timely.

LUDDEN: All right, well, thank you, Andre. And we've got an email from Stefan(ph) in Oregon Hills, California, who says: As a Realtor, I want to point out that comparing how much the housing market has fallen since the peak is somewhat illusory since the peak was the result of the largest bubble ever in real estate. Perhaps the current situation could be more usefully compared to a more normative figure.

And Mark Zandi, you did pretty much make that point as well.

Another email from Nicole(ph) from Suzanne(ph) in Baltimore: I'm listening to you while I pack up my house due to foreclosure. After struggling to pay the mortgage and having no luck in refinancing with the mortgage company, I had to make the decision to give up the home.

What helped me make this decision is the fact that the home is $100,000 less valuable than it was when I bought it. I only paid a little over $200,000 for it that's quite a drop and the decline in the home's value in the neighborhood has changed the demographic and level of safety in the neighborhood.

I can give up the home, declare bankruptcy, and with the money I'm saving will be able to more prudently purchase another home in a few years.

Mark Zandi, are you seeing a lot of this?

Mr. ZANDI: Yes. There are millions of folks that are underwater in their homes; the value of their home is less than the mortgage debt that they owe. And for many, they are deeply underwater - underwater by 15, 20, 30, 40 percent. And many of those folks are making the same kind of calculation that the person that emailed you made.

And some are walking away. They are called strategic defaulters. These are folks that under reasonable assumptions can make their monthly mortgage payment - they have the income to do it - but decide not to because they feel that it's just such a bad investment that they really don't want to sink any more money into the home. And they decide to move on.

Now, you have to be very careful doing that because there's all sorts of downsides with respect to credit score...

LUDDEN: Right. Well, Suzanne said she could more prudently buy a house in a few years. How long would that stay on your credit rating? When could you expect to get another mortgage?

Mr. ZANDI: You know, I don't know exactly how long a if you're foreclosed on, I don't recall. Maybe it's five, six, seven years that it might be on your credit score. I don't know the precise number of years, but it's there for a while.

LUDDEN: All right. Let's take another phone call. John(ph) is in New York. Hi, John.

JOHN (Caller): Hi, how are you?

LUDDEN: Good. What's your question?

JOHN: Yeah, quick question. It's actually in two parts. For about a year, I'd researched the New York market, New York City, and last April, I found a very well-priced, one-bedroom apartment in a very desirable location in New York City. So I decided to make the leap, thinking that that was about the bottom of the market.

And so my question is really twofold. Number one is: How shielded would you say the New York market is in comparison to the rest of the country? And I guess number two would be: Given the fact that I want to stay there probably for about five years and then sell it, obviously hopefully turn a profit on it, did I make a good move?

LUDDEN: Amy Bohutinsky?

Ms. BOHUTINSKY: Well, one thing we found that we cannot do well over the last several years, is predict exactly what's going to happen in the next six months, year or even five years because we're really in uncharted waters here with the housing market.

And anyone who's trying to time the bottom is probably not going to. I mean, it's just, economists at this point can't even time the bottom. So when we make our housing decisions today, we need to think about housing as a place to live and live for the longer term, not something we want to flip over in just a couple of years.

The New York market, in particular - very, very much varies by neighborhood but like most of the country, has been hit significantly by the housing downturn, is not completely out of the water yet. And the number one thing impacting housing today is the job market.

And jobless claims are very high - and significantly higher than they've been. And people without jobs are not buying homes, and are not propping up the housing market.

So as long as there are fewer jobs, the housing market is still going to continue to falter, and we're not going to see this recovery.

Mr. ZANDI: Can I interject?

LUDDEN: Please.

Mr. ZANDI: Yeah, I think it is fair to say, though, that because of the decline in house prices over the past four, four and half years, that house prices are now much more consistent with people's incomes and with competing apartment rents.

And so, you know, I think it's reasonable to expect that in many markets, and New York being one of them, that house price growth should be fairly consistent with the growth in household incomes, at least over a five-year period, five years from now...

LUDDEN: Of course, right now, incomes aren't going up much, are they?

Mr. ZANDI: They're not, but they are going up. And I think, you know, over the next five years, if you for a prudent planner, someone thinking about this, about buying a home, if you planned on 3, 4 percent per annum kind of price growth in the New York market the New York market, obviously, is a big market, and every neighborhood's different, but broadly speaking I think that would be a reasonable forecast. And that would be the kind of forecast that would make for a prudent decision with respect with whether I should buy, or I should rent.

LUDDEN: All right, John, thanks for your call. Mark, can I ask you: You know, I look at - kind of my parents' generation and the phenomenal, astounding amount of money they made off houses, you know, the amount that their houses accrued over, you know, the past 40 years or so. And that just seems completely impossible, looking ahead. Was that kind of was that normal for a long time? Was that an odd period in our history?

Mr. ZANDI: Well, the reality is that if you look back, say, 30, 35 years - and I'm picking that because I have good, we have good house price data that far back, 30, 35 years - and even accounting for the boom, the bubble and the bust, house prices nationwide have risen about 4 percent per annum. And that's very consistent with the growth in household incomes.

And you know, part of that growth was related to the fact that government policies were trying to support homeownership. So that helped to support demand, and helped to support stronger house-price growth. So I don't think we're going to get growth consistent with household incomes going forward, but just a bit south of that.

So, you know, somewhere three percentage points per annum is something I think people should count on when they're doing their planning when purchasing a home.

But your parents - it depends on when they sold - but if they, you know, held on for 35, 30, 35 years, they got about 4 percent per annum.

And you know, compounding is a very magical thing. Four percent compounded annually is a lot of money and particularly if you put it into housing because and you had a mortgage because it's a highly leveraged investment. So the return can be quite good.

Ms. BOHUTINSKY: But we should also note that this is still significantly different than what we've seen in the past 10 or 15 years. I mean, between 1998 and 2005, home values increased about 10 percent annually.

So depending when people got into the market, people who have just bought their first home in the last 10 or 15 years really have had a completely different outlook of what it means to own a home, and what sort of increases they should get on a home. So for newer people into the market, it really is a major shift in how they think about owning a home and what those returns would be.

LUDDEN: All right.

Mr. ZANDI: Yeah, I think that's very fair. Yeah. People's thinking about investment - people think of the home as a place to live, and as an investment. The thinking about investment - housing as an investment has certainly shifted as a result of what we've been through.

LUDDEN: All right. Let's take another call. Gary is in Wichita, Kansas. Hi, Gary.

GARY (Caller): Yeah. I - sorry, I'm in a middle of trying to buy lunch.

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GARY: I had two questions. One was: Do you think the 8,000 - or 80 tax credit's going to come back? And then the other question was: Last year, I was looking at and failed to get - fell through on the - a duplex, and I'm looking at a duplex now. And I'm wondering - and it's also on a short sell. I'm just curious what I should look for. It's one that I want to live in half of and rent the other half - what I need to look for when I'm doing - if I make such a move?

Mr. ZANDI: Well, I'll take a crack at the...

LUDDEN: Okay, Mark.

Mr. ZANDI: ...tax credit. I think the answer is no. You're not going to get another house - another tax credit. There's been - actually, there's been three tax credits. And I think the view within the administration, Congress, and also within the real estate industry is that tax credits have done - they've played their role. They, I think, ended the housing crash and provided a floor under house prices.

But going forward, that it would not be prudent - that at this point, we've pulled as - poured as many sales that are - as possible, and it would be counterproductive. So I don't think I would count on another tax credit - or any other form of benefit to try to get people to buy homes earlier than they would otherwise.

LUDDEN: All right. Gary, thanks for your call.

GARY: And what about like, buying - like, this duplex I'm looking at, and it's in a short-sell situation. Is this a thing I should be looking at, or is there an advantage to it?

Ms. BOHUTINSKY: I can take that. So what you should look for, Gary, is pretty much what any buyer should be looking at today - is how long do you plan to hang on to this home? And can you hold onto it for the longer term to weather any other decreases in home values or flattening at the bottom.

But also, can you get a mortgage today? You know, a lot of people today don't qualify for a mortgage. The majority of mortgages are going to people with excellent credit and a significant down payment, and a lot of people aren't able to qualify for this. You'll want that down payment to be able to weather any further decreases in home values while things start to stabilize.

So bottom line is, can you hold on to this property for the longer term, rent it out - it sounds like you want to do - to cover a lot of your costs? But don't look at it as something you can just turn over in the next couple of years.

GARY: Yeah, that's one of the reasons I would buy a duplex, is if I did have to move, it's something I could keep renting out and maybe make a little income, but at least hold onto for the long haul.

LUDDEN: All right, Gary. Well, good luck with that, and thank you for the call. You're listening to TALK OF THE NATION, from NPR News.

We have an email from Michelle in Berlin, Maryland: My husband and I purchased our home in 2005, at the top of the market. About two years later, he had an affair. If the housing market were different, I would have immediately filed for divorce. The dismal market actually forced us to seriously consider reconciliation. We're now working hard to mend our marriage, and make the most of the house we're now stuck in.

And I think we have someone else desperately trying to sell in Portland, Oregon. Mary, how are you?

MARY (Caller): I'm good. And here is our issue: to sell or not to sell. My husband is going to be retiring in about five years. We wanted to downsize. We are not underwater. We have a lot of equity in our home. So we did buy another house, which is rented now. So that's not an issue for us. So we're not in a hurry to sell but - so we thought, well, we've always built equity in the homes that we've purchased, so maybe we should keep this home and just wait a little while, and the equity will come back. But that's not sounding like maybe a good option.

LUDDEN: Mark or Amy?

Ms. BOHUTINSKY: Well, Mary, I think what's good about your situation is that you're not underwater and you're not being forced to sell, which is the problem of a lot of people in America today. And you have the luxury of time. As I told another caller, though, trying to time the market to want to sell this exactly at the bottom, you're probably not going to be able to do it. No one can figure out their timing exactly to the market. I guess it's more of a question of how comfortable do you feel, financially and emotionally, having two properties, with your husband going to retire in a couple of years? And with equity in your home right now, you could go ahead and sell it, or you could wait. You have the options here but because you're not underwater, you're not being forced to.

So I would say, don't try to time the market. Think about - kind of lifestyle, what timing is best for you, and don't look at it so much as a numbers game because you're probably not going to hit it just right.

MARY: Okay. All right. Thank you very much.

LUDDEN: Thank you, Mary, for the call. Mark Zandi, can I ask you about refinancing? I mean, we've seen, you know, just when you thought interest rates couldn't go lower, they have seemed to. And we hear some, you know, an uptick in people refinancing at 15-year mortgages, you know, someone who has some equity and so forth. What are you suggesting on that front?

Mr. ZANDI: Well, this is a good time to refinance - if you're able to, if you have enough equity and you have a reasonably good credit score. The current mortgage rate for a 30-year fixed, for someone with very good credit, is 4.3 percent. And that's about as low as it gets. I mean, you'd have to go way back into the '50s to find rates as low as they are. So generally speaking, these are very good - excellent rates to refinance at.

Now the problem is that many people don't have the credit scores that they need to get that kind of a rate, or they don't have the equity. So a lot of people are not refinancing - in part because of those problems.

There are some things that the federal government could do to help try to facilitate more mortgage refinancings, and I think they're working on that and thinking about it. But to date, we're getting a lot more refinances, but not nearly as much as one would anticipate, given how low rates are.

LUDDEN: All right. Mark Zandi, you're going to stick with us. And Amy Bohutinsky, vice president of communications with Zillow.com, we're going to say goodbye to you. Thank you so much for being here.

Ms. BOHUTINSKY: Thanks for having me.

LUDDEN: We're talking about what's going on in the housing market. And up next, we'll hear about the argument that the best way to bring the market back up may be to let it come crashing down.

I'm Jennifer Ludden. Stay with us. It's TALK OF THE NATION, from NPR News.

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LUDDEN: Now, we're talking about the housing market. David Streitfeld covers residential real estate at the New York Times. He wrote yesterday's front-page story, "Housing Woes Bring a New Cry: Let the Markets Fall." And he joins us from San Francisco. Welcome to the program.

Mr. DAVID STREITFELD (Columnist, The New York Times): Thank you.

LUDDEN: What do you - what does it mean to let the housing market crash? I thought it already had.

Mr. STREITFELD: Well, it hasn't fallen enough to bring in enough buyers to stabilize the market. The real reason the market stabilized last year is the government essentially paid people to buy houses through a tax credit. Now, the government is no longer doing that and the buyers, a lot of them have just disappeared.

LUDDEN: So - I mean, is it not already, then, crashing if the tax credits run out and potentially, sales are still going down?

Mr. STREITFELD: Well, it will - the market probably will go down. Almost everyone thinks it will go down unless the government really steps in and prevents it from going down. The government is worried - with reason -that once the market starts going down, it will keep going down. Falling markets have a tendency to overshoot where they eventually end up. And if that happens, the markets - if the prices go down another 15 percent, people may start to give up on the houses that they bought at the top of the market. They'll go into foreclosure, and we'll end up at least in another recession, if not worse.

LUDDEN: So another 15 percent is - are some of their predictions of what might happen with no more intervention.

Mr. STREITFELD: The standard prediction is between 5 and 10 percent, depending on the area. On the coasts, the prediction, I think, is closer to 10 percent. But there is this chance that once it starts falling, people get very depressed and give up on their houses. And it just feeds on itself. That's what happened in 2008, and that's why the government stepped in in the first place - to stop it.

LUDDEN: So what, then, is the argument for letting things crash some more as a means to a recovery? How do people think that would work?

Mr. STREITFELD: Once prices fall to their natural level - whatever it is -once people decide on their own that housing is a good deal and they can afford it, they'll come into the market, and they'll stabilize it. They'll say: I can afford this house for $200,000. Interest rates are low. I'm going to buy it. And then they start competing over the houses. It goes from $200,000 to $210,000, and the market stabilizes of its own accord. That would be the hopeful theory.

LUDDEN: Mark Zandi, that sounds nice for people who might be looking to buy a house in a while, but not so good for those who own one now.

Mr. ZANDI: I'd say two things. First, the point I made earlier, I think it's reasonable to argue that house prices today are fairly consistent with incomes and rents. So that equilibrium house price, that bottom in house prices, I think we're there. And if the prices fall further, that would be - as David said, would be overshooting and, I think, counterproductive.

And second, just to reinforce a point that David made - and this is a very important point - if we get trapped back in a self-reinforcing negative cycle down, the bottom could be a long way down. And it could mean a lot more lost jobs, a lot more lost income, a double-dip recession. You can paint some very dark scenarios.

So I think it's important for policymakers to try to work really hard to ensure that we don't get trapped in that negative self-reinforcing cycle down. Don't let it burn. I think that would be a risk that would be a bad one to take at this point.

LUDDEN: Okay. But David Streitfeld, what's out there on the table? What might - what other interventions might there be, and do they really have a chance, you know, in Congress or in the administration? There's been really mixed messages on this.

Mr. STREITFELD: There are potential interventions that could be done. The - a lot of real estate interests say that if there were a really large tax credit, that would move people back into buying again - $20,000. But they know their chances of getting that through are nonexistent. The government says it is, and will be doing a lot, with foreclosure-modification programs, which will help prevent those houses from moving back onto the market, which will further weaken the market.

But generally, it seems that everybody feels - most people feel that the limits of government intervention have been reached. And all we can do is hope that the economy recovers enough to stabilize housing on its own.

Mr. ZANDI: Well, the key policy intervention, though, is the Federal Reserve. The Federal Reserve is working very hard to keep interest rates, particularly fixed mortgage rates, as low as they are. As I mentioned, fixed mortgage rates are about as low as they get, and that's in large part - or at least in part due to the Federal Reserve's actions. And they can do more to get those - keep those interest rates low first and then push them even lower.

So it's not like I think David is absolutely right. Tax credits, I think that's over. We're not going to get any more of those. They played their role. But I think there are still things policymakers can do that could help ensure that the market doesn't unravel back and push the broader economy back into recession.

LUDDEN: All right. Let's take a phone call now. I have D'Angelo(ph) in Rancho Cordova, California. Hi, there.

D'ANGELO (Caller): Hi. Thanks for taking my call. I have a big concern and basically, it looks like this, okay? Basically, my wife and I, in 2005, invested $60,000 into our dream home, okay? And it was a great deal at the time, and it's a house that we want to stay in for the next 15 to 20 years. But the problem I have is that now it's valued $100,000 less than what we paid for it, okay? So that's basically $160,000. The value would have to go up for me to make back my $60,000 on it. Now, I'm kind of concerned that - okay, say I wait 15 years for prices to adjust and start climbing again. What is in place to prevent the same type of scenario with the housing bubble we just went through - from happening again? I mean, who's to say the speculators that created that big housing bubble by buying and selling at higher prices and tripling prices in matter of, what, three years three, four years - won't happen again? And is there any answer to that?

LUDDEN: Thanks, D'Angelo. David Streitfeld, a lot of anxiety out there.

Mr. STREITFELD: There is a lot of anxiety out there. I guess there's two things I would say in response to what you're saying. Odds at this moment of another housing bubble, which would help some people -probably would help a lot of people - seem very unlikely anytime in the foreseeable future. The speculators will not be able to buy houses with no money down, with funky loans, the way they did - not for quite awhile.

But it's also - with the house that you're in now, it may be down in value from what you paid. Many people who bought in the last decade are in the same position. But if you're still able to pay for the house, if the money that you have to pay on the loan is not sharply going up beyond your ability to pay, that shouldn't matter to you that much, especially if it is your dream house. If you can pay every month, the house is providing you with shelter, with a tax deduction. And the value doesn't matter that much unless you're planning or have to sell.

LUDDEN: All right. So you're saying stick with it, ride it out. Mark Zandi, I want to ask you about an interesting trend that we've seen, which is that more people with higher incomes have actually walked away from underwater houses - than lower incomes. How is that?

Mr. ZANDI: Yeah, that's right. Going back to the strategic defaulter, the person who can afford to make their mortgage payment under reasonable assumptions but decides not to because it doesn't make sense financially - and this is a phenomena that seems more prevalent among higher-income households. And one of the explanations that's been proffered is that these are more financially savvy households, and have a lot more to lose or to gain in their actions. And so they're going to be much more strategic in their thinking and are more willing - and in fact, are executing these strategic defaults in greater numbers than lower-income households.

LUDDEN: So is it a good, smart, strategic thing to do?

Mr. ZANDI: I would not advocate strategic default. You know, I think if you have signed up for the mortgage, it's your responsibility, and you should follow through to your - to the best of your ability. And I would not advocate people walking away from mortgages.

There are significant downsides. We mentioned the impact on your credit score and thus, your ability to get other credit at reasonable costs. In some states, the lenders can come after you for deficiency judgment. They can say: You owe me the money and I'm going to take you to court to get the money. That's not the case in every state. But in many states - and many lenders are following through. And even Fannie Mae or Freddie Mac, and I think also the FHA, are becoming much more willing to go down that route and try to get their money back. So it's not a pain-free thing to do. And you know, I think people who do it need to consider it very, very carefully.

LUDDEN: All right. Let's take another call. Doug is in Westminster, Colorado. Hi, Doug.

DOUG (Caller): Hi there. What I'm wondering is why homeownership is still being held up as the gold that we should all strive for? It's promoted in government policy, obviously. But it seems like there are many advantages in this era not to be promoting homeownership, as far as mobility, being able to move from job to job. We are a more transient society, as your earlier guest said, but not just home to home but region to region. And it seems to me we could gain economically a lot if we gave as much emphasis to renting as we do to ownership.

LUDDEN: David Streitfeld, you want to take that first?

Mr. STREITFELD: I think that's true, and I think the government and economists are de-emphasizing, to some extent, home ownership as a great value. I do think part of the conflict that the Obama administration has is historically, the government has done a lot for people who own houses, much more than it's done for renters. And since the crisis has begun, they've had to do even more for people who own houses than people who are renting. And the renters that I talk to are beginning to resent this. They say, you know, where's my credit for being a stable renter and part of this community, and for not having gotten a loan that went completely crazy? And they have a point.

But I also - the current sentiment is often against home ownership. As someone who's spent a lot of his life renting and been subject to whatever the landlord wanted to do and had all repairs go through the landlord, I do think that American notion that a man's home, a woman's home is their castle - and there are virtues to home ownership - I think that argument will always be there. And there's a good deal of truth to it as long as you dont have a loan that you can't afford.

LUDDEN: All right, Doug, thank you for that call. You're listening to TALK OF THE NATION from NPR News.

There's an email here from Corey(ph) in Oklahoma City: I don't understand why the government doesn't do more to encourage refinancing. I have excellent credit, but I cannot refinance because of the equity requirements. If I could refinance, I could spend that money and put it into the economy. But as it stands, I have to send that money to the mortgage company and not put it into the economy. The government should be doing more to encourage banks to lend. I have heard some financial people say the Fed should stop paying interest on the money that banks are holding back.

Okay. We've got one opinion there that's calling for more - more from the government. Mike is on the line from St. Louis, Missouri. Mike, you don't think so?

MIKE (Caller): Hi, Jennifer, yeah. I've been asking people for 20-some years if they would rent their house to themselves for the current market value and all the attending costs, and people would always say, well, no, I bought this house 20 years ago. So we have always valued our home at a different time and place. And this whole bubble has been encouraged or created by the government, really, through the tax subsidies and many other things.

And so for years, I've been saying this is eventually going to fall away. And again, the envy that the apartment dwellers now see or that, you know, there isn't going to be a going back to it. So the equity is gone, and we have to just - adjust to the new realities.

LUDDEN: Mark Zandi, what would your advice be to the administration?

Mr. ZANDI: Well, I think it's reasonable to be critical of the emphasis on home ownership that we - that policymakers have placed on it, really since the Great Depression. I mean, almost every president used the increase in home ownership as a benchmark of how they have succeeded in helping improve everyone's lives. And you know, actually, for many years after the Great Depression, that was a pretty good benchmark.

The homeownership rate in the '40s was 40 percent, and it steadily rose. And it peaked closer to 70 percent in the mid part of the last decade, during the bubble. For the first couple, three decades after the Depression, I think that was a laudable goal.

But I think we pushed that too far, and that was represented in the boom, in the bubble, in the subsequent collapse. And I think there has been a sea change with respect to thinking about home ownership, that it isn't for everybody, and that it isn't - shouldn't be a goal in and of itself going forward. And I think that's going to be reflected in the policy decisions that are made with respect to housing and renting, going forward. I think there really has been a change in the thinking about this.

LUDDEN: All right. Mike, thank you for your call. David Streitfeld, one last, quick response there to those different sentiments?

Mr. STREITFELD: Well, I'll talk about the refinancing side. I think it is difficult, often, to get these refinancings through. That's what people tell me. To some extent, if you have a loan with your bank where you're paying 6 percent interest, it's not financially favorable to the bank's bottom line, necessarily, if it refinances you at 5 percent interest.

But in general, the people - we got in this trouble by some people getting loans they couldn't afford, with details about their financial lifestyle that may not have been exactly true. And so the banks were encouraged by the government, and their natural tendency would be now, to be really tough...

LUDDEN: Okay.

Mr. STREITFELD: ...where before, some of the banks were not nearly tough enough.

LUDDEN: All right. We need to leave it there.

Mr. STREITFELD: Okay.

LUDDEN: David Streitfeld covers residential real estate at the New York Times. He joined us from San Francisco. And Mark Zandi is chief economist at Moody's Analytics. Thank you both.

Mr. ZANDI: Thank you.

Mr. STREITFELD: Thank you.

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