Housing Bill of Health

Farai Chideya discusses the economic impact of a potential housing slowdown with Motoko Rich, who covers real estate for The New York Times, and Gerald Ford, senior policy analyst and national program director for the Congressional Black Caucus Foundation's "With Ownership Wealth" program.

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FARAI CHIDEYA, host:

Well, a slowdown in America's housing market may mean trouble for sellers and for the US economy. But it could spell opportunity for working class Americans long priced out of big city property. For more on the current housing market, we're joined by, in our New York bureau, Motoko Rich, who covers real estate for The New York Times. And in our Washington, DC, studios, Gerald Ford. He's national program director for the Congressional Black Caucus Foundation's With Ownership Wealth Program. Thank you both for joining us. And, Motoko, let me just jump in right with you. Your article...

Ms. MOTOKO RICH (The New York Times): Nice to be here.

CHIDEYA: Thank you. Your article in The New York Times recently seems to indicate a slowdown. What is the evidence of that?

Ms. RICH: Well, I think the strongest evidence is actually not necessarily price depreciation; although you did note that Manhattan report that showed the prices had fallen 13 percent, but that was just the summer months compared to the previous three months in the spring. Year over year, the prices were still up 10 percent. But what the evidence that people are looking at not only in New York but around the country is that there are more properties for sale in the listings and that they're staying on the market longer, like one of the people you interviewed had pointed out; that things are not flying off the shelves as they were earlier this year or last year. So in places like New York, San Diego, San Francisco, Boston, Washington, DC, inventories are starting to rise, and brokers are noticing that it is definitely taking longer for people to sell.

CHIDEYA: So, Motoko, if it's taking longer for people to sell and there's more inventory, does this mean that housing prices are going to flatten out or they're going to drop or simply that people are taking a deep breath before making any commitments?

Ms. RICH: It's a great question, and really, nobody knows the answer. Economists are clearly divided on that. There are some historical precedents that we can look at. Just a few years ago, actually, Denver, Colorado, was a really hot market, where prices were rising in double-digit appreciation, and then the economy started to slow down because a lot of people lost their jobs, and as a result, what they saw were the same indicators we're seeing now, rising inventories and houses taking longer to sell. Prices haven't actually dropped there, but the price appreciation has slowed down considerably. So that doesn't necessarily mean that people are losing money, but they're not making as much as they had hoped to. And on an individual level, it can hurt someone if they have to move, for example, or they're divorcing or there's a reason why they need to sell right away or they want to buy a new home. If their home is sitting on the market for months and months and months, that can be a problem, especially if they end up carrying two mortgages.

CHIDEYA: Gerald, let me turn to you. You are running something called the Congressional Black Caucus Foundation's With Ownership Wealth Program. Now obviously, a lot of people have used real estate to build wealth, not just in terms of securing their own financial future, but even some people speculating in it or moving into it as a part-time or full-time business. You're dealing with people, I presume, who are looking to buy a first-time home. Is the slowdown in the market, if there is one, good or bad news for the people that you're serving?

Mr. GERALD FORD (Congressional Black Caucus Foundation's With Ownership Wealth Program): Well, I think that, as you first--as your announcement said, it's kind of hard to say, but I think for our first-time home buyers, I think it's a good thing, because it may flatten out the high-price costs. Here in DC, it's almost unaffordable to be in a house. But I think one of the things I wanted to bring up is that buying a home should be considered a long-term investment. It's, as I said, not a five-year investment.

I just want to throw out some statistics here. In the past 20 years, the average home has increased--the value of the home has increased by about 28 percent, and between the years 2000-2003, home equity grew by $2 trillion in three years, and if you remember, between 2000-2003, this was when 9/11 hit and the economy went downhill. So I think we have to look at this as a--it's too early to say, but I think the flatting prices may help our particular first-time home buyers.

CHIDEYA: And, Gerald, let me ask you this. Is it a dangerous time for buyers of modest means? Because some people are so eager to get out there to buy a home, to stop paying that rent money, that they are engaging in some very risky mortgages that could leave them with payments that rocket up after a few years?

Mr. FORD: Absolutely. In 1995 through 2004, we saw one of the highest increases--and specifically in African-American home ownership rate. We also saw the largest amount of foreclosures, because a lot of people were entering in the home-buying system without the proper knowledge of understanding what it is some of the, quote, unquote, "predatory" lending practices, where people promise you various things and offer you extremely high interest rates when they know they cannot afford to pay that loan back. So during this time, it's very dangerous, and people need to be more aware of financial literacy and the whole home-buying process. As the old saying goes, buyer beware.

CHIDEYA: Motoko, let me turn to the question of how this will affect the economy. A 20 percent downturn in the housing market would affect the economy like a 40 percent drop in the stock market. What is going to happen if home prices simply flatten out and what would happen if they drop in terms of the US economy ripple effect?

Ms. RICH: Well, one thing to remember is that all real estate is local, so to the extent that people are talking about possible price declines, they're really focusing on the hottest markets. Nevertheless, those are big markets. We're talking about most of California, the Northeast, potentially Washington, DC, maybe Miami. It's hard to tell exactly how detrimental it will be to the economy. One thing to remember is that the last time that housing prices dropped in those markets in the early '90s, there was a significant collapse in the savings and loan market; whereas now, people are not talking about any kind of banking collapse. But for individual homeowners again, it could be quite difficult. Individual economic decisions might have to be postponed. People who had been hoping that the equity in their home might help finance an early retirement or college education might be surprised when they find that their homes are not going to be valued as highly as they thought they might be as soon as they thought they would be.

CHIDEYA: Gerald, what about people who have consistently been paying rent their whole lives, decide to buy a home? They aren't looking to cash out or make a lot of money, but they don't see any appreciation. What do you do to steady people who are in that situation?

Mr. FORD: Well, I think what I do is I basically remind them that homeownership is still one of the more steady investments you can make. As I said before, if you look between 2000-2003, we saw, according to the Wilshire 5000, the overall stock values dropped by $7.8 trillion, compared to the $2 trillion increase in that same period for homeownership, so therefore, if people--like I said, it's a long-term process. So you have to basically, like all things, have to wait it out. Your house is bound to increase in value, but you're always going to have these bumps in the road with any investment.

CHIDEYA: We don't have much time. Let me ask very briefly about race and gentrification. Gerald, some people have seen neighborhoods that were falling down, African-American neighborhoods, revitalized by gentrification, but the people who were living there moved out. What can African-Americans do to try to preserve good neighborhoods that are black neighborhoods that don't flip over and have an entirely new community there?

Mr. FORD: Well, I think one has to be community involvement in regards to taking a more entrepreneurial spirit in terms of taking over those already vacant lots that are there existing already and start controlling them and, for lack of a better word, start land banking, really think about holding on to those particular properties and making them affordable. One of our programs with our With Ownership Wealth Program called Rebirth of Englewood in Chicago has done a unique job of specifically taking land and making sure that it's affordable, actually investing in the community and making sure it's affordable to future residents of the existing population. So I think it really requires that the community start thinking more entrepreneurially, start thinking about those vacant lots in a different light rather than they're just a blight, but rather take a look what outside people are looking inside, saying, `This is now a valuable land. We have to start taking back our land, taking back our communities by investing in it.'

CHIDEYA: So look upon some of the urban blight as an opportunity for change. Gerald Ford is national program director for the Congressional Black Caucus Foundation's With Ownership Wealth Program, and Motoko Rich covers real estate for The New York Times. Thank you both so much for joining us.

Ms. RICH: Thank you.

Mr. FORD: Thank you for having me.

CHIDEYA: This is NPR News.

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