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FARAI CHIDEYA, host:

From NPR News, this is NEWS AND NOTES. I'm Farai Chideya. I'm sitting in for Ed Gordon.

Location, location, location, that's an old saying about the top issue in buying a home or other real estate. But real estate is not just about what you buy and where, it's also a key component of the American economy, and a key factor in issues ranging from racial segregation to the security of the middle class.

Today, we kick off a three-day special series on real estate, how important it is to our economy, whether the market is in trouble, and how to make wise choices in your personal home buying.

Today, we take a look at the big picture with economist Julianne Malveaux, of Last Word Productions, Inc., and Nicolas Retsinas, of Harvard University. He directs the university's Joint Center of Housing Studies, which recently released its State of the Nation's Housing report. Welcome to you both.

Professor NICOLAS RETSINAS (Director, Joint Center of Housing Studies, Harvard University): Nice to be here.

Ms. JULIANNE MALVEAUX (Owner, Last Word Productions, Inc.): Thank you, Farai.

So, Nick, can you give us a sense of how important real estate is to the American economy?

Prof. RETSINAS: It's very important, particularly the residential sector. We have just gone through a period of unprecedented prosperity in the residential sector. Last year we estimated in fact that residential expenditures -construction, furnishing, home improvements - was up to 23 percent of the gross domestic product. To put that in perspective, it's now a more important part of our national economy than the manufacturing sector.

CHIDEYA: And, Julianne, do you get a sense that this issue of real estate and home buying is more or less important to the African-American community specifically?

Ms. MALVEAUX: I think it's more important, but more elusive as well. While about 75 percent of all whites own their homes, only 50 percent of African-Americans do. A whole number of trends, Farai, from redlining, discrimination in lending, all kinds of things have kept African-Americans out of the housing market in ways that they've been unhappy about. And there now is almost a grassroots movement led by groups like the Urban League to help African-Americans buy homes because it's clear that it the bridge from working class to middle class status for so many people.

CHIDEYA: But aren't those old issues when we think of things like racial covenants, isn't that just a think of the past?

Ms. MALVEAUX: Racial covenants are a thing in the past, Farai, but not redlining, not discrimination lending, and also not the inability to use credit scores discriminatively. In other words, if you pay your rent every month you can buy a house. You may have jack credit with Saks or Neimen's or whomever, but if you pay your rent every month you can buy a house.

And increasingly, people of color are put at the periphery because some of their credit scores are lower. When you go through the recently released Survey of Consumer Finance, which was released earlier this year, it showed that African-Americans and Latinos were less likely to own but also less likely to have all kinds of other equity. And so what you see is people who essentially want to play but don't have all the tools, and the game is slated against them.

You can talk about old racial covenants, but let's talk about new redlining.

CHIDEYA: So can you just give a quick description of what redlining is?

Ms. MALVEAUX: You decide a neighborhood is not going to blow up, and so you don't lend in that neighborhood. But you do lend there when young whites come, and that's gentrification. But you make decisions about certain neighborhoods based on demographics.

CHIDEYA: Nick, I want to turn back to gentrification later on in our conversation. But pulling out again to the big picture, a lot of people are worried about a housing bubble that could lead to an economic crash not just in housing but in America in general.

What did your new report say about the issue of a bubble?

Prof. RETSINAS: We do make the observation, which doesn't seem obvious if you think of the last two years, that indeed we've had situations where prices do fall. As we've studied why and when prices fall, there are two factors that seem to contribute most to price falling.

One is substantial overbuilding and the other is job loss. While there are pockets in this country where there is substantial overbuilding, that's generally not the way it plays out nationally. And our economy is sputtering along producing jobs. So that leads us to the conclusion that while double digit price appreciation is a thing of the past, that it can't be sustained, that what we're looking for at least in the next few years is a much flattened price appreciation over time. Over the long run however, we tend to be relatively bullish in terms of prices because we still have a growing population. And in many markets there continues to be constraints on supply. So a rough, rocky patch, lots of rain and clouds and maybe thunderstorms, but we don't think the sky will fall on the housing sector.

Ms. MALVEAUX: Nick, I'm concerned about the people who are doing ARMS, you know the adjusted rate mortgages, and the number of people who are actually not paying for their homes, but they're paying the interest. With interest rates going up, it seems to me that we're in more trouble than we think we are because of the number of people who are really not paying for their housing.

Prof. RETSINAS: That's a good observation. The problem is not so much the number of people taking adjustable rate mortgages. Indeed, in other time we've had higher percentages. The problem is some of these new products shift all the interest rate risk to the homebuyer. These interest only, these option ARMS, where you can pay less then monthly payment that's due.

And you're right, in a time where housing prices continue to appreciate, in a time when our economy has jobs that get regular salary increases, then most people would be able to accommodate. But now with prices flattening you don't have that outlet, and as we know in our economy, we don't necessarily produce jobs that have regular salary increases.

So we are at some risk. I wrote an article where I called this in sense the real housing bubble, which is when these new mortgages recalibrate, will people be in position to pay them off.

Ms. MALVEAUX: And we look at younger people who are going in and they're paying interest only expecting to get these salary increases, but not necessarily expecting the interest increases that we now know are going to happen for the next two years.

Prof. RETSINAS: I don't know that it's necessarily that they don't know. I mean, in some cases they don't and some cases they have been misled.

Ms. MALVEAUX: Is it false optimism?

CHIDEYA: Let me jump in here guys and give you an actual real life example. I have some friends here in Los Angeles, they have three mortgages. I don't know exactly how that happened, but they had to get three separate mortgages, larger and smaller in order to pay for their house.

That's what I'd call aggressive financing. And, Julianne, I think it speaks to the optimism but also, you know, the fear. It's a tightrope act and I think that some of these mortgages will get paid off earlier than others. And, Nick, if there is any kind of decline in the American economy, could we see a raft of foreclosures, for example?

Prof. RETSINAS: You could. I think you'll see pockets. I think what it speaks to is desperation. Prices have climbed and risen so precipitously in some places that people look at it and say, gee, if I don't get in now, I will never get in, because there is no way that I can accumulate savings to keep pace with rising prices.

And we are at risk. If the economy were to stumble because of macroeconomics issues - oil prices, global economics changes - then we could be in for a rash of foreclosures and they won't be evenly distributed. They'll generally be in lower income areas. These kinds of products not only are active in California, but some inner city markets. So in a sense some of those neighborhoods will be even more at risk.

CHIDEYA: Now, Julianne, I want to ask you about something that you probably know about very well. Washington, D.C., is where you live and that has experienced a huge growth and a huge amount of gentrification. In your opinion, can African-Americans benefit from gentrification in the sense that a rising tide lifts our boats and if you own a home it'll appreciate? Or is this really undermining the character of historically black neighborhoods?

Ms. MALVEAUX: Well, it's a bit of both. If you're an owner, certainly you've benefited form the rising tide. In other words, property values have increased exponentially. Personally, my house has increased in value, assessed value, by three times in less than 10 years. So you see that if you're an owner.

But in fact, African-Americans are more likely to be renters than owners. If you are a renter, indeed you have very little power, and if you're a renter in a brownstone where an owner is looking at ka-ching, ka-ching, you're likely to be pushed out.

There's a wonderful urban planner at Columbia University, Lance Freeman, who's written a book called There Goes The ‘Hood that's talking about just kind of balancing what happens. A lot of people will say there are benefits, but the benefits are not to the people necessarily who live in the neighborhood. I get more restaurants, some people get less barbershops, and that's a problem.

CHIDEYA: Nick, what about local, federal, nonprofit efforts to really deal with the issue of low-income renters not being able to break into the market? Does your study or has your work led you to look at whether or not these actually are making the difference they hope to make?

Prof. RETSINAS: They do in some communities. We noted that the issue of affordable housing, particularly affordable housing for renters, has really fallen off the radar screen at the federal government. It's just not in the mix of issues. They discuss terrorism, the war in Iraq, Social Security, Medicare. You don't see affordable housing, even though for almost ever family in the United States, particularly low and moderate-income families, it is the largest single expenditure.

So the federal government has been somewhat missing in action. That vacuum has been picked up at the local level in some places and with some what I would call heroic efforts of community-based nonprofits. The challenge is is getting them to scale and that really has been a challenge. So, yes, these programs, these efforts, are working but it's hard to see that they can work in a big number.

CHIDEYA: Julianne, last word to you - I guess that's appropriate given that you have Last Word Productions. What do you see ahead for the African-American community and for other ethnic communities as this market changes, develops, settles.

Ms. MALVEAUX: I think that there is a HUD initiative to bring more people of color into the housing market. And I think it's important. It's a lot of rhetoric; it's not a lot of money. But I think that people are seeing that participating in the housing market generates wealth. Generates, for working class people, the possibility to move into the middle class.

At the same time, there are so many things that still need to be dealt with in terms of discrimination. They really are real, Farai. We think of discrimination as something in the ‘60s, but when we look at housing discrimination it still really exists.

What I think needs to happen is that some of our civil rights organizations have begun to embrace the notion of helping people buy homes. And we need to be aggressively around that. Because when people buy homes, they buy stakes in communities and the possibility of basically building their wealth.

CHIDEYA: Economist Julianne Malveaux heads Last Word Productions, Inc., and Nicolas Retsinas directs Harvard University's Joint Center for Housing Studies. Nick and Julianne, thank you so much.

Ms. MALVEAUX: Thank you.

Prof. RETSINAS: Thank you.

(Soundbite of music)

CHIDEYA: Coming up, the Voting Rights Act is still law, but some question the government's commitment to enforcing it. And which perform better, public or private schools? We'll discuss these and other topics on our Roundtable, next.

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