Giving the Residential Housing Industry a Kick

The Commerce Department’s announcement this week that the housing recession was ongoing and would likely cause the economy to slow for the rest of the year indicated dark days ahead — which is not news to the residential construction community.

Things have been bleak throughout 2007, as the housing community knows. The boom of recent years has slowed down, leaving an excess of property on the market, along with hesitant buyers who are concerned due to media coverage of the slump, rising mortgage rates, lending policies — or all of the above.

How are we ever going to turn this around?

There are a lot of homes on the market right now. New construction is down in most parts of the country. And those interest rates are rising. But if the Commerce Department’s announcement didn’t express how big an influence the housing industry is on the U.S. economy — well, it seems we’re all about to find out firsthand.

Some recent suggestions for turning things around include:

• Reign in Rates: The Mortgage Bankers’ Association estimates that up to $1.5 trillion of adjustable rate mortgages are scheduled to reset upward in 2007. A June Bloomberg article suggested that the Federal Reserve lowering its overnight lending rate would cut the prime rate and reduce interest on many adjustable home loans.

• Work with Buyers to Get Around Stricter Lending Practices: Lenders have revamped the more lax adjustable-rate subprime and no money down loans of recent years and replaced them with stricter qualifications since the interest rate increased  (foreclosures did as well — they were up 87 percent in June). But stricter lending policies rule out many young, cash-poor buyers and buyers with imperfect credit — and will also slow the housing market, such as in San Jose, Calif., where lower-priced homes are now taking longer to sell than their expensive counterparts, the San Jose Mercury News reports. If the financial lending community would work to develop programs specifically for first-time buyers and those with flawed credit that fall in between the non-traditional loan programs of years past and today’s tighter restrictions or create incentives for new buyers, the housing market might see some additional activity.

• Offer Options for Homeowners Whose Lenders Are Unwilling to Negotiate: In a March submission to the Senate Committee on Banking, Housing and Urban Affairs, the American Homeowners Grassroots Alliance suggested Congress consider the possibility of establishing a guarantee-type program that would allow subprime borrowers in danger of losing their home to foreclosure to buy their own homes at foreclosure auctions. Traditional financing methods could be used in cases in which the auction price is low enough that the home can be refinanced in that way.

There’s no quick, easy fix for the current housing recession; it didn’t happen overnight, and it can’t be fixed overnight, either. However, the economy continues to feel the effect of the slump, it’s time for the housing industry — all aspects of it, from lenders to the Fed and beyond — to start thinking about solutions.