The housing crisis was widespread, deep and lingering. Up to 9 million homes were lost to foreclosure, more than 250,000 of them in metro Atlanta. The broader economy took a shellacking it has still not totally shaken off.
While the housing market struggles to find its “new normal,” debate lingers. Was the problem too little regulation? Too much? Consumer irresponsibility? Lender greed?
Into that discussion comes Georgia Tech professor Dan Immergluck, housing expert and professor in Tech’s School of City and Regional Planning. His new book, “Preventing the Next Mortgage Crisis,” explores the bust and its aftermath.
The AJC talked with Immergluck about his views on the causes of the crisis, the best measures of recovery and the chances of a repeat.
Q: A national housing crisis was pretty much unprecedented. In what ways is the crisis still having an impact?
A: It has had an impact that continues to reverberate in a number of ways. There are tangible legacies of the crisis on neighborhoods and property values that we are still feeling. There are a number of places that haven’t recovered, in terms of home prices and vacancy rates. I think that we are going to see that for some time.
It has had an outsized impact on places with moderate incomes and especially on neighborhoods of color.
There are also policy legacies and regulatory legacies from the crisis. Some are inevitable.
There is tighter credit than there was in 2005, but it’s even tighter now than it was in 2000. The pendulum has swung too far the other way.
Q: What’s your elevator speech on why we had the crisis?
A: Basically, there were just too many straws of deregulation and they broke the back of the market… Capital was looking for the least-regulated, the most profitable place, and the housing and mortgage markets becomes the most profitable place to put lots of money.
Q: Investors wanted to be able to sell mortgage-backed securities quickly, to trade their holdings for the money, right?
A: Yes, but it was also the magnitude of the money involved.
Q: And so lenders needed to make loans to keep the machine going…
A: But it is not just that people were getting loans when they shouldn’t have gotten loans. It’s that some people were getting loans that were a lot bigger than they should have gotten.
Q: Isn’t that the borrower’s fault?
A: No. The lender is the one who governs who gets the loan. That’s the lender’s decision, not the borrowers. We have a system that is dependent on the lenders saying no.
Q: What about the argument that the do-gooders, the people who were pushing for more home ownership, bear a large part of the burden?
A: I don’t know of any housing advocates that wanted sub-prime lenders to make those loans where 60 percent of the borrower’s income was going to mortgage payments. If the debt-to-loan ratio is greater than 50 percent, that’s too much debt.
Look, not everyone should get a home loan. If they have bad credit, they wouldn’t get home loans. They have to re-build their credit first.
Q: What do you think about the measures we have for the market? Reports like Case-Shiller say the metro average is nearly back to the pre-recession peak.
A: But Case-Shiller depends on repeat sales. Guess what? A huge portion of those sales are not in distressed neighborhoods. Even though it is supposed to be a metro measure it is really based on a subset of the market.
I like Zillow better. They do something called a ‘hedonic’ calculations that estimate the value of every property, whether it was for sale or not. It is much more representative of the on the market.
Q: The level of damage that was done is staggering, isn’t it?
A: The figure nationally is that there had been 5 million foreclosures by 2011. Five million out of 40 million homes… And my guess is, that number is probably conservative. There have been maybe nine million by now.
And the effect is uneven. Look at Gwinnett – they got hit very hard, had an awful lot of foreclosures, but if you look at the vacancy rate now, there just isn’t an appreciable amount of vacancy now. There is some sense that there is a tipping point – where some places are hit harder than they could absorb.
Q: Could there be a repeat of the crisis? Will there be?
A: I think the probabilities are high in the long run, but not in the next five years because there’s enough recollection of the crisis. That will keep some actors like the Consumer Finance agency strong enough. But eventually I fear there will not be enough political capital to keep those actors strong.
Q: We got to just about 70 percent home ownership before the crash. Since then, it is down considerably. Is it a mistake to push people into that instead of renting?
A: I have liberal friends who say that home ownership is horrible, that it just puts someone deep into debt. But it is not just a question of home ownership vs. renting. Sometimes home ownership makes the most sense. Sometimes rental makes the most sense. We should have access to both.
Q: Who is the book intended for?
A: The book is intended for advanced students, in public policy, in planning, urban studies, housing and finance.
Q: Think it will have an impact?
A: I hope so. It follows on my previous book, about the future of housing finance for low- and moderate- income folks and how we shouldn’t go back to a system where they pay so much more than they can afford.
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