The housing crisis has affected everyone in America who owns real estate in any form, from the homeowner to the renter to the real estate investor. And since the second quarter of 2006, the impact has been devastating, especially here in Georgia.
According to Standard & Poor’s Case-Shiller Home Price Index, the average home in metro Atlanta has dropped almost 12 percent below its value in January 2000, and well over 50 percent below its peak price in summer 2006.
As I see them, here are the facts:
1. Prices are low
On average, home prices are lower now than they have been since the turn of the century. In fact, it is possible in parts of metro Atlanta to buy nice homes in nice neighborhoods for less than it cost to build them. That cannot last, it’s just a supply and demand issue.
2. Rates are low
Long-term home loan rates are being held down artificially by the Federal Reserve in an effort to stimulate the economy. Fed Chair Ben Bernanke has even announced publicly his intention to hold rates down to these levels through 2014, a date even after his present term as chairman expires.
As a result, we are experiencing the lowest long-term carrying cost seen in the past 40 years, well below where rates would be if government allowed rates to float. This cannot last — it is a temporary phenomenon — but a buyer today can easily lock in the rate for 30 years.
So why aren’t buyers flocking into open houses and new subdivision model homes? What’s the holdup?
Consumer confidence is at an extremely low level.
Most Americans have seen their standard of living erode over the past few years and wonder if real estate will ever recover. Those who own real estate wonder if they should hold on to it, and those who don’t wonder if they should. Skyrocketing energy and food prices provide a daily reminder that this may be the wrong time to invest in real estate.
Jobs are on everyone’s mind.
Almost everyone in the country has been affected by unemployment, either personally, or as a result of someone they know who has lost his or her job. Because unemployment has remained stubbornly high, even people with jobs are worried that a triple-dip might affect them. And worried people don’t buy big ticket items.
3. Foreclosures continue to poison the Atlanta market with damaged houses selling at a fraction of their true value by witless lenders who pass on their losses to our all-too-willing government.
Meanwhile, government-mandated loan modification programs are fractured and ineffective, and lenders are unwilling or unable to process them. Almost all of these loans are from federally chartered lending institution, yet a painful lack of leadership in housing has rewarded lenders who foreclose.
Where do we go from here?
Here are three ideas that might have a dramatic impact on the problem and could be implemented quickly across the country:
1. Stop foreclosures. In any case where the owner wants to stay and can afford even modest payments, encourage them to stay, not leave.
Foreclosures should only be allowed in cases where the home is abandoned or the lender has made a good faith effort to allow the owner to stay. We have failed to recognize the tremendous damage even one foreclosure has on a neighborhood.
2. Refinance everybody. Any existing federal loan could be modified to lower the rate to current levels and extend the term to lower payments. No appraisals and no lengthy processing — streamline the process and watch home prices start to rise.
3. Lower taxes on those who buy abandoned houses, fix them up, then sell them quickly to qualified owner-occupants. Government is ill-equipped to undertake this task, yet it is vital to any serious housing recovery.
This type of investing is currently punished heavily by our tax laws — instead, it should be rewarded. This is the most powerful way to restore neighborhood integrity and solidify values.
Do these ideas make sense to you? Please share your thoughts with me at www.money99.com, and I will share the best with you in a future column.
-- John Adams is an author, broadcaster and investor. He answers real estate questions on radio station WGKA (920 AM) every Saturday at noon.
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