- The housing market is still fragile
- Lack of credit is to blame... credit is still tight
- On what could loosen credit: A transition of the existing market.. government involvement.
- The magnitude of the current overhang is 6.5 million, add shadow inventory, and it is closer to 11 million, which is 4 years of overhang.
- Regarding foreclosures I quote from the interview:
"Where we are currently, with the current state of affordability, and the current state of credit, we're going to double foreclosures, and politically, that's just going to be unacceptable... because it's real people... if we go from 1.2 to 2 and half million foreclosures? The system will just come apart at the seams. Putting that many people out of their houses, causing that kind of destruction... because remember we have hundreds of thousands of vacant houses... and a vacant house is a virus on the neighborhood.... it spreads and takes whole neighborhoods with it. I mean there have been studies of whole neighborhoods where foreclosures became greater and eventually it took whole middle class neighborhoods and turned them into wastelands."
He does believe there are solutions to this problem. One is an investor finance program, where local investors buy a foreclosure, fix it up and resell it.
I agree with Ranieri's description of the current housing mess, but as to his solution, not so much. Earlier in the interview he suggested that one possibility is to transition to a government market. But isn't it already, in effect nationalized? And didn't Fannie and Freddie, both government sponsored entities, share in the creation of this mess?
But more importantly, there are two other issues that affect housing. One is the creation of entire neighborhoods of McMansions located far away from employment centers. With the increasing cost of oil, this is a recipe for disaster. How will people continue to commute and pay a mortgage as gasoline costs rise? The second issue is employment. Unemployed people don't buy homes. And many people that do have a job are scared of losing it. This represents a huge psychological obstacle to the housing market. I believe there are many people still sitting on the sidelines because of job insecurity. After all, for most Americans, this is either a Recession or a Depression, depending on their circumstances. Most policymakers don't seem to be making the connection here. They view the housing situation as a separate issue.
And there is one more issue that we need to consider. Is home ownership still worth it? Is a house an investment or a shelter? What type of future financial expectations should we have when owning a home? What if the government, and there is talk about this, decides to get rid of the mortgage interest deduction? There have been estimates that removing the homeowner interest deduction could make housing fall another 20-30%!
There are no easy answers.
Here is the interview: