Housing on the Brink

There was a glimmer of hope in housing data this week. Pending sales — signed contracts between buyers and sellers — rose in July, by 5.2 percent, beating expectations of a modest decline. Sales are still down by 19 percent compared with a year ago. But any sign of activity was a welcome relief because most potential buyers have been sidelined by an array of economic ills: unemployment, job insecurity, fear of further price declines or the inability to get a loan.

If only the uptick was sustainable. Willing buyers today are responding to low mortgage rates — recently 4.3 percent for a 30-year fixed-rate mortgage — and to prices they find fair. By one standard price measure, which compares the cost of renting and owning, homes are as affordable now as they were before the housing bubble. Other measures that compare home prices to household incomes show housing at its most affordable in decades. Together with seller concessions, those dynamics are driving the deals that get done in today’s tough market.

The problem is that reluctant buyers obviously outnumber willing ones, and, in the meantime, swelling inventories from foreclosures presage further price declines. Despite occasional signs of movement, that means general paralysis in the housing market and, coupled with high unemployment, a slowing economy.

Antiforeclosure efforts, done right, are supposed to prevent that downward spiral, but the Obama administration’s efforts to date have been largely unsuccessful, with lenders reluctant to restructure bad loans and officials unable or unwilling to get them to do more. A new round of federal efforts will begin this month, aimed specifically at helping unemployed homeowners and at encouraging principal reductions on loans where borrowers owe more than their homes are worth. That’s better focused but will work only if lenders cooperate.

Meanwhile, the administration should investigate ways to facilitate more refinancing. Fannie Mae and Freddie Mac, the government-controlled mortgage companies, hold millions of mortgages from borrowers who are current on their payments but are unable to refinance because their home equity or credit scores have declined since they first took out their mortgages. Since Fannie and Freddie are at risk if those borrowers default, it makes sense for them to allow the borrowers to refinance to a lower rate, reducing both their payments and the risk that they will be unable to pay....

http://www.nytimes.com/2010/09/03/opinion/03fri2.html?_r=1&ref=opinion

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