by Dan Krell © 2012
DanKrell.com
If you watched the presidential debates last week, you may or may not have noticed that neither Presidential candidate specifically spoke about the housing market. And since the debate, some have cried foul that one of the largest sectors in the U.S. economy was given short shrift in a debate about the economy. But then again, why should you be surprised – housing has basically taken a back seat to other issues throughout the primaries and now again in the heat of the presidential race.
The lack of discussion about the housing market is probably not because of disinterest, but rather both candidates are focused on making the fundamentals of the economy thrive. There is an economic truth that the housing market benefits from a thriving economy, as well as being impeded when there is economic malaise.
But if you paid attention, you may have picked up on issues that were touched upon that affect the housing market, such as employment and Dodd-Frank.
Obviously there is a relationship between employment and home ownership. A 2010 study by Neil & Neil indicated that loss of employment is one of the unexpected life events that caused foreclosure.
In response to the recent jobs report, Matthew O’Brien wrote in his October 5th The Atlantic article (“There Is No Jobs-Report Conspiracy: The Jobs Recovery Is Still Meh”): “If we take the same long view over the past few years, it’s clear that not much has changed. Growth is painfully slow, just like before. In 2011 we created 153,000 jobs per month, and so far in 2012 we have created … 146,000 jobs per month. It’s barely been enough to keep up with population growth.”
It should also be obvious that elevated unemployment and economic uncertainty has eroded consumer sentiment towards home ownership. This was suggested in Fed Chair Ben Bernanke’s February speech to the National Association of Homebuilders (federal reserve.gov), when he said: “High unemployment and uncertain job prospects may have reduced the willingness of some households to commit to homeownership.”
Additionally, many in the industry have complained that mortgage lending has been restricted due to increased regulation after the financial crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act (also known as “Dodd-Frank”) is one of the wide sweeping pieces of legislation that was enacted after the financial crisis to regulate and oversee the financial sector of the economy, as well as offer consumer protections.
As we have lived with Dodd-Frank for over two years, critics add to their critique about the Act’s limitations, over reaching, and failures. Some critics point out a failure of one of the main tenets, which is that no institution should be “too big to fail;” under Dodd-Frank critics claim that some of the country’s large financial institutions have become larger; while smaller regional and local financial institutions (which invest in local communities) are increasingly struggling.
Additionally, critics claim that mortgage lending has been stifled by rules devised to ensure those who securitize mortgages have skin in the game. Whether lenders comply with credit retention risk rules or they comply with Qualified Residential Mortgage rules (which requires strict credit underwriting and a 20% down payment), mortgage underwriting has become restrictive.
Make no mistake; the housing market is smack in the middle of the Presidential debate. The issues debated depict different visions for the economy, and of course, a housing recovery.
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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 8, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.