UPDATE 3-Obama unveils new fund to address US housing woes

Fri Feb 19, 2010 4:45pm EST

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* Money to go to states including Nevada, California

* Obama's announcement aimed to help Senator Reid (Adds more Obama comments)

By Jeff Mason

HENDERSON, Nev., Feb 19 (Reuters) - President Barack Obama used a campaign push for Senate Majority Leader Harry Reid on Friday to announce a new fund to support homeowners in five states hit hardest by the U.S. housing crisis.

Housing was at the center of the financial crisis that threw the U.S. economy into deep recession in late 2007. While signs of stabilization are appearing, home foreclosures are still rising in much of the country.

Obama said he was designating $1.5 billion from the Troubled Asset Relief Program to fund programs at local housing finance agencies in California, Florida, Nevada, Arizona and Michigan, which have seen home prices decline more than 20 percent from their peaks.

"This fund's going to help out-of-work homeowners avoid preventable foreclosures," Obama told a town hall-style meeting near Las Vegas. "It will help homeowners who owe more than their homes are worth find a way to pay their mortgages that works for both the borrowers and the lenders alike."

Nevada is still struggling from the housing market crash, and Obama's choice to make the announcement there was no accident.

The president is trying to boost Reid, a Nevada Democrat who trails potential Republican opponents by double digits in opinion polls before November elections that could change the balance of power in Congress.

Reid has helped push Obama's agenda to boost the economy, overhaul the U.S. healthcare system and fight climate change, but Republican critics say he has neglected his home state.

Trying to limit his party's losses in November, Obama heaped praise on Reid, saying the former amateur boxer "knows what he believes in and he's willing to fight for it."


After a prolonged boom that began in the late 1990s when banks loosened lending standards and took on excessive risk, the sector suddenly lost steam and prices deflated abruptly after 2006.

While falling values have left many mortgage-holders with homes worth less than the loans on them, soaring unemployment has led to even more mortgage defaults.

There has been some recent positive news, notably a report this week showing that construction starts on new homes hit a six-month high in January. Over the past 12 months through January, housing starts were up 21 percent, a sign that underlying demand was beginning to firm again.

"There is not enough money in the Treasury to stop every foreclosure," Obama said later in a speech to the Las Vegas Chamber of Commerce. "But what government can do is help responsible homeowners stay in their homes."

Obama also used his Nevada trip to push for a healthcare overhaul, saying reform "cannot wait" because it is vital to the economy. He will host a bipartisan summit at the White House on Thursday to try to jump-start his stalled effort.

A senior Obama administration official said the administration knew many homeowners were still hurting.

"We are extremely cognizant of just how difficult the housing situation remains," the official told reporters.

"But (we are) very relieved that we are in a dramatically different place today where we have very significant stabilization in prices across most of the country."

The $1.5 billion would be distributed to state agencies based on which states were suffering the most. Money could go to programs to help unemployed homeowners, for example, or borrowers who owe more on their houses than they are worth.

The official said the program came on top of the Treasury Department's recent $23 billion program for all 50 state housing finance agencies. (Additional reporting by David Alexander and Glenn Somerville in Washington; Editing by Peter Cooney)

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Comments (10)
Demographia wrote:

The proposed program acknowledges the very focused geographical nature of the housing bubble in the United States, with its emphasis on California, Nevada, Florida, Arizona and Michigan.

Paul Krugman noted well before the bust, that the housing bubble was limited to only part of the US market. The difference in this “two-speed” market was restrictions on land use. Dallas Federal Reserve Bank research showed that where there was liberal land use regulation, the supply of housing was permitted to increase sufficiently to provide a vent that prevented local bubbles from occurring. Where there were significant restrictions on land use (regulatory structures variously called “compact city,” “urban containment,” “smart growth,” “growth management” and others), prices increased inordinately. The research on the impacts of such
regulation is summarized at http://demographia.com/db-dhi-econ.pdf.

The metropolitan area markets of California, Florida, Arizona and Florida, with their strong restrictions on land use, accounted for more than 70% of the pre-Lehman Brothers house value collapse. Average house value losses were more than $175,000, more than 10 times those in traditionally regulated markets such as Atlanta, Dallas-Fort Worth, Houston, Indianapolis, Kansas City and Cincinnati (see: http://demographia.com/db-ushsg2009q1.pdf). Michigan was different, where a strong economic downturn pushed prices down that had never exceeded historic norms.

If the losses in the more regulated metropolitan areas had been on the order of those in the less regulated areas, either the bubble and its burst (and the subsequent international financial crisis) might have been avoided, or, at a minimum would have been far less severe. Without the more restrictive regulations, losses of this far lower magnitude would have been expected.

In combination, the necessary and sufficient conditions for the bubble that led to the international financial crisis were more liberal loan standards and the more restrictive regulatory regimes in some major metropolitan areas of the United States. The more restrictive regulatory structures produced mortgage losses that were far too intense for the financial industry to absorb.

It is worrisome that the lesson has not been learned. Legislation proposed in Congress (such as the Boxer-Kerry and Waxman-Markey cap and trade bills and the draft transportation reauthorization bill) would attempt to force virtually universal adoption of the very kinds of restrictive land use policies that were so destructive to households, housing affordability, the economy and our ability to address the financial challenges ahead (see: http://www.newgeography.com/content/001174-congress-and-administration-take-aim-local-democracy).

Wendell Cox
Demographia, St. Louis
Visiting Professor, Conservatoire National des Arts et Metiers, Paris
Co-author, Demographia International Housing Affordability Survey

Feb 19, 2010 8:42am EST  --  Report as abuse
Scola wrote:
Demographia: Hogwash. Nevada and Arizona have some of the fewest land use restrictions in the country. Why didn’t the bubble hit Portland, OR which had the most? Why did it hit Las Vegas which had essentially none.

No, the correlation your describe is nonsense. It might explain a long term rise in prices. NYC and SF have high prices because of strong economies and limited available land due to geography. A Portland might get similar high prices in the future, but it doesn’t cause a temporary bubble unless the restrictions are later lifted.

The absurdity of your argument aside, in the end people still actively want to live in NYC, SF, or Portland. They are fleeing hellholes like Phoenix and Las Vegas.

Feb 19, 2010 1:55pm EST  --  Report as abuse
ilmustang wrote:
Typical gov’t bs. Publicly announce help for housing during campaign stop while senate is quietly considering damage to the home loan interest deduction. No wonder no one trusts these guys anymore.

Feb 19, 2010 2:52pm EST  --  Report as abuse
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