COLLEGE STATION, Texas--(Business Wire)--
Although recent government efforts to improve America’s housing markets have
proven less than effective so far, noted economist Dr. Mark Dotzour says bold
government action can get the market back on track.
In his new white paper, the chief economist for the Real Estate Center at Texas
A&M University offers a four-part solution to fixing the housing crisis, one
that involves more than simply devising ways to keep people in their homes.
“The housing problem is fairly easy to understand,” said Dotzour. “We have too
much supply and not enough demand, and we need to reverse that.”
In his report, Dotzour says this can happen by first curtailing the supply of
new homes in the market.
“Virtually everyone agrees that falling house prices are the root of the
economic and financial crises in our country. Why are new homes still being
built in cities where prices are collapsing and foreclosures are skyrocketing?”
he said.
According to the National Association of Realtors, the median sales price for an
existing home in October was 11.3 percent lower than a year ago.
Texas as a whole fared much better. The median price for an existing home
dropped only 0.8 percent.
Dotzour said the supply of homes coming back into the market through foreclosure
must be slowed. Government efforts to keep people in their homes have not
worked. In fact, they’ve had some disturbing unintended consequences.
“If you’re behind on your mortgage and the government reduces the amount of your
mortgage principal and payments, won’t five other homeowners on your block want
to stop making their payments to get the same deal?” Dotzour said. “Only the
stigma of bankruptcy and foreclosure can limit that trend.”
The fact that the government is willing to consider freezing interest rates on
mortgages and “cramming down” principal has not gone unnoticed by bond
investors. Dotzour said many of them have lost confidence in the housing market
and are no longer investing there, making it difficult for even Fannie Mae and
Freddie Mac to sell bonds to raise capital.
While the supply of homes drops, the demand needs to go up. This means stopping
the drop in neighborhood values. How? By giving private citizens an incentive to
purchase vacant homes, maintain them and rent them out.
“We need to lower the depreciation schedule for investors who buy troubled
houses to around five to seven years,” he said. “And if we really want to solve
the problem quickly, offer these investors 0 percent capital gains tax if they
hold the properties for more than five years.”
Then there’s the issue of mortgage rates.
“They’re way too high,” Dotzour said. “I think there’s a lack of confidence in
the financial integrity of Fannie Mae and Freddie Mac. But now that both
institutions have been nationalized, why not just tell the world that, for the
foreseeable future, ‘Frannie’ mortgage bonds will be guaranteed by the full
faith and credit of the U.S. government?”
He said this would drop mortgage rates substantially and let all Americans
refinance their homes at a low rate.
Dotzour’s white paper is available online at
http://recenter.tamu.edu/pdf/1884.pdf.
Real Estate Center at Texas A&M University
Dr. Mark Dotzour, 979-862-6292 (economist)
or
Dr. James Gaines, 979-845-2079 (economist)
or
Bryan Pope, 979-845-2088 (media)
or
David. S. Jones, 979-845-2039 (media)
Copyright Business Wire 2008
