I’ve been eager for the GOP presidential debate to move to Florida. Finally, I assumed, America’s housing depression would get some time in the issue spotlight. Let’s briefly recall how housing is doing in the Sunshine State, courtesy of economist Jed Kolko of Trulia, the real estate data firm:
1) The housing bust took Florida down. Prices in most of Florida have fallen by at least 40% since their peak. Along with Nevada, Arizona and inland California, Florida was ground zero for the housing bubble, and now its residents are deep underwater.
2) Florida is in foreclosure purgatory. It takes more than two years for homes to go through the foreclosure process in Florida, longer than any other state except New York and New Jersey (which have far fewer foreclosures to begin with). That means 14.0% of Florida loans are stuck in foreclosure, compared with 6.3% in Nevada, 3.2% in Arizona, 3.2% in California and 2.7% in Michigan, according to LPS. This keeps Florida’s housing market in limbo and prevents Florida from benefiting from a plan to sell government-owned homes to investors after a foreclosure is complete.
But I did not get my wish. Although the housing crisis did come up last night, the conversation quickly derailed into a discussion about privatizing the GSEs, as well as some back-and-forth about what exactly Newt Gingrich was doing for Freddie Mac to earn his $1.6 million. Amazingly, there was no discussion of President Barack Obama’s plan, announced in his SOTU address, for a mass refinancing of U.S. mortgages.
Keep that in mind as you read what New York Fed President Bill Dudley had to say about housing today:
While house prices are no longer overvalued by historical standards, restrictions on access to credit and the large number of homes in the foreclosure pipeline means that home prices remain under downward pressure. The ongoing weakness in housing makes achieving a vigorous economic recovery more difficult for several reasons:
- The strong rebound in housing construction and related activities, such as furniture sales, that typically power economic recoveries following deep recessions is absent.
- The decline in home prices has eroded household wealth, which then inhibits consumer spending. Since home values peaked in 2006, homeowners have lost more than half their home equity and many expect further declines.
- The weakness in home prices has reduced credit availability because many households and small businesses use their homes as their primary source of collateral for loans.
- The big drop in house prices has made it more difficult for borrowers to refinance, undercutting some of monetary policy’s ability to support demand.
Gosh, sounds like a subject worthy of discussion in a 2012 presidential debate. In a world where moderators cared more about policy than process, perhaps Wolf Blitzer would have asked something like this:
Gov. Romney/Speaker Gingrich/Sen. Santorum/Rep. Paul, Romney economic adviser Glen Hubbard has suggested a massed refi of U.S. mortgages. Former Reagan economic adviser Martin Feldstein suggests a $350 billion mortgage principal writedown. Conservative economist Luigi Zingales would reduce underwater mortgages by the amount home prices have fallen in the area, with homeowners and banks splitting future price gains. Do these ideas have any merit or it is better just to speed up foreclosures?
Love to hear their answers.
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