State of the Housing Market: Removing Barriers to Economic Recovery
Feb 09, 2012
Publisher: Milken Institute

On February 9, 2012, Milken Institute Senior Fellow Phillip Swagel testified before the Senate Committee on Banking, Housing, and Urban Affairs, examining proposed administration policies aimed at healing the weak American housing market.

Here are the highlights from his testimony:

• The housing market remains weak, and millions of foreclosures, decreases in wealth tied to reduced home prices, and the risk of millions more foreclosures continue to reflect the significant impact of the collapsed housing bubble.

• Recent administration proposals to avoid additional foreclosures by incentivizing and/or financing mortgage modifications with taxpayer money are likely to have limited effectiveness. Indeed, the cost to taxpayers of such proposals are likely to exceed the benefits, because most homeowners who have not yet stopped making payments on their existing mortgages have thus demonstrated an ability to resist foreclosure through the height of the economic crisis. Mortgage refinancing and/or principal modifications are more properly viewed as a stimulus program that should be publicly debated prior to implantation.

  • Current administration proposals will continue significant government involvement in the housing market, with FHA market share hovering around 30% of the total market as compared to the historical norm of 10-15 percent.

  • A look at the costs and benefits of the administration's housing proposals, it is important to consider possible unintended consequences, including the likelihood that government-induced lower mortgage rates today will detrimentally result in elevated rates for future homeowners.

  • The administration's efforts to sell foreclosed or distressed properties to private real estate investors who would subsequently turn the properties into rentals might be a positive approach to reducing housing inventory.

  • Ultimately, to ensure a prompt and robust bounce from a housing market bottom, it is imperative that policymakers focus on reducing legal and regulatory uncertainty and move forward with GSE reform to ensure the return of private capital to the housing market.

    Swagel's written testimony can be found here.

    The webcast of the hearing can be found by clicking the link here.

    Phillip L. Swagel is a professor at the University of Maryland School of Public Policy, where he teaches classes on international economics and is an academic fellow at the Center for Financial Policy at the university's Robert H. Smith School of Business. Swagel was assistant secretary for economic policy at the Treasury Department from December 2006 to January 2009. In that position, he served as a member of the TARP investment committee and advised Secretary Paulson on all aspects of economic policy.