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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 42 July 2024 C O V E R S T O R Y Q: Is there a quick fix or plan that you feel either Presidential candidate can implement that would ease the housing affordability issue and get more first-time buyers into the housing marketplace? Pete Carroll: There appears to be an emerging consensus view, across both sides of the aisle, that increasing the supply of all types of housing, whether for owner-occupancy or rental is paramount. A new and refreshed slate of federal agency liquidity programs, supply-side tax incentives, and municipal incentives that encourage financial institutions to make capital available for construction or rehabilitation of homes, that incentivize home builders to develop/rehab rental units and single family starter homes at price points that are affordable to low, moderate, and middle-income families, and that encourage municipal government agencies to ease zoning regulations will be crucial to bringing supply and demand back into balance, moderating the rate of increases for home prices and rental units, and reducing housing cost burden for families. Larry Goldstone: I think that the hous- ing affordability issue is going to resolve itself over time. To me, home prices reflect a bit of a housing bubble driven by artificially low interest rates during the pandemic. This is one of the unintended consequences, in my opinion. The loan-locked homeowners, the limited inventory of foreclosure home sales, and the high mortgage rates relative to other interest rate benchmarks have all conspired to impact home price availability and affordability. As I think about it—and I suspect I am in a minority of one—there are several dominoes that can fall to burst this home price bubble. If the Fed is successful in its attempt to reduce inflation, they will also slow the economy, which will drive up unem- ployment, reduce inflation, and increase mortgage defaults. That environment will result if a reversal of Fed policy from tight policy to easy money as the Fed tries to fight recession. Reduced interest rates generally will reduce mortgage rates, po- tentially disproportionately. Loan-locked homeowners will be far more inclined to sell in that environment, and I believe that there is a lot of pent-up interest in homeowners wanting to sell. That could bring a lot of supply to the market. As prices start to decrease because the supply side of the equation increases, more panic selling could occur as homeowners seek to monetize the equity they have built up in their homes—thus, the makings of a downward price cycle. Do either of these Presidential candi- dates have a policy to implement? I do not think so. I am a believer in market forces. Rick Sharga: The fundamental issue in the housing market today is that there's simply not enough inventory to meet the demand—even though demand has weak- ened as affordability has worsened. And there is really no "quick fix" to creating more supply, at least none that could be easily executed at the Federal level. Either candidate might consider incentives and penalties for state and local governments that would encourage those entities to relax overly cumbersome restrictions that are currently preventing construction or making it so expensive that building affordable housing is not a realistic option for builders. As President, either Biden or Trump could explore some sort of public/private partnership that would create strong tax incentives to entice builders to build more affordable, entry-level homes, particularly in underserved communities where the need is greater and the supply extremely limited. Leveraging its massive footprint in the mortgage industry, the government could look for ways to create advantageous financing for homeowners with loans backed by Fannie Mae, Freddie Mac, the FHA, and the VA. And the government could look at restoring some tax benefits to homeowners, which would indirectly improve affordability by lowering tax burdens on households. In terms of first-time buyers, demo- graphics should provide all the tailwinds that the industry needs. The country has the largest number of young adults between the ages of 25-34 in history— prime ages for household formation—and moving toward the average age of a first- time buyer at 35. According to John Burns Research, approximately 12,000 people in "I seriously doubt we will see pandemic-era levels of activity again anytime soon (if ever), but the broader mortgage industry will be a bit busier this time next year than it is now, regardless of who wins." —Jacob Channel, Senior Economist, LendingTree