Home sales, showing new signs of life two years after the credit crunch drove down home prices, must gain more ground before policy makers can “declare victory,” Housing and Urban Development Secretary Shaun Donovan said.
“It is too early to certainly declare victory,” Donovan said in an interview for Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. He said prices picked up over the last year and Americans added $1.1 trillion in equity to their homes.
An index of pending home sales rose an unexpected 5.2 percent in July, the National Association of Realtors reported Sept. 2, after seasonally adjusted pending sales dropped 2.8 percent in June and almost 30 percent in May. July 2010 was down more than 19 percent from a year ago.
When President Barack Obama came into office, “what was driving the housing market was bad loans, today it’s unemployment,” Donovan said.
The administration is putting more emphasis on affordable rental housing and less on homeownership as Obama and Congress work to stabilize home prices and rebuild the U.S. mortgage-finance system, Donovan said.
“We do need to rebalance our priorities,” Donovan said. “Part of that, frankly, is that we have a president who talks about rental housing and is focused on rental housing as an important part of the equation.”
About 67 percent of U.S. residents live in their own homes, according to the Treasury Department. The median home price in the U.S. was $173,100 in April, down 25 percent from the July 2006 peak, according to the National Association of Realtors.
The administration’s $814 billion stimulus plan has helped people stay in their homes and increased the stock of affordable housing, Donovan said. HUD has used some of the money to give communities the ability to buy and rehabilitate abandoned property to create new rental housing.
“We’re both absorbing the supply of foreclosed homes while at the same time making sure that we have good rental housing,” Donovan said.
In New Orleans, “there are thousands of people who have been able to move into homes, affordable homes, thanks to the stimulus,” he said.
Donovan also said that as policy makers look for ways to reduce the deficit, an $80 billion tax break for homeowners should be protected to avoid endangering the real estate market.
“My concern, the president’s concern, right now is we have to make sure this fragile housing market recovers,” Donovan said. He called rewriting the mortgage-interest deduction, the third-most expensive income tax expenditure, a policy question for the long term.
“I don’t think, however, given where we are in the housing cycle today, given the fragile recovery that we’re seeing, that it’s a productive discussion right now,” Donovan said. He pointed to a presidential commission that’s examining broader tax policy and ways to reduce the record budget deficit.
Treasury Secretary Timothy F. Geithner has promised to deliver by January a comprehensive plan to revamp the mortgage system, which for decades relied on loan guarantees sold by Fannie Mae (FNMA) and Freddie Mac. (FMCC)
The Treasury seized the companies in September 2008 as falling home prices pushed them to the brink of collapse. They have since drawn almost $150 billion in taxpayer aid to stay solvent. The companies, along with HUD’s Federal Housing Administration, backed almost 97 percent of the U.S. mortgage market in 2009.
That government role has been crucial to supporting the housing market, Donovan said.
“There are those who would argue we need to end their involvement in the housing market today. What that misses is that what’s driving these losses we’ve seen at Fannie and Freddie are historic loans, loans that were on the books before this president ever came into office, before they went into conservatorship,” Donovan said.
At an Aug. 17 housing conference hosted by HUD and the Treasury, there was “pretty broad agreement” among policy makers, industry and housing advocates that government must continue to support the market, Donovan said.
“Having some ability in the crisis, like we’ve been through, to have that backstop available, is critical,” he said.
“There’s no question in my mind that 30-year mortgages have some benefit, but that is part of what we’re looking at as our broader look at the housing-finance area,” Donovan said.