By Bryan Starr
CEO, BIASC Orange County Chapter
February 9, 2012
The Great Recession was as deep and painful as it was in large part due to the steep downturn in the housing sector and, in particular, the homebuilding industry. It’s no exaggeration to say that when it came to housing and homebuilding, the past few years have been a true depression, worse than any time since World War II when wartime restrictions caused building in Southern California to come to a virtual halt.
And while the recession may officially be over, the economic recovery continues to be slow and uneven, and it is likely to remain so until the housing sector finally gets untracked and homebuilding is back to some semblance of normalcy. Here in Orange County, where homebuilding is showing more signs of life than in most parts of California, builders began construction on almost 1,900 single-family homes last year, 22 percent above production in 2010 and in fact the only county in the greater Los Angeles area to see increased new-home production. But that figure is still a far cry from the 5,400 new homes a year that was the average from 1990 to 2007.
That being the case, positive steps by policymakers at the local, state and national level are still necessary. Local governments here in Southern California need to continue working with builders to reduce and delay collecting the building fees that often add $50,000 or more to the price of each home. State lawmakers should take action to reform the state’s onerous environmental laws, as Governor Brown has proposed. And in Washington, D.C., President Obama’s proposals to seek refinancing aid for homeowners and mend the housing market are welcome as well.
The president’s proposals highlight the vital role that housing plays in the U.S. economy. Clearly, more decisive actions are needed to increase refinancing opportunities, to reduce the inventory of foreclosed homes and to prevent additional homes from going into foreclosure. Our industry looks forward to working with the Administration and Congress to find constructive solutions in these areas as soon as possible.
Just how important is housing? Bloomberg Businessweek recently summarized the impact of this sector of the economy.
The article noted that the housing slump “was a catalyst for the worst U.S. recession since the Great Depression and a persistent obstacle to a rapid recovery.” Indeed, the nation’s housing woes have dragged down growth for six years running, eroded consumer confidence and wiped out $7 trillion in American wealth.
One way to really get the sector moving is to reduce the number of homes threatened by foreclosure. Many of those homes will be sold to investors and other buyers, but in cases where the current owners could remain in their homes if they could refinance, the benefits would be significant.
The centerpiece of the new initiative would allow borrowers, even those who owe more than their homes are worth, to refinance into loans guaranteed by the Federal Housing Administration. The streamlined refinancing would make new mortgages less expensive and limit paperwork. Appraisals and tax returns would not be required.
It is estimated that at least 150,000 borrowers would take advantage, refinancing about $30 billion worth of principal.
And that would be a nice step in the right direction to get the nation’s economy moving again. Indeed, home construction and property sales led the way out of the previous seven recessions going back to 1960, according to PMI Group Inc., a mortgage insurer in Walnut Creek. New- home sales improved an average of eight months before the beginning of economic growth, and single-family housing starts improved seven months before recovery.
But in 2010, the first full year of the current recovery, residential investment fell 4.3 percent, according to the Commerce Department. Going back to the Great Depression, it gained an average of 22 percent in the first year of expansion, excluding 1946, when it tripled as soldiers returned from World War II.
Clearly, the overhang of foreclosures needs to be addressed before the economy will really take off. The president’s proposals are a good starting point for discussions on Capitol Hill and we hope lawmakers will move this year to get housing and homebuilding back on its feet again.