The Obama Administration must take steps to directly purchase 2 million foreclosed homes and provide rental and repurchase rights for these to the existing or new occupants. This will stabilize the housing market and stop further depreciation of home prices. The current deep recession has been brought about by an unprecedented failure in the housing market and can only be reversed by a stabilization of housing prices. This change must be energized by removing the enormous excess of foreclosed homes and foreclosure pressures weighing on families and threatening the housing and mortgage market. Without this, backlog of foreclosures will continue to put downward pressure on housing prices presenting an almost insurmountable damper on the lives and spending of homeowners and on the lending capacity and willingness of the banking sector to help finance recovery and economic growth.
This investment will inject roughly $300 billion back into the economy exactly at the pressure points where the needs are greatest and the economic stimulus can be strongest. It will also stabilize housing prices, giving confidence to consumer and investor decisions and will stabilize the banks, enabling them to begin lending again. Importantly, the government and taxpayer will not lose money on this program since the houses will be sold as the economy recovers.
This proposed Administration response to purchase foreclosed housing is the most straightforward means to address the imbalance of housing supply and demand. Housing inventory levels have ballooned - from the six month inventory of available housing that normally keeps housing prices in balance to levels of 10 months and above. Purchasing foreclosures will make an important difference in this equation. Housing market inventories have been rising over at least the last three years as housing demand has slackened with overall declines in economic growth. At the end of 2007, excess housing supply was as high as 1.5 million units (including substitute rentals). 2008 saw further drops in sales and dramatically accelerated foreclosures (up 45% from 2005), driving inventory levels even higher, compounding downward pressure on housing prices. Housing prices plummeted last year as a result of oversupply. Over 1.5 million additional foreclosures are forecast, with possibilities of 2.2 million borrowers at serious risk. Removing the languishing inventory from the market will prevent the toxic assets from continuing to contaminate the healthy assets in affected communities. Additionally, direct losses for banks and lending institutions from these foreclosures may be over $160 billion, further exacerbating their reluctance to expand loans.
An Obama American Housing Initiative can have results greater than the government's direct foreclosure purchases:
* Secured housing provides relief to the country's many at-risk homeowners;
* Stabilized housing prices can dramatically encourage a positive outlook to individuals and financial institutions to put money back into the economy;
* The government and the taxpayer should not lose. As the economy recovers, housing will be returned to the market; those previously offered rental of their foreclosed homes will have a chance to repurchase them; the government recovers its expenditures.
The economic stimulus of this Initiative cannot be understated. Not only do stabilized housing prices offer a solid base for the financial institutions to lend and invest in both companies and individuals, but it also directly improves the homeowner's capacity and willingness to build, spend and invest.
Finally, stabilized housing prices brought about by foreclosure purchases are critical to America's economic growth, individuality and independence. Those without equity are less able to respond to the many challenges that Americans face. As home values have declined precipitously, America's over 50 million homeowners with mortgages have lost over $1.5 trillion or more in equity value.
This approach enables the Administration to address the economic crisis at its source, halting and preventing an extended decline that erodes the wealth basis for ordinary Americans.
