The residential real estate market has slumped across the country. Some areas have been hit worse than others.
In the search for solutions, some are looking to the presidential elections. There’s a hope that, somehow, the election of a new president will re-energize the markets. But will it?
First, any effect will be psychological. Now, that’s not to discount psychology. A lot of what’s affecting the current market is buyer (and seller) psychology. And that was certainly the case a couple of years ago, before the real estate bubble burst. People were buying on emotion, not facts and reality. The market was soaring; their friends were making fortunes in a matter of months, and they wanted in on the action. The facts suggested that the growth rate was unsustainable. And reality suggested that soon, with continued escalation of prices, no one would be able to afford a home.
So, what might the psychological effect of the presidential election be? Considering that many people blame the current Bush Administration and its policies for the position we’re in now, the election of someone who supports the current policies probably would have very little effect. The election of someone who represents a break with the past could have a significant psychological effect.
Note: I know it sounds as if I’m saying Obama would help the real estate market and McCain wouldn’t. Again, we’re talking psychology, not actual policy. From that perspective, then, an Obama victory might help, and probably more than a McCain victory.
But it could be possible for McCain to stake out a far different economic position than Bush has. Or he might select someone as his vice presidential running mate who would do that. Or announce people he’d like to appoint to his Cabinet.
On the other side, while Obama in general reflects change, he’d still have to articulate a position of change as it applies to the economy in general and to real estate in particular. And, yes, if Clinton somehow got the nomination, the same conditions would apply.
Obama’s website, at the moment, doesn’t have much detail on the subject. He does say:
“Obama will crack down on fraudulent brokers and lenders. He will also make sure homebuyers have honest and complete information about their mortgage options, and he will give a tax credit to all middle-class homeowners.”
But that’s not the root of the problem.
Obama’s site also says:
“Obama will create a fund to help people refinance their mortgages and provide comprehensive supports to innocent homeowners. The fund will be partially paid for by Obama’s increased penalties on lenders who act irresponsibly and commit fraud.”
That might help a small portion of those in trouble. But it won’t help anyone who’s already lost their home, either via a foreclosure or short sale. And it doesn’t appear to help people whose homes have lost substantial value. If someone bought a home in 2006 for $500,000 and it’s now worth $350,000, refinancing that $500,000 mortgage, while lowering payments slightly, still leaves the homeowner “upside down” by $150,000. And all the other homes in that neighborhood are still only worth $350,000…versus $500,000 a couple of years ago.
Meanwhile, McCain does have a proposal, but when you consider the paperwork, the hoops homeowners would have to jump through, and the bureaucracy it’s sure to spawn, there’s a real question of whether it would benefit many homeowners.
McCain’s website says:
John McCain Is Proposing A New “HOME Plan” To Provide Robust, Timely And Targeted Help To Those Hurt By The Housing Crisis. Under his HOME Plan, every deserving American family or homeowner will be afforded the opportunity to trade a burdensome mortgage for a manageable loan that reflects their home’s market value.
Eligibility: Holders of a non-conventional mortgage taken after 2005 who live in their home (primary residence only); can prove creditworthiness at the time of the original loan; are either delinquent, in arrears on payments, facing a reset or otherwise demonstrate that they will be unable to continue to meet their mortgage obligations; and can meet the terms of a new 30-year fixed-rate mortgage on the existing home.
How It Works: An individual picks up a form at any Post Office and apply for a HOME loan. The FHA HOME Office certifies that the individual is qualified and contacts the individual’s mortgage servicer. The mortgage servicer writes down and retires the existing loan, which is replaced by an FHA guaranteed HOME loan from a lender.
So, under McCain’s plan the homeowner had to be creditworthy after 2005…but nevertheless have accepted an “unconventional loan”…and must be in trouble now…but still must be able to qualify for a 30 year conventional loan. That eliminates a huge chunk of the population in trouble.
And then there’s the fact–as with Obama’s plan–that you’d still be refinancing a $500,000 mortgage on a $350,000 property. When Harry Homeowner wants to sell in a year or two, and his property is still worth under $500,000, what then? Are we just postponing tens of thousands of short sales?
If any of the candidates came in with a “Marshall Plan for Housing,” a major program, well laid-out, with some freshness and creativity, that could have a positive effect. Otherwise, I wouldn’t expect much.
One exception: The housing market around Washington, D.C. Every time there’s a presidential election, housing activity increases simply because a lot of people (administration officials, staffers on the Hill, congressmen and representatives, and so on) leave, and others come to replace them. I think it’s safe to say that there might be a greater turnover in all those categories than in past years. So, it’ll help the DC area. As for the rest of the country? Highly unlikely.
Realtor with Long & Foster licensed in Virginia