When the mortgage crisis erupted in 2007, the housing industry dominated the political agenda.
Seven years later, the economy remains on the forefront of Americans’ minds but contenders for the 2012 elections have little to say about the housing industry, the future of which remains bleak.
Mitt Romney incited the ire of liberals and President Obama when he suggested Tuesday that banks shouldn’t stop the foreclosure process and instead let them “hit the bottom.”
“The idea of the federal government running around and saying, hey, we’re going to give you some money for trading in your old car, or we’re going to give you a few thousand bucks for buying a new house, or we’re going to keep banks from foreclosing if you can’t make your payments, these kind of actions on the part of government haven’t worked,” the leading Republican 2012 contender said at Tuesday night’s debate in Nevada, which has the highest foreclosure rate in the country.
But other GOP candidates have been relatively mum on the issue, even as the housing industry remains weak.
“No one has very good ideas of what to do about this situation that we’re in right now,” said Peter J. Wallison, a fellow at the conservative American Enterprise Institute who served as counsel to President Ronald Reagan. “It’s a much more complex issue than talking about the debt or defense policy or foreign policy. This is a very complicated financial problem and to try and explain it in a soundbite is very hard to do.”
The housing market is predicted to remain weak as the 2012 election cycle begins. In its Economic and Housing Forecasts for October 2011 report, Fannie Mae forecasts that home sales will continue to weaken and that mortgage applications haven’t increased despite low interest rates and government programs to jolt the market.
“In this type of environment, the housing market remains very sluggish and consumers’ willingness to dig into their savings to purchase big ticket items is very low,” Fannie Mae’s chief economist Doug Duncan said in a statement. “Leading indicators point to housing sales bouncing near the bottom at least through the end of 2012.”
The Obama administration has launched several programs to jolt the sluggish market, but only a handful have been met with mixed success.
The $75 billion Home Affordable Mortgage Insurance Program, launched in March 2009, didn’t attract as many distressed homebuyers as the administration had hoped. Some people who took advantage of the program ended up defaulting again on their mortgage. The Federal Housing Administration’s refinancing program has also taken heavy criticism for the same reason.
“I think the program wasn’t aggressive,” said leading economist and Yale professor Robert Shiller. “We are still in this situation that homeowners are exposed to real estate risk and there’s not much being done for them.”
Consumer confidence plays a significant role in how people perceive their elected leaders. A weak housing market, coupled with the economic crisis, could spell trouble for President Obama. Battleground states like Florida, Nevada and Ohio boast some of the highest foreclosure rates in the country. And the sluggish market is weighing generally on consumer confidence.
“It’s a drag on the economy and it’s a drag on confidence,” Shiller said. “Consumer confidence is at record lows… and it’s related to the fact that so many people are wiped out or underwater or they’re worried about being under water soon. It’s affected the mortgage portfolios of banks.”
A turnaround in the housing market would boost the economy and help Obama’s reelection chances, not dissimilar to President Roosevelt who won a second term in 1936 despite the Great Depression. But critics say the administration has taken too long to turn back the dial.
“All of these programs have caused people to rethink what is happening in the mortgage markets and the housing markets and to be wary of the government’s involvement in those markets and the danger that the government may do something again that will cause housing prices to fall further,” Wallison said.