From tiny towns to the national electorate, voters have been clear about who they want in office — elected officials who see housing as an economic cornerstone critical to recovery.

More than 80 percent of Americans believe housing is critical to economic recovery and candidates’ positions on housing will be important to the decisions of nearly 70 percent of Americans when they go to the polls in the 2012 election, according to a national survey released today by Move, Inc., an online network of real estate web sites.

Growing Importance

The survey reveals deep national concern over the housing situation and the importance housing will play in next year’s national elections.

Nearly one in three of those surveyed think helping homeowners avoid foreclosure should be the next presidential priority in his or her first 100 days in office. Keeping interest rates low (26.4 percent) ranked second and making more affordable mortgage credit available (14 percent) placed third.

• Americans are not optimistic about change in the housing market.

  More than 73 percent of Americans believe conditions for buying a home a year from now will be the same or worse than today. Only 23.2 percent expect home buying conditions to improve.

• After four years of living in a housing downturn, American voters clearly want answers and are looking to our elected leaders for solutions,” said Errol Samuelson, chief revenue officer of Move, Inc.
• Americans are just as split as elected officials over government’s role in housing.
• Move reported 42 percent said the government’s role in housing should be reduced; 21.3 percent said it should be increased and 31 percent said the role of government in housing should remain the same.
• Americans find themselves in a Catch-22 quandary over housing.

While they believe housing is critical to economic recovery, only 2 percent of those surveyed plan to buy a home in the next 12 months.

Among those who won’t take the plunge for at least two years, 55.1 percent don’t have enough for the down payment and closing costs; 52.5 percent said they’re concerned about jobs or lack confidence in the economy; 53.1 percent are waiting for prices to stabilize or increase; and 34.6 percent said tight and expensive credit is an obstacle.

Affordability

Home prices are more affordable than they were a year ago and just about as affordable as they were before the big boom run up in prices, but American’s aren’t buying it.

In March 2010, 45.4 percent said they thought a median income family could afford more than half of the homes for sale in their neighborhood. Today, only 32 percent share that sentiment.

“Perceptions as much as the realities of homeownership are standing in the way of boosting demand for housing. Until these concerns are resolved, we expect both buyers and sellers to remain on the sidelines,” said Samuelson.

________________________
Broderick Perkins is executive editor of DeadlineNews.Com, leading real estate, personal finance and consumer news portal.

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At first this may seem like an audacious idea, a violation somehow of the free market absolutism preferred by so many businesses and industries — at least until they need a special rule, tax break or handout from Uncle Sam.

In fact, it was not too long ago that Uncle Sam actually set mortgage rates for government-insured loans. For instance:

• Until November 30, 1983 HUD set interest rates for FHA mortgages. The practice ended with passage of the Housing and Rural Recovery Act of 1983.
• Under the Veterans Home Loan Program Amendments of 1992, the VA is allowed to set the maximum interest rate that can be charged for a VA loan as well as the maximum number of points. Today, the VA still has the right to set mortgage rates for vets but has elected not to do so.

Imagine what would happen if the government set daily mortgage rates for FHA and VA loans. Each day at 9 AM the daily rate would be made available online. Every borrower would have an opportunity to see the available rate for qualifying borrowers. Borrowers could compare the FHA and VA rates with rates for conventional financing — meaning there would be no need to set conventional interest levels, though if we wanted that could also by done through the Federal Housing Finance Agency.

The rates would be show at “par” — meaning with zero points — and with points so that borrowers could see a number of rate-and-point combinations. For instance, today a loan might be at:

• 3.75 percent and 1 point.
• 4 percent and 0 point (par pricing)
• 4.25 and -1 point (borrower gets a cash credit at closing or lender pays some or all closing costs).

In a marketplace filled with openness and clarity borrowers would have more of a chance of getting a fair deal.

Alternatively, we could go back to 2006.

The Wall Street Journal says in 2006 that 61 percent of all subprime loans originated that year went to borrowers who actually qualified for FHA, VA and conventional mortgages. Think how much borrowers could have saved if only they had known their real financial position. Think how many foreclosures could have been prevented. (See: Subprime Debacle Traps Even Very Credit-Worthy, The Wall Street Journal, December 3, 2007).

And while lenders might object to HUD and the VA setting rates for their insured loan products, they certainly have not complained with new rules which have benefitted mortgage companies.

For instance,  HUD limits on lender fees for FHA borrowers were ended in November 2008 — just two weeks after the presidential election. The Bush Administration said it decided to “remove the current specific limitations on the amounts mortgagees presently are allowed to charge borrowers directly for originating and closing an FHA loan.”

While many lenders have acted fairly and in good faith, some have not. That’s why better regulation is needed and that’s why the government should publish daily loan rates that anyone with Internet access can see.

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“When the full story gets out the public will be amazed,” said one official who cannot be identified. “We were shocked, just shocked, at what we found. It turns out that Bin Laden had more vices than a hardware store.”

Vices

“Truth is, we haven’t told the whole story. Yes, it’s correct that Bin Laden had a porn collection. What’s not been disclosed is that the porn involved well, er, animals. It seems that we can now explain why a large number of sheep within a three-mile radius of his compound were missing. Let’s just say they weren’t stolen for their wool.”

Among other items found in the compound were a large supply of fast foods. Another source explained that “we always thought we were chasing a tall, thin guy, someone hardened by years of living in a cave. Wrong, so wrong. Bin Laden had more fast food stashed at his place than any convenience store west of Hong Kong. There were at least 22 cases of pork rinds. In one video we have him describing plans to finance a chain of European smoking parlors that would feature Buffalo wings and sausage balls.”

Retirement

Bin Laden also had an interest in retirement real estate.

“The guy had a dozen real estate news guides to Miami. He apparently was shopping for a two-bedroom condo, something along the beach with easy access to schools, shopping and fertilizer. The problem was that all of his guides were from 2006 so he thought he had been priced out of the market. On one thumbnail drive he complained to his broker that real estate prices in Miami were so high he might have to consider Orlando.”

Oh, and one other thing said the official, “he wanted to be near a deli, someplace where he could get lean corned beef or a nicely-toasted bagel with a smear.”

Successor

On the matter of succession, Bin Laden reportedly was not thrilled with his heir apparent, Ayman Al- Zahiri, the Egyptian doctor.

“Al-Zahiri is great with feet, a top bunion man,” Bin Laden reportedly said on one tape. “But leadership? Are you kidding? The guy isn’t hiding from the Americans, he’s lost. No sense of direction. He turned right at that rock south of Kabul and we didn’t hear from him for six months. Let me tell you, the rank-and-file were not impressed when they found out he’d been living with a yeti in the high Himalayas. It was good for him though, he lost 40 pounds and they made a nice-looking couple.”

Asked if officials were selectively releasing information from the Bin Laden computer files and videos merely to sully the reputation of the Al-Qaida leader, one replied: “Who us? Why who would ever think of such a thing? Want another pork rind?”

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The question is why are home values rising in one area but not 19 others? Is there a magical formula that can be exported to other cities?

The answer, certainly, is not better mortgage quotes. Current mortgage rates across the country are fairly similar; there is no great preference for home loans near Washington’s famous beltway.

Nor is the housing stock in Washington especially remarkable. Homes in the capital region are pretty much like houses in any area with a similar climate.

The Job Base

What is different is the job base: There’s less unemployment in Maryland and Virginia, the areas which surround Washington, DC.

The reason for such economic stability is fairly simple: The government is here. The Washington area is filled with agencies, departments, bureaus, laboratories, forts, stations and offices. The roads are clogged with people trying to reach job sites each day, the rush “hour” apparently runs from 5 to 10 AM in the morning and from 3 to 7PM and later in the afternoon.

Indeed, the local job market is so good that people actually commute from Pennsylvania.

Where there is government there are also companies that want to do work for federal agencies, which means a huge private-sector investment in contractors and research. In suburban Maryland, as one example, the National Naval Medical Center in Bethesda, the National Institutes of Health, the US Nuclear Regulatory Commission and the Food and Drug Administration are virtually down the road from one another. The place is thick with skilled doctors and scientists.

We have lobbyists here in great profusion because they need to be near the decision-makers who impact every industry and profession. Every cause and concern has a representative who can explain with great emotion why as a matter of fairness and to protect the national interest the tax rate for glue should be lower than the tax on steel ingots.

And not to be overlooked, we have incredibly dedicated people who keep the country safe.

Taxes and Jobs

I bring up the local Washington housing market because it offers a compelling real estate lesson: If you want to shore up home prices, you have to first develop a sound job base.

There are two central reasons why home prices have fallen 18.6 percent nationwide since 2007: First, lenders sold toxic loans to borrowers, loans which were obviously going to fail in large numbers. Second, while the population increased the pool of buyers shrank as jobs were exported and American companies invested overseas.

So how can other metro areas duplicate the rising home values seen in and around the national capital?

The only possible answer is to re-start the local jobs market. We have lots of bridges on the verge of falling down, tons of public buildings that need to be repaired or replaced and endless miles of roads that are lumpy and dangerous. Not only infra-structure jobs, but jobs in research, science, computers, telecommunications, health and education.

We need to invest in America. We can do that in the Washington area because we inherently benefit from YOUR tax dollars.

Less is Really Less

But folks in many places don’t have the tax money which is available in the Washington metro region. Instead of — oh my — raising taxes from the citizens and corporations who benefit most from our society and will never miss a meal or a dividend, we constantly talk about shrinking government.

But when someone says we need “less government” let’s understand that this expression is simply shorthand for fewer jobs — including the jobs that could lead to higher home prices on your block.

The top federal tax rate for today’s millionaires and billionaires is 35 percent. That’s sure a lot lower than the 91 percent top marginal rate during the Eisenhower administration in the 1950s. To argue that today’s top tax rate is somehow set in stone or cannot be raised is absurd, especially when the country needs the jobs and higher home values that a fair and honest tax base would produce.

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“Purchase applications fell last week, driven primarily by a sharp decrease in government purchase applications as new, higher FHA premiums went into effect,” said Michael Fratantoni, the Mortgage Bankers Association Vice President of Research and Economics. “This decrease reverses a 20 percent increase in government purchase applications over a four week period, which was likely driven by borrowers attempting to beat this deadline.”

The deadline borrowers were trying to beat was April 18th, the day FHA loan requirements changed with the addition of a .25 percent increase in the annual mortgage insurance premium (MIP). For most new borrowers the annual cost for FHA insurance will rise from .90 percent to .115 percent or around $30 a month.

For marginal borrowers trying to get the biggest possible loans or for people who simply don’t like to pay more than they should, the steeper premium increases costs by about $360 a year.

In March FHA applications were down almost 36 percent when compared with March 2010. Endorsements were off 25 percent. Normally such results would produce cries for new leadership, and in this case former FHA Commission David H. Stevens is moving on to become the President and CEO of the Mortgage Bankers Association. This hardly seems like a demotion.

So who wins with this new policy?

Yes, HUD will get additional dollars for its insurance program but so what. The program already yields huge “receipts for the Treasury,” what normal human beings would call a profit.

As Mr. Stevens has explained, the “FHA is projected to generate approximately $9.8 billion in receipts for the U.S. Treasury in FY 2011, a significant increase compared to the $565 million of receipts generated in FY 2009.”

Taxpayers, of course, pay for none of this. As Lawrence Yun, chief economist for the National Association of Realtors, explains, the “FHA and VA government-backed loan programs turned a modest profit over to the U.S. Treasury last year, and have never required a taxpayer bailout.”

And unlike in past years, excess FHA premiums now go to the government instead of being returned to borrowers, as was the practice until December 8, 2004 when the policy changed under the Bush Administration.

How The Public Loses

With less FHA financing available there will be artificially-reduced buyer demand, higher costs and fewer home sales. Is this really a good idea given the critical condition of the housing market?

Home sales — despite claims to the contrary — are down. As the National Association of Realtors explains, existing home sales in March were 6.33 percent below March 2010.

Prices are also off — they’re down 18.6 percent from the peak in April 2007 according to the government.

Given this environment, the obvious path is to stimulate home sales because more real estate transactions are inherently good for the economy. We did that with the tax credit for first-time home buyers and it was a program which boosted real estate sales.

Today, the equally-obvious path with the FHA is to simply keep the standards which made the program a success. That means a 3 percent or 3.5 percent down payment and not more than a 1 percent fee for lenders. This was the standard fee for FHA loans until — in an outright gift to lenders from the Obama Administration — the cap on lender fees for most FHA programs was eliminated on December 30, 2009, a date when media coverage would be at an absolute minimum.

The FHA has traditionally been a leading financing option for first-time buyers and those in the lower- and middle-income brackets. Now access to that choice is being made unnaturally less attractive so that borrowers will be increasingly forced to obtain private-sector financing. This artificial lack of choice — a choice not based on better products or lower costs from private lenders — is not good for the housing market or the country.

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Killelea is a leading seer and prophet for a financial movement which thinks traditional real estate strategies are done and over. His website — the hugely-popular Patrick.net — is a national forum for the renting-is-better trend, a place where he and thousands of others make the case for new thinking and provide example after example of local rental opportunities.

In the past it would be easy to dismiss Killelea because rising home prices made real estate attractive. Figures from the New York Times show that in 1968 the typical house was valued at $22,600, a figure which rose to $219,000 by 2006. (See: Will the Fed Reverse the Housing Slump? September 19, 2007)

But the numbers from the Times also show something else: In 1968 it would take a typical buyer 2.9 times his or her annual income to buy a house. By 2006 the same house would cost 4.5 times annual income.

Killelea believes home prices have soared to a point where they no longer make financial sense, that real estate values are likely to decline further and that in most situations renting is now a better option than owning.

The Market Slumps

After decades of good news real estate trends started to change in 2007 when large numbers of distressed homes began to appear and force down home prices. RealtyTrac reports that there were 885,468 foreclosure filings in 2005, a figure which reached 2,203,295 in 2007 and has continued to climb.

The government says that home prices in November 2010 were down an average of 14.9 percent from the 2007 peak. Some regions, of course, have had even steeper declines — think of areas in California, Florida, Nevada, Arizona and Michigan.

The result, says Killelea, is that times have changed. New conditions require new thinking and in most cases that means ownership is out and renting is in.

“Prices did inflate for a long time as the US industrialized and the population growth rate was high,” says Killelea, “but lately the US is losing its industrial base to China, and US population growth has slowed. This makes it unwise to count on similar house price inflation in the future, especially in areas where prices are already far beyond the cost of renting an identical house.”

The Case For Renting

On his site, Killelea argues that “it’s usually still much cheaper to rent than to own the same size and quality house, in the same school district.

“On rich neighborhoods, annual rents are often 2.5 percent of purchase price while mortgage rates are 5 percent, so it costs twice as much to borrow the money as it does to borrow the house. Renters win and owners lose! Worse, total owner costs including taxes, maintenance, and insurance come to about 9% of purchase price, which is more than three times the cost of renting and wipes out any income tax benefit.”

In the past, the premium many buyers saw for ownership was justified by the idea that a home was not just shelter, it was also likely to be an investment that produced consistent gains in value. In many cases the value of real estate increased more than the rate of inflation, meaning that over time additional buying power — the real measure of wealth — was being created.

The catch is that now the justification for real estate ownership is missing in many markets. Prices are not rising before inflation or after. When home values will again begin to rise is unknown and unknowable.

When to Buy

Killelea is not an absolutist, someone who believes renting is always the better choice when compared with ownership. Instead, he makes two central arguments:

First, he says consumers should stick to basics and seek to avoid debt when possible.

“The traditional banker’s rule of thumb is that a house should not cost more than three times a household’s gross annual income. On a monthly basis, I think 30% of take-home page is reasonable,” he says.

Killelea’s view is actually more liberal than traditional lending standards. Conventional loans, for example, typically require that a borrower spend no more than 28 percent of his or her monthly income for mortgage principal, mortgage interest, property taxes and property insurance (PITI). This is the so-called “front” ratio that lender use to qualify borrowers. The “back” ratio includes the front ratio plus recurring costs such as monthly payments for auto loans, credit cards and student loans. The back ratio for conventional loans is 36 percent of monthly income.

Second, Killelea argues that even if the financing numbers are right, even if a borrower can spend less than 30 percent to own, there is still a need to look at whether it’s cheaper to own or to rent over the ownership period.

“Living in California did really force the whole rent vs buy issue into my head, because the prices were and still often are so absurd, like two to three times as much to own as to rent the same thing. Had I lived elsewhere, I probably would not have thought about it as much.”

A False Bottom

When asked if real estate values have generally reached a false bottom, if prices could go lower in many areas, Killelea says “yes, I do think we reached a false bottom again, and we have done so many times since 2006. I do believe house prices in most markets will fall in 2012, but that the percentage declines will be larger in more affluent areas. The bottom will be here when it is distinctly cheaper to own than to rent the same thing.”

“I think rates will go higher in spite of the increasingly desperate manipulations of the Federal Reserve,” he says. “But that doesn’t make it a good time to get a mortgage at all. The ideal time to buy is when interest rates are at a peak, which excludes competing buyers, and to buy then with all cash. Then you get few competing buyers, a low price, and no risk of defaulting.”

Yet even if buying conditions are not ideal, Killelea expects there will be no shortage of real estate purchasers.

“The basic psychological drive to own at any price will nonetheless cause millions of people to keep making bad financial decisions. But at least some people will do the math and see why they should wait until they find a really good deal.”

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That might be the case, according to a new analysis from Fiserv, Inc., an information management provider for the financial services industry. It says both that prices will stabilize — but that prices are likely to fall further.

After looking at data for more than 375 U.S. markets, Fiserv and Moody’s Analytics say home prices have already leveled out in one out of four metro areas. They also estimate that price stability will return to “75 percent of U.S. metro markets by the end of this year and 100 percent of markets by the end of 2012.”

“Large supplies of foreclosed properties will continue to be the biggest downside risk for home prices and metro area housing markets,” said David Stiff, chief economist, Fiserv. “Foreclosure activity declined at the end of 2010, but sales activity of bank-owned homes increased. In bubble and crash markets, the uncertain timing and volume of bank liquidated properties will cause home prices to bounce around their lows for many years.”

Stiff added that “since a significant number of households no longer have access to mortgage credit, improving affordability does not necessarily translate into sustained housing demand in every metro market.”

Lower Home Prices Predicted

Stablilization, however, may not mean higher prices.

The Fiserv Case-Shiller Indexes “forecast that average single-family home prices will fall another 5.5 percent over the next 12 months, with steep home price declines expected to continue in markets that have been hurt most by the housing crisis. These markets, including many in Florida, California, Nevada and Arizona, will begin seeing prices stabilizing throughout this year and through the end of 2012. Factors weighing on the housing market continue to include chronic high unemployment and the large number of distressed properties that remain in many of the bubble markets.”

Fiserve also explains that stabilization will not occur all at once or in all locations. Specifically, the company says:

• Markets where prices have already stabilized include San Diego, Washington, D.C., and San Francisco.
• Markets where prices will stabilize by the end of 2011 include Minneapolis, New York City and Portland, Ore.
• Markets where prices will not stabilize until 2012 include Miami, Phoenix and Las Vegas.

Representative home price data for major U.S. markets

Source: The Fiserv Case-Shiller Indexes. The Fiserv Case-Shiller home price forecasts are produced by Fiserv and Moody’s Analytics.

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This is not just sour grapes or an effort to re-write history. All anyone has to do is to look at a map and think about real estate: While mortgages and foreclosures are not an issue with either of the rallies, size is: The turf and territory occupied by the Stewart rally was simply larger than the Beck event.

Let’s start with the 1963 March on Washington, the most iconic public demonstration of modern times. Dr. Martin Luther King spoke from the steps of the Lincoln Memorial and the crowd extended along the Reflecting Pool and beyond. The usual estimate is that

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Figures from the Census Bureau confirm what’s widely been seen throughout America: Matt and Martha are moving back in with Mom and Dad. Multi-generational housing is here, if not by choice than as a rational economic strategy created by a lack of better alternatives.

According to David S. Johnson, Chief of the Census Bureau’s Housing and Household Economic Statistics Division, some 5.5 million adults aged 25 to 34 now live with their parents. This means 13.4 percent of young adults are back at home.

The economics of multi-generational living are fairly obvious: The youngsters are not paying rent, heat or electric to an outside third-party. In many cases they are part of the new economy, which is to say they’re unemployed, under-employed or barely scraping by with a part-time job.

No one knows how many young adults are paying rent to their parents or chipping in other ways such as household maintenance and chores. In any case, the parents are hopefully getting the benefit of an extra pair of hands.

What we’re really looking at is the contraction of the American economy, a place where a college degree may hold little value in fields where the same work can be done overseas, a country where the bright promise of tomorrow has dimmed, a nation where it was once possible to support a household with one salary and then two and now for too many people it’s not possible at all.

As parents and adult children double-up a new and unfortunate reality has begun to settle in: For a huge swath of American households the future won’t be much more than a time of hanging on. In the not-too-distant future tourists from foreign lands will come to our shores to buy crafts at bargain prices, admire our great spaces and throw money off cruise ships to watch as native children dive for coins and currency beneath the sparkling sun.

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The Fannie Mae findings are good news in the sense that real estate cannot be sold short, no one benefits from lower home prices. A belief that home values are rising is one sure way to encourage real estate purchases and thus — in circular fashion — increasing real estate prices.

Fannie Mae’a National Housing Survey found that respondents believe home prices will hold steady (47 percent) or increase (31 percent) over the next year, and that rental prices will stay the same (46 percent) or go up (39 percent). Across the general population, the average expected rise in rental prices is four times that of home prices (3.6 percent versus 0.9 percent).

Fannie Mae also found that 70 percent of Americans think it’s a good time to buy a house, compared with 64 percent in a similar survey conducted in January 2010. But 33 percent — up from 30 percent — of all respondents said they would be more likely to rent their next home if they were to move.

The big caveat with the survey, of course, is that real estate is a localized commodity. What people think nationally is less important than what people think about that house down the street. One suspects that the survey questions would draw vastly different responses from individuals in Phoenix when compared with residents of Nebraska.

Key Findings

• A large majority of Americans (78 percent) believe that home prices either will remain flat or go up over the next year, up five points from the beginning of the year. Forty-seven percent believe prices will hold steady, while 31 percent think they will go up. This is a notable shift from January 2010, when these numbers were 36 percent and 37 percent, respectively.
• Thirty-nine percent think rental prices will increase over the next 12 months, while 46 percent said they will stay the same.
• Consumers continue to believe it is a buyers’ market; 70 percent said it is a good time to buy a house, up six points from January. However, 83 percent believe it is a bad time to sell a house.
• A majority of Americans (67 percent) continue to believe that buying a home is a safe investment, although this is down three points since January and 16 points since 2003. Housing ranked second behind putting money into a savings or money market account (76 percent).
• Fifty-four percent think it would be very difficult or somewhat difficult to get a home loan today, down six points since January. However, 71 percent of Americans think buying a home will be harder for the next generation, up three points since January.
• The number of respondents who said they would be more likely to rent rather than buy their next home if they were going to move increased from 30 percent in January to 33 percent in July.
• A majority of renters said they would be more likely to rent their next home if they were to move, increasing significantly from 54 percent in January to 60 percent in July, even though 69 percent of renters think it makes more sense to buy a home.
• Twenty-two percent of mortgage borrowers said they have reduced their mortgage debt significantly in the last year, and 27 percent of the mortgage borrowers say they have reduced their non-mortgage debt significantly.

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