In tonightâ€™s speech, President Obama mentioned housing twice. First, at the start of the speech, he included the â€œrebounding housing marketâ€ as part of his victory lap. Second, he called on Congress to â€œsend me legislationâ€ that would protect taxpayers from paying for another housing crisis while keeping alive the â€œdream of homeownership.â€ That line was vague, and it didnâ€™t bring down the house. What he meant was made clearer in the companionÂ policy fact-sheet: Obama was referring to the four principles for housing-finance reform legislation that he outlined last August.
Why nothing new or specific about housing? There are plenty of housing issues that President Obama might have talked about. Affordability is worsening, mortgage credit appears tight, and delinquencies and foreclosures are still too widespread. Why did none of these make the final cut? Four reasons. The housing policies that Obama might have talked about were either:
1) Not pressing enough.Â The housing market is in the best shape of Obamaâ€™s presidency. Construction and sales in 2013 were both at their highest levels since before he took office, andÂ prices have bounced backÂ to within range of their long-term norms. Two of Obamaâ€™s main housing initiatives during his first term are less essential today:
- RefinancingÂ is less of a financial slam-dunk for households now thatmortgage ratesÂ have risen.
- Loan modificationsÂ are less urgent because rising prices and a strengthening economy have lifted millions of borrowers back above water and reduced the share of mortgages in default.
2) Mostly settled.Â A key measure to prevent a repeat of last decadeâ€™s crisis is now in place: the most contentious elements of the qualified mortgage / ability-to-repay and qualified residential mortgage rules were hammered out last year, and QM is now in effect. While the impact and evolution of these rules is still to be seen, the main features of the rules themselves have been settled.
3) Too local.Â Affordability concerns are growing, as prices and mortgage rates climb up from low levels, but affordability is a local, not national, crisis. InÂ San Francisco, just 14% of homes for sale areÂ within reach of a household with median local income, versus more than 80% in some metros in the Midwest and South. One key solution to an affordability crisis is also local: more construction in markets where demand is strong but supply is held back by regulations and other constraints.
4) Too messy.Â The huge, looming housing question is how to reform or replace Fannie Mae and Freddie Mac. The â€œsend me legislationâ€ line repeated Obamaâ€™s call last August for Congressional action on Fannie/Freddie reform. But tonight he didnâ€™t reveal any new thinking on the fundamental challenge: how to keep the 30-year fixed-rate mortgage relatively cheap and widely available while minimizing taxpayer exposure to the next housing meltdown. Any housing-finance reform that could achieve that would be too complicated, too dependent on Congress, and would take too long to succeed for a speech about a â€œyear of action.â€
Jed Kolko, Chief Economist
Jed leads Truliaâ€™s housing research and provides insight on market trends and public policy to major media outlets including TIME magazine, CNN, and numerous others. Jedâ€™s background includes a Ph.D. in Economics from Harvard University and more than 15 years of publications and research management in economic development, land use and housing policy, and consumer technology adoption.