When President Obama entered office, he inherited a fractured economy. The housing market’s crash and gradual recovery affected millions, and were key issues in national political discourse. While the massive wave of mortgage defaults and foreclosures has passed, the next president of the United States will have significant housing concerns to contend with over the next four years.
Here’s what’s coming down the pike:
1. Affordability – Housing prices continue to recover in some areas, but in others, property costs are far outstripping the earning power of the average homebuyer. A recent Ipsos Public Affairs poll shows that 59 percent of Americans consider housing affordability to be a major issue, and that 71 percent believe it should be a cornerstone election issue. Case in point: about 18.5 million homeowners spend 30 percent of their household income on housing costs, according to a recent report by the Joint Center for Housing Studies of Harvard University.
2. Construction Woes – New homes are certainly in demand this year. The National Association of Homebuilders (NAHB) reports that new homes were selling at an annual rate of 654,000 in July, up from 498,000 over the same period last year. While demand is there, builders are having trouble with the supply side.
In a survey conducted earlier this year, the NAHB found that 71 percent of single-family homebuilders faced problems relating to the cost and availability of laborers, and that 76 percent expected to deal with the same situation this year. The increasing cost of building materials and lots also hindered contractors. In 2015, 58 percent encountered problems with the expense of purchasing land and the availability of lots and 59 percent expected more of the same this year. In terms of building materials, prices negatively affected 42 percent of builders last year, and while 56 percent anticipated that the cost of materials would negatively impact them this year.
3. Building Regulations – The homebuilding process is tightly regulated, which presents financial difficulties for many contractors. According to the NAHB, meeting government regulations accounts for 23.5 percent of the cost of a new home. Regulatory costs include: delays caused when applying for zoning approval; the value of unbuilt land; changes in development standards; and permits, utility hookups, fees and code changes. Consequently, an additional $84,000 is added to the cost of a new home, a 29.8 percent increase from 2011.
4. Reforming Fannie and Freddie – The nation’s government-sponsored mortgage lenders, Fannie Mae and Freddie Mac, still face a rough road ahead after eight years under the control of the U.S. Treasury. Congress’s mandate that the two lenders turn any profits over to the treasury has resulted in a dwindling of resources and capital. What’s more, their cash reserves will be drawn down to zero by 2018. Given their inability to withstand losses on their own, they must draw on the treasury. Yet, the two lenders continue to play a necessary role – 70 percent of new mortgage loans made in the first quarter of 2015 came from Fannie and Freddie, according to the Brookings Institution.