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Housing’s Role in the Road to Recovery

By Brian Summerfield, Online Editor, REALTOR® Magazine

The National Association of REALTORS® took out a full-page ad in this past Sunday’s edition of the Washington Post to get across a simple but important message: Housing creates jobs, which America needs for a genuine, complete recovery. Indeed, much of the positive economic news that’s come out recently — even in real estate — has been tempered by the enduring high levels of unemployment. Although those figures have improved incrementally over the past couple of months, the unemployment rate is still more than 9 percent, well above historic norms, and when people who have stopped looking for jobs are factored in, it’s much higher.

The aim of NAR’s ad was to advise policymakers and Congress, in advance of the release of President Obama’s Fiscal Year 2012 budget today, that certain changes to the mortgage interest deduction or government involvement in the secondary mortgage market — however well-intended — could have disastrous consequences for the economy. Conversely, by supporting policies that foster home ownership and purchases, they can help create the necessary conditions for a turnaround.

(Note: There is a provision in the 2012 budget that would limit the value of all itemized deductions, including the mortgage interest deduction, to 28 percent for taxpayers in higher brackets — households earning more than $250,000. The proposal is similar to a provision included in last year’s budget proposal, which was rejected by Congress.)

In fact, according to NAR, for every two new houses sold, a job is created. This argument rests on measuring gross domestic product (GDP) as the sum of all income. NAR estimates that each existing-home sale at the median price creates $30,792 because of commissions, fees, moving expenses, furniture, and a “multiplier effect” due to reinvestment of capital from a home sale into the economy. For a new-home sale, nearly $28,000 more is added to that because of spending on materials and labor for construction.

So, let’s say you add two new-home sales together. That adds $117,058 to the economy. Now, divide U.S. GDP by the number of payroll workers, and you get approximately $113,000. (NAR acknowledges this is an overestimation of salary income since income can be earned from profits, rents, and other sources, but does provide a ceiling to earnings per worker.)  In other words, these two transactions pump enough money into the economy to pay another worker. And if you substitute average earnings — about $57,000 — for the GDP-divided-by-payroll-workers formula, that jumps up to two jobs.

Now, this is all theoretical, but there’s no denying that just a few transactions can have a significant economic impact on localities — with respect to people’s livelihoods, home values, and viability of communities. The housing sector won’t be the only thing to restore the vitality of American economy, but it will play an important part.

Learn more about why home ownership matters for economic recovery.

Brian Summerfield

Brian Summerfield is Manager of Business Development and Outreach for NAR Commercial and Global Services. He can be reached at bsummerfield@realtors.org.

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Comments
  1. Kria Lacher

    I think that is a step in the right direction. But I don’t think it goes far enough. The proposed idea of having everyone have a 10 percent down needs to be looked at too.

    I also think NAR needs to come out strong against the idea of privatizing loans… to the same people that created the whole mess in the first place… Wall street. That is where the hedge funds came from and that is where the derivatives came from. That did not come from Fannea Mae. To allow Wall street to get there greedy hands on loans NO WAY. We can not trust them!!!! They are bail out prone.

    OR~ Nar needs to come out strong for regulations that make sense and protect consumers and make house buying affordable

  2. Jeff Frazier

    As a real estate practitioner, I found your article interesting, and I will run it by a friend who teaches economics (and who taught me) to see what she thinks — especially when factoring in the multiplier effect.

    And thank you for addressing the labor market properly. In my estimation, considering cyclical and structural unemployment — and then underemployment — I put the figure of unemployment closer to 22.5%, with underemployment reaching into the 35% range. (If nothing else, close to 50% of Black males in urban settings are structurally unemployed — a staggering statistic.)

    Regarding Kria Lacher’s comment, I commend her for being one of the very few practitioners who even knows what a mess the unbridled usage of derivatives has caused in our country in the past decade; much less, her public usage of the word.

    Frankly, unless there is even a rudimentary understanding of the implications of the Commodity Futures Modernization Act (of 2000) — which freed-up the family of complex derivatives from any federal reporting — then they will not have barely a clue of the financial imbroglio we faced (still face, and will face). They are the heart of the problem.

    The recent Dodd Frank bill allowed for some provision for dealing with them responsibly, but they are still very much unregulated. Trillions and trillions and trillions and trillions and trillions of dollars of securitized debt are still bound by them.

    As one economist said back in late summer about the negative effects of the dervivatives market: “We are still in about the third inning.”

    If the Congressional Oversight Committiee of TARP’s assessment is correct, 40% to 60% of Commercial Mortgage Backed Securities (CMBS financing) will be in default by 2013/2014. As of this past March,16.8% were in default. (The norm is usually 1.75%.)

    Granted, there are definite signs of economic recovery in the air in many sectors of the economy, yet Bernake still is like me: very cautious of over-optimism. Much rides on the stability of the housing market. Perhaps your article, if in the right hands, will guide economic policy favorably.

  3. Lou Corte

    I totally agree that the Real Estate Industry is the key to solving our economic woes. While lengthy, see my communications below, trying to offer a solution, that is non political and very cosst effective. I also have contacted our local realtor Association and have posted a “blog”. No responses other than polite “thank you for your communication. s this worth our association’s Lobby to consider? Please let me know if this is not a viable solution and why. I sure would like to get some meaningful feed back. Thanks for your time.

    communications to our Congressmen below:

    Speaker Boehmer, following is my message to Sen. Cornyn and his office’s reply.

    I have received no satisfaction, to date, that my idea or proposal has been read, considered or deemed impractical. Only that it has been received. I’m passing this letter to you for you to consider because you have shown a considerable concern for hearng from the American public. Personally, I cannot see any reason that my suggestion should be deemed not practical and would quickly energize the Nation’s economy and solve the housing crisis at the same time, while also healing Fannie Mae and Freddie Mac. At least, if I’m wrong, will someone favor me with a response as to the practicality of my suggestion or reasons why it would not work. It really seems to be all too simple and inexpensive. “Sometimes we can’t see the forest for the trees!!”

    Respectfully submitted,

    Lou Corte,
    A concerned citizen.

    Attached Message
    From: donotreply@cornyn.senate.gov
    To: corterlty@aol.com
    Subject: Your Message To Senator Cornyn
    Date: Fri, 15 Oct 2010 15:19:38 -0400 (EDT)

    Dear Louis Corte,

    Thank you for contacting my offices. Your correspondence has been received, and we will respond to you as quickly as possible. A copy of your message is attached below for your records.

    If you need immediate assistance regarding an urgent problem you are experiencing with the federal government, visit the “Help With Federal Agencies” section of the website for details on how to proceed so that your difficulties are brought to my attention as soon as possible.

    If you are seeking information or services from my offices that are NOT related to my Legislative duties, please visit my “Services For Texans” section for more information.

    Warmest Regards,
    U.S. Senator John Cornyn

    —————————————————
    Name/Email:
    Louis Corte (corterlty@aol.com)

    Street Address:
    6061 Broadway, P.O. Box 854
    Pearland, TX
    77581

    Phone:
    281-485-4336

    Your Message:

    Our Government keeps trying to develop solutions to the weak economy by throwing in these costly “stimulus packages”, which have not solved the problem but continues to increase our National Debt. A good part of our “jobs” problem, along with the housing crisis can be fixed, quickly and inexpensively. The Housing industry affects a large portion of our jobs market, the con- struction industry, plus suppliers of home furnishings, Insurance Companies, Title Companies, Mortgage Companies, land development, ie engineering, street paving, utility construction, plus thousands of Realtors and their employees across the Nation. The Housing Industry is suffering from a glut of foreclosures, created by Buyer’s over buying and housing being over priced. Those owners who can not sell their house, because of the depressed market could be helped substantially, if their house notes were reduced by refinancing their home and extending the amortization period by 10 to 15 years. In many cases, their interest rates would also be reduced, thereby making their house notes even more affordable. Eventually they may have an opportunity to sell later at a profit, once the market improves and appreciation is more likely. The interest rates charged could be a point or two higher from the prevailing rate, to make these loans more attractive to the secondary lending market. This could also be a boost to Fannie Mae and Freddie Mac. All of this can be done swiftly, effectively and with no expense to our Government. For those poor souls who are facing foreclosure would also have a chance to avoid that if this arrangement was made for prospective Buyers to better qualify them to purchase a home that was not previously affordable. Let’s not forget the assistance this would also be for our Banks and Mortgage Companies. Thank you for your time and understanding. I FORESEE THIS AS THE MOST EXPEDITIOUS REMEDY TO OUR PROBLEM. I’m at your service if I may be of service.

    Lou Corte

  4. I agree with your article and here is some additional information. from an article I read on
    “Consumer Confidence Index hits 3-year high”

    Unemployment fell 0.4 percent in January after dropping the same amount in December, but the rate remains at 9 percent, a historically high level. That may be one reason consumers’ assessment of present-day business and employment conditions improved only moderately in February.

    Those saying jobs are “plentiful” increased to 4.9 percent from 4.6 percent in January, while those stating that business conditions are “good” rose to 12.4 percent from 11.3 percent.

    While this assessment of current business conditions “remains rather weak,” the index is at a three-year high “due to growing optimism about the short-term future,” says Lynn Franco, director of the Conference Board Consumer Research Center.

    Consumers’ short-term outlook has improved since January. The share of respondents who expected business conditions to improve over the next six months increased to 24.4 percent from 24.0 percent, while the number that expected business conditions to worsen declined.

    Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2011/02/22/national/a070307S09.DTL#ixzz1Eo7hgri6

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