We’re currently in the worst housing slump America has ever recorded.
It’s been nearly nine years since the peak of the housing market in 2006 making this the most dramatic slump in housing that America has ever had according to Robert Shiller, the Noble Prize winning Yale economist and author of Irrational Exuberance.
The housing recovery seems to be weakening as U.S. home builder confidence fell in February. The National Association of Home Builders (NAHB) is calling for new home sales to rise to 572,000 this year but that’s not even half of the historical average. Housing starts for single-family homes are usually about 1.2 million.
“The government has taken over the risk management through Freddie Mac and Fannie Mae—it’s not even much of a private market,” says Shiller.
Despite a comeback in subprime lending, the standards for mortgages still remain tight. About $4 billion in subprime mortgages have been lent since 2009, down from $625 billion in 2005. Fannie and Freddie, however, recently announced that they would start backing loans with only a 3% down payment in order to allow lower-income and first-time home buyers to purchase houses. The previous standard was a 5% down payment.
“There is an argument for helping low-income people get a house,” says Shiller. “I think it makes them feel better about their attachment to this country and themselves.” But he doesn’t believe there’s any reason to advise people towards owning a house instead of starting a business or paying for an education.
Owning a home appeals to certain people, according to Shiller, people who are upwardly mobile with young children. But, he warns, owning a home is an incredible nuisance that can trap people and end up costing a lot in upkeep. “I’m a homeowner but there’s a lot of stuff that goes wrong, we had our heat go out the other day,” he jokes.