The question of whether the US economy is in fact experiencing a housing recovery has a lot of similarity to the question of an employment recovery. The answer really depends on where you choose to look.
Historically owner occupied housing has been the prime generator for the accumulation of middle class wealth. The ability to get a loan to purchase a home with a low down payment at modest rates of interest made it possible for millions of Americans to participate financially in the long term appreciation of property markets. One of the biggest expansions of this ownership class came just after WW II when FHA and VA loans spurred a huge construction boom that created the suburban landscape. Racial minorities were systematically excluded from such government subsidized opportunities by the practice of redlining. This situation did not begin to be corrected until the passage of fair housing legislation in the 1960s. By then a generation of minority families had already been left behind.
The great crash of 2008 ended the real estate boom that opened the 21st C and created a major decline in the value of real estate. Six years later the economy is still digging its way out of that hole. A group of UC Berkeley economist have just issued a report which highlights the very spotty nature of the recovery in housing values.
Despite the Bay Area's robust housing recovery, the East Bay communities of Vallejo, Antioch and Richmond are among the nation's 100 cities with the highest percentages of underwater mortgages, according to a report released Thursday.While this article is focused on the San Francisco Bay Area, the study was a nationwide survey and found similar patterns in other parts of the country. The Bay Area is a particular dramatic study in contrasts. The tech boom in San Francisco and Silicon Valley has created a frenzied housing boom, with many listed properties getting sold for amounts considerably greater than the original asking price. Yet that prosperity is having a limited impact on the broader region. The New York metropolitan area seems to be following a similar pattern.
The report, by UC Berkeley's Haas Institute for a Fair and Inclusive Society, points out that these communities and others with large minority populations have substantial percentages of homes still underwater, or worth less than their mortgages. Initially targeted by subprime lenders and then hit with the steepest home price declines, the communities are still struggling from the housing crash.
The institute argued that market forces won't help the hardest-hit communities recover. It called for federal intervention to reduce the principal on underwater mortgages to current market values, saying that federal efforts so far have been "woefully insufficient."Somehow I don't see much prospect of anything getting done to correct the economic imbalance.
"The best solution would be for banks and mortgage holders Fannie Mae and Freddie Mac and investors to simply modify the mortgages,'' Dreier said. ''That would avoid lots of other complicated efforts by local and federal governments. But they're not doing it and show no inclination to do it."
A second alternative would be for the head of the Federal Housing Finance Agency to change policy to allow Fannie Mae and Freddie Mac to reduce the amount owed on the loans, he said. "It makes the most sense. It's a national problem. Doing it on a city by city basis is a little inefficient," Dreier said.