The notion of home ownership was shattered for millions of Americans during the financial crisis. The U.S. Treasury has estimated that the $19.2 trillion in household wealth was lost when the housing market collapsed. The rapid decline in home value forced millions of homes underwater, and while loan modification programs have helped 5 million people say in their homes, there were still 2.6 million completed foreclosures between 2009 and 2012.
The recovery has been slow, but walking into the second half of 2013, the housing market has emerged as a pillar of the U.S. economic recovery. Inventory of unsold homes is declining and new home sales are stabilizing. Housing prices in many parts of the country have fully rebounded and low mortgage rates continue to spur buying activity.
Still, home ownership is at its lowest level since 1995, according to the U.S. Department of Commerce, striking its recent low in the second quarter of 2013. The home ownership rate in the U.S. fell to 65.0 percent in the second-quarter compared to the pre-crisis high of 69.1 percent.
President Barack Obama took the stage in Pheonix, Arizona on Tuesday to address the issues still facing many homeowners. He framed the issue of home ownership as the “most tangible cornerstone at the heart of middle-class life.”
“A home is supposed to be our ultimate evidence that in America, hard work pays off, and responsibility is rewarded. I think of my grandparents’ generation. After my grandfather served in World War II, this country gave him the chance to go to college on the GI Bill, and buy his first home with a loan from the FHA. To him, and to generations of Americans before and since, a home was more than just a house. A home was a source of pride and security. It was a place to raise children, put down roots, and build up savings for college, or a business, or retirement. And buying a home required responsibility on everyone’s part — banks were supposed to give you a fair deal, with terms you could understand, and buyers were supposed to live within their means. In my grandfather’s America, houses weren’t for flipping — they were for living in.”
President Obama pointed out that when he took office in 2009, home prices had fallen more than 20 percent on the year and new housing starts had fallen nearly 80 percent. Employment in the residential construction industry declined by more than 40 percent — more than 400,000 jobs — between the middle and the end of the decade.
Residential construction industry employment remains low, but the housing market is showing clear signs of a recovery. Construction has increased about 75 percent and new home sales are up nearly 25 percent. Home prices are increasing at their fastest rate in seven years, according to the president, up 20 percent over the past 52-week period.
So how does Obama plan to build on this foundation? The president laid out some steps, which included the wind down of Fannie Mae and Freddie Mac.
“For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag. It was “heads we win, tails you lose.” And it was wrong. The good news is that there’s a bipartisan group of Senators working to end Fannie and Freddie as we know them. I support these kinds of efforts and today I want to lay out four core principles for what I believe this reform should look like.”
The announcement is significant because the president has historically been resistant to making changes to Fannie and Freddie. The administration wanted to wait until conditions improved before shaking things up too much and now it finally seems like the time is right. The announcement might also be surprising — to the “folks who call me a raging socialist every day,” as the president put it — because it called for the increased role of private capital in the mortgage market.
“But just like the health care law that set clear rules for insurance companies to protect consumers and make it more affordable for millions to buy coverage on the private market, I believe that while our housing system must have a limited government role, private lending should be the backbone of the housing market,” he said.