My last two posts have addressed the fact that despite the higher interest rates, it remains a seller’s market because of low inventory of listings. I wrote about why inventory is so low yesterday, and today I’m going to pretend I’m the HUD secretary and Housing Emperor (a position I made up but I’d love that job) to talk about how to get out of the corner the housing market has painted itself into.

I have heard this expressed more in the last two years than the rest of my my career combined:

I’d like to sell, but I have no idea where I can go. There’s nothing out there for me.

To save you a click, I cited 4 main factors as to why listing inventory is at such a meager number:

1. We aren’t building enough new homes
2. Foreclosures liquidated by banks are down
3. The Golden Handcuffs interest rates double what would be move up buyers are faced with
4. The paralysis of not knowing where to go, which keeps would be sellers in place

That’s a lot to tackle.

So if I were Emperor, what would I do to fix this?

Allow me to wave my scepter.

First, we need to build more, which means people of all political stripes need to find common ground. Resistance to building in my experience has many sources but two reasons often cited are concerns about environmental impact and strain on schools. There are solutions.

• Green housing. This doesn’t just mean more McMansions with solar panels. While new development can be far more environmentally friendly than even 10 years ago, single family homes are not the only option. Repurposing buildings that had industrial or commercial use into denser condos has been a spectacular move in Yonkers. Driving recently through Providence, Rhode Island I saw multiple examples of old factories being converted into lofts, apartments, and condos. The structures are already there. The infrastructure is already there. The immediate areas are already urbanized and ready. Not one tree needs to be removed for these projects.
• 55 and over communities. This would be good for reasons beyond all the soul-crushing generational seminars I’ve had to endure where I’ve heard all about the aging baby boomer population. Downsizing and simplifying make 55 and over communities desirable not just for the residents, but the community at large. It present zero additional demand on schools, increases tax revenue, and keeps communities intact because instead of flying south or to more affordable areas, seniors can stay local with smaller, less expensive housing than their empty nests.
• More Planned Unit Developments (PUDs). Townhome and condominium communities don’t just house more people at an affordable price point. They also include green space. They have common areas for recreation. They are communities in a box. There is no cookie cutter resident of a this type of development. They are great for seniors because they have less fewer maintenance headaches. They are wonderful for younger families because there is recreational and green space that don’t require a drive elsewhere. And they are more affordable than single family homes in austere, clear cut subdivisions.

I’ve heard the environmental arguments against overdevelopment and the older I get the more the emphasis seems to target development as a whole rather than irrational exuberance with no master plan. People need to live somewhere. And if we have to expand our schools, the development I am talking about will sustainably fund that growth.

The potential for new builds is, in my opinion, the biggest opportunity we have even in the fairly densely populated county we call Westchester. That’s not the only edict I’d issue as Real Estate Emperor.

Bank owned foreclosures need to enter the 21st Century. I could write a book about what is broken with the mortgage system when a borrower defaults, but let’s jump forward to enabling a dignified exit for people who cannot keep up their payments. It shouldn’t take 9 months for a short sale to be approved, and the loan modification process shouldn’t be red tape hell either.

The process of turning over a non performing asset (as a foreclosed home is termed in industry parlance) is stuck in a decades-old model that needs to go away. The Ivy League MBAs who run our financial institutions don’t spend much time in their foreclosure division. When someone stops paying their mortgage in our area, the lender retains a law firm that collects enormous legal fees as the foreclosure process meanders through the courts for years. It used to take 9 months to a year for a house to be foreclosed on. Now 2 years seems fast in New York. The lender sends nice letters offering help, but most borrowers in default are past any bandwidth to work with the lender to modify the mortgage, promulgate a short sale, or work out a solution with a dignified exit. So the property sits, often vacant, as part of a shadow inventory that takes years to resolve. There are better ways, and they all involve forcing lenders to stop the red tape. This involves government intervention, and that means politics, so that’s why change is nonexistent.

The last part of the issue is the Golden Handcuffs issue. The government has been manipulating interest rates for decades, and now we are seeing the results. A little more than a year ago, rates doubled in a matter of weeks. That’s insane. I understand the complexities and concerns about inflation involved, but the unintended consequence has been awful for regular folks trying to live the American Dream.

• Government manipulation of rates should be reined in with limits on how much and for how long they intrude on market forces. This may be easier said than done but we can do better than 20 years of artificially low rates
• Rate hikes should therefore be capped except for extreme cases, like war, alien invasion, or economic calamity like we saw in 2008.

Some issues, like the effects of rate increases, will simply take time to ease away. But if we did a better job supporting new development and had a better approach to distressed properties, the perfect storm of our current circumstances would be substantially ameliorated.