Housing crisis needs solutions, not scapegoats

The Philadelphia Inquirer (MCT) - I am being inundated by opinions on the housing crisis. They fall into two categories: assigning blame and criticizing others' proposals without offering alternatives.

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Fingerpointing and scapegoating are counterproductive. Instead of criticizing possible solutions, try coming up with your own, so it can be considered rationally.

Michael Nolen, who has been building houses in the Philadelphia suburbs for 32 years, is troubled by what he considers "static" about the reasons for the current difficulties.

"I believe that the housing crisis is an "affordability issue," he said. "Just before the housing downturn in 2006, I heard an economist say that we shouldn't worry about the mortgage rates going up a percentage point. He said the problem was that the price of houses was going up over 10 percent a year, and eventually people will not be able to afford them."

Nolen believes the fix is to have home prices drop to where people can, indeed, afford them, with mortgages underwritten in ways that guarantee the buyers can pay them off. He also suggests raising wages so people don't have to get in debt over their heads to buy houses _ a notion that has also been proposed by Southern Methodist University professor Ravi Batra.

The glut of unsold houses in the Philadelphia region is the result, Nolen said, of "selling to those who could never afford them from the beginning. This was achieved by never requiring mortgagees to have the ability to pay the loans."

I'm not taking sides here, but any price cuts are going to have to come from those selling existing homes rather than those selling newly built homes. Marshal Granor, principal at Granor Price Homes in the Philadelphia area, says builders have gone about as far as they can go cutting prices while material and labor costs remain high.

Many potential buyers are afraid of paying too much for houses that will lose value. Sellers fear that lowering asking prices too much will leave them unable to trade up, or unable to weather a prolonged recession.

Think about this: George Tolley, professor emeritus at the University of Chicago, points out that foreclosures have affected less than 1 percent of all houses in the United States, yet we are given the impression every day that everyone is losing his or her house.

"Alarmist discussion that mortgage indebtedness exceeds market value for up to one in six homes ignores the fact that most homeowners realize that values are likely to recover," he said.

What's more, Pepperdine University professor Dennis Torres predicts that by 2015, "homes will be worth twice what they are today, and by 2018 a home will be worth three times as much as in 2008."

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Combined with low fixed rates, a meaningful drop in prices would create affordability today. If Torres is right, few of us will be able to afford to buy six to 10 years down the road.

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(Alan J. Heavens is the real estate writer for The Philadelphia Inquirer. Reach him at 215-854-2472 or aheavens@phillynews.com.)

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© 2009, The Philadelphia Inquirer.