America is in the crux of a number of economic issues that one way or another affect every person in the country. Over the past month, the hottest issues have been the federal debt and jobs. Coming in a distant third is the housing market.
To re-iterate an earlier article (Ben Stein Has No Clue) the current housing problems stem from policies instituted by former President Bill Clinton. Policies were made where nearly 8 out of every 10 mortgage applications were approved for one type of loan or another. Clinton wanted as many Americans to own homes as possible.
Those same policies and creative mortgage loans resulted in a large number of home owners not being able to keep up with the increased mortgage payments that were the result of the adjustable, balloon, etc. types of home loans. This is the single most important factor that started the current housing crisis and record foreclosures. The collapse of the mortgage industry snowballed into every other financial area of the nation, resulting in the financial mess we are all in today.
As a result of the housing collapse, our government and financial institutions not only tightened up the qualifications for prospective home buyers, but synched them up tighter than before Clinton. Instead of 8 of every 10 mortgage applications being approved, today the figure is around 2 of every 10. That means that 80% of mortgage applications are being declined.
At the moment, the number of new home constructions has dropped to the lowest level since 1963. In the past two years alone, new home construction has dropped 18%. The drop in new home construction since 2008 has been greater than that experienced in the Great Depression in the 1930’s. And it took 19 years after the nation emerged from the Great Depression for new home constructions to recover to pre-Depression numbers.
With so many foreclosures on the market, coupled with a weak and shaky job market and very little confidence in the nation’s economy, fewer and fewer new homes are being built.
Based on the national averages, 3 new jobs are created for every new home that is built. The figures also estimate that every new home generates around $90,000 in tax revenue (based on national averages). Those taxes come in the form of sales tax on materials, payroll taxes on all involved in construction and property taxes collected over the years.
New home construction could be a major solution to the jobs and tax revenue situations. If I were a candidate running for the office of President of the United States, I would be taking a serious look into the housing and mortgage industry to see what can be done to loosen up the lender’s purse strings while at the same time not putting people into homes that they can’t afford 3-5 years down the road.
It was the collapse of the housing market that took the nation’s economy down and it’s the housing market that needs to be fixed that could bring the nation’s economy back up.