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Repairing The Blighted Housing Market

He holds a Ph.D. in economics, was a deputy director for the Department of Housing and Urban Development and serves as chief economist for the National


He holds a Ph.D. in economics, was a deputy director for the Department of Housing and Urban Development and serves as chief economist for the National Association of Home Builders. David Crowe is the go-to guy when it comes to sorting out housing's role in our economy.

Will the home-building industry recover?

It will be a slow recovery because it was such a heroic decline. But the basic underlying need for more houses will not disappear. It probably will be 2012 or 2013 until we are back to what could be called normal, meaning a supply of homes that would meet demographic demand.

What is going to be normal?

That's a tough part of forecasting, because it gets down to people's desire to be in independent households. The population growth suggests that we'll be back to producing 1.7 million to 1.8 million housing units per year by probably 2013. That will be less if people decide to live with more people per household. I don't think that's going to be true. What could be different from the old normal is the mix of what is built. We could see more homes built in higher densities, built for rental or built smaller.

Are federal policies hampering the recovery?

What would be most effective for everything, including housing, are policies that extend the abilities for people to get employment. We can't get residential construction moving until the employment market is more stable. Now, people are uncomfortable moving forward with construction, and therefore construction jobs are not growing; it is an ugly cycle. The more important component to getting out of this housing cycle now is just getting more jobs. That's a little bit of consumer confidence.

What is Washington doing right?

They're not doing much in regards to the recovery. There is tension between those who believe more federal programs will get us out of this hole and those who feel that we've already spent more than we can afford ó and any further spending increases debt and pushes our problems off to future generations. That tension has pretty much stalled any significant efforts to address the recovery.

Are you worried about our national debt?

I am. Not right now. The spending in the stimulus package and some of the smaller spending bills have been necessary to get us out of this recession. But it has left us with a significant amount of deficit spending and, ultimately, with a significant debt. The curing economy will fix some of that. But we still have an enormous federal responsibility for the big-ticket items like Medicare and Social Security that will outpace any revenue increases from an improving economy. When the federal government has a larger debt, it absorbs funds from the mortgage market and it drives up interest rates. It is a very clear and immediate connection between the amount the federal government borrows and the amount effectively left over for homeowners to borrow to buy houses. Over the long run, the federal government has to reduce spending and increase taxes.

What impacts are foreclosures having?

Foreclosures are being driven by unemployment. The foreclosures that were driven by poor mortgages or mortgages that didn't fit individuals' abilities are pretty much out of the system. That's a very insidious issue with housing, because you have inventory being forced on the market at reduced prices. Unemployment-driven foreclosures last much longer than the trough in unemployment. If you believe, as I do, that we've met that trough and are slowly adding jobs, we will have to worry about this foreclosure issue for probably another year.

How are the different regions recovering?

The middle part of the country will recover before the edges do. The edges, California, Nevada, Arizona and Florida, will have a delayed recovery, because they have a much deeper hole to climb out of. That's true, to a lesser extent, for the states around the Great Lakes that were heavily dependent upon the auto industries. Downturns in Texas and those states north to the Canadian border and west to Montana, Idaho and to some extent the Pacific Northwest were driven more by the recession than by excessive home building. The Carolinas are not going to come back as fast as some. The New England coast is somewhere in between as well.