After nearly six years of a badly deteriorated housing market, the real estate analytics firm Corelogic estimates that 4.5 million Americans lost their home. According to the S&P Case-Shiller Home Price Index, the average U.S. homeowner lost about 35% off the value of their home 2007 - 2012. That amounts to almost $7 trillion of wealth—most of it which homeowners planned to use to help fund their retirements.
Currently, 11 million Americans have an underwater mortgage, based on Corelogic numbers. The term has become synonymous with homeowners who owe more on the balance of their home mortgage than the actual market value of their home.
Most people in their wildest dreams would never had imagine that such a massive number of people would lose their homes or lose almost one- third of their home equity before the residential real estate market would rebound.
Even with historic low mortgage interest rates and homes prices at the lowest level of affordability in years, the housing recovery has been slow and only lately has shown signs of a sustained recovery. Nonetheless, the rate of home ownership, which peaked at 69 percent in 2004, is expected to fall to 65 percent in 2013.
Rebuilding the housing industry
In President Obama’s State of the Union Address, he praised the recovery of the housing market—pointing to home appreciation rising at its fastest pace since the collapse in 2007, increased sales activities for existing and new home sales and increased construction activities for new residential homes and apartments.
The president laments the obstacles that have stifled a more robust recovery in the housing market and keep many families from refinancing or qualifying for a mortgage to purchase a home and vows to seek solutions.
President Obama wants to speed up the efforts to keep people in their homes and provide relief for financially struggling homeowners who continue to pay their mortgages every month.
Main obstacles to recovery
The White House places special emphasis on initiatives and resolutions that will help support a more dynamic expansion of the housing market. The inability to refinance mortgages and access to credit has been identified as the primary issues to a full housing market recovery:
Help homeowners refinance – Absent Congressional action, the president is contemplating using his “executive authority” power to help nearly 11 million homeowners complete mortgage refinances to take advantage of extremely low interest rates.
The initiative will relieve the financial burdens on homeowners by lowering their monthly mortgage payments save the average household about $3,000 a year. He urged politicians from both side of the aisle to take up and support the measure.
Credit underwriting -- As a response to the lax lending standards that led up to the collapse of the housing market, mortgage lenders have over reacted the opposite way to tighten credit criteria. Many creditworthy borrowers have been prevented from buying homes with excessive credit and documentation requirements, which have slowed down the housing recovery. President Obama wants to streamline cumbersome process.
Higher rents will help revive homeownership
A direct consequence of the deteriorated homeownership market has been a hot rental market. With over 4.5 million foreclosures in the last several years, more people must rent a home. This dynamic put tremendous pressure on the demand for rental housing and has pushed rents prices higher.
This increase demand for rental units has lead to the construction of more multi-family apartment buildings. However, as rents escalate, more renters will be looking to become homeowners.
Many economists believe that as rent continue to rise, and more people look to buy homes, the volume of construction activities for apartment buildings will lead to an oversupply of rental units sometime in 2014.