‘By JOHN PETRICK Special to the Palisadian-Post As previously discussed, my five economic icebergs remain afloat. Global inflation is still accelerating. Growth, both domestically and abroad, continues to slow. The jobless rate remains stubbornly high while the economy remains stagnant and the cost of living continues to rise. Balance sheets, whether on a local, federal or global level, continue to deteriorate. Most importantly, housing has yet to bottom. While the current headlines focus on Greece and other European Union woes, and rightfully so from a global economic level, we here in the U.S. are turning a blind eye to the most important element of our economic wellbeing: the housing market. Home values are critical in determining household wealth and impacting consumer confidence. Furthermore, home building and construction are huge factors in terms of the number of jobs they create. Therefore, we must stabilize housing if we hope to stabilize our economy. From the end of 2001 through 2006, according to Paul Kasriel, an economist at Northern Trust, housing-related industries produced a whopping 43% of the nation’s total net private sector employment growth. But since December 2007 (according to JP Morgan), construc’tion employment nationwide has fallen by 1.9 million jobs, or 30% of the 6.6 million total jobs lost. The recent downturn in housing has taken one of our nation’s largest job creators and turned it into our nation’s largest job destroyer. In a 2010 article titled ‘How Many Jobs Does It Take to Build a House?’ Russ Lay wrote: ‘Try to nail down how many local tradesmen and ven’dors actually ‘touch’ a modest-sized home from the time a construction contract is signed to the point the buyers move in.’ He estimated that with ‘very common options,’ a ‘modest home’ could employ 219 people, and that’s just one home. In February 2009, the government rolled out the Home Affordable Modification Program (also referred to as the Home Affordable Refinance Program) as part of the administration’s Financial Stability Plan in an effort to modify existing underwater mortgages. A recent report by the Office of the Comptroller of the Currency showed that nearly one in every five homeowners whose mortgages had been modified under HARP defaulted again within a year after their mortgage had been modified. The report concluded that, ‘Foreclosures may continue to increase in the future quarters as a large number of foreclosures work through the process and alternatives to foreclosures are exhausted.’ On October 24, while in Los An’geles, President Obama announced changes to HARP that his adminis’tration believes will allow more un’derwater borrowers to qualify for refinancing. The effort aims to assist up to two million homeowners who are underwater on their mortgages to cut their monthly payments and in turn boost housing and the overall economy. Perhaps these modifications will ultimately help the market. However, while the concept of modifying existing loans in an effort to allow those delinquent to stay in their homes is a nice gesture, this does nothing to solve the problem; it only extends the current crisis by delaying the inevitable. We cannot peg an exact dollar amount on the countless homes that have been foreclosed on, or those that are currently in some stage of the foreclosure process. However, with the knowledge that building just one home can create as many as 219 jobs, coupled with the basic economic principle of supply vs. demand, why not pay the banks the remaining por’tion of the delinquent mortgage and ‘deconstruct’ these homes? There’s an important difference between demolishing and deconstructing. Demolishing is defined as the act of destroying or ruining. De’construction is the practice of carefully disassembling a building so that its materials can be reused in a new building, while everything else that can be recycled is recycled. A research scientist at the Forest Service’s USDA Forest Products Laboratory asserts that ‘easily 75% to 90% of a house’ can be reused or recycled. By deconstructing these foreclosed and abandoned homes we would solve a handful of problems: ‘ People ‘underwater’ could sell back their homes to the government, rather than just walking away. ‘ The housing inventory (supply) would be reduced each time a home is lost to foreclosure. ‘ Deconstructed parts could be sold back at a discount to new homebuyers to build their home from the ground up. Another advantage to deconstructing foreclosed homes rather than allowing them to remain vacant is the fact that two or three foreclo’sures on a block tend to increase the neighborhood’s crime rate (accord’ing to a study by Dan Immergluck at Georgia Tech). In addition, vacant homes tend to have mold and mildew issues that are expensive to remediate, especially when they require replacing affected floors, walls and carpet. In the midst of all the gloom, there are several hopeful signs pointing to a housing recovery. 1. Foreclosures have slowed a bit of late (though there remains a ‘shad’ow inventory’ that Standard & Poor’s estimates could still be as substantial as four to five million homes). More importantly, according to JP Morgan, from 1959 to 2008, the low’est annualized rate of housing starts recorded for any month was 798,000 and the average rate was more than 1.5-million units per year. Since January 2009, the highest rate recorded for any month has been 687,000, and the average rate has been just 575,000. This lack of housing starts likely means less inventory in the future. 2. From a historical perspective, homes are starting to look rather cheap, not only because of the his’torically low interest rates, but also relative to the cost of renting. According to JPMorgan, from their peak in late 2005, nationwide median existing home prices have fallen 29% in nominal terms and by 37% relative to inflation. 3. From a macro perspective, the population continues to grow and banks continue to shy away from new loans, creating a pipeline of pent-up demand. Recent data from the Census Bureau notes that there are 1.5 million ‘excess’ 18- to 34-year-olds living at home with their parents, compared to the long-term national average. With less homes being built, this
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