“Over the almost three years since I became the Director of FHFA, I’ve spent a lot of time wondering whether we’ll ever get to a “new normal” in the housing market and, if so, what the “new normal” will look like going forward,” said FHFA Director Melvin Watt in a speech Monday. “I don’t think anyone would dispute that the financial crisis changed lots of things in the housing market.”
He’s right. Despite seeing a recovery in most markets across the nation, the industry of pre-crisis times is something of the distant past in light of the new policies, regulations, processes, and systems now in place.
“These changes are real, and they have been felt by everyone in the housing sector – realtors, brokers, appraisers, lenders, servicers, insurers, borrowers and renters, and, of course, Fannie Mae and Freddie Mac,” said Watt. “Some of these changes have been obvious, and some have been subtle. But all of them have culminated in a very different landscape compared to what was ‘normal’ pre-crisis.”
A constant ingredient in this new normal is the inevitability of change. Watt says that in moving forward, those in the industry must embrace change as part of the “new status quo” and refrain from resisting it just because it is different from the way it has always been done. “At FHFA we have been working diligently to make the housing finance market more liquid, efficient, understandable and transparent to try to meet the challenges that we have the authority to impact,” said Watt.
Ahead for the agency is the initiative to better increase responsible access to credit and affordable housing, a plan that will be laid out in the FHFA’s 2017 Scorecard for the Enterprises (Fannie Mae and Freddie Mac).
The Scorecard is not set to be released until the end of this year, but what is known to be included is a strategy to intensify their research and analysis about barriers to access of credit and opportunities to help overcome those barriers.
“Based on the work they have already done and this additional research, we’ll be asking them to begin well-researched pilots and initiatives that are calculated to move the access needle safely and soundly, but hopefully also significantly,” said Watt.
Though this is merely a snapshot of what is to come, the FHFA says that they hope to continue a robust dialogue in order to best prepare to face and solve the challenges of today’s market and the “new normal.”
One of the biggest challenges Watt sees in the current state of the industry is a recovery that he calls “disappointingly uneven.” Though some areas have seen incredible economic growth and job gains creating housing demand that has outpaced supply, this is not the case for all communities. There are still some communities that have not regained pre-crisis home values and show no signs of doing so anytime soon.
“These problems often exist in urban and low-income neighborhoods that were hardest hit by the crisis and where abandoned and vacant homes adversely impact property values and fuel a continuing cycle of disinvestment,” said Watt.
But this isn’t the only trouble facing the housing market today. Economic factors are impeding on potential buyers’ ability to take the plunge into homeownership. Specifically, for millennials the issue lies with entering a recovering job market and carrying a high amount of student debt translating to a lower rate of homeownership.
“As we look to define the ‘new normal’ going forward, all the changes I have discussed, as well as others, will have an impact on who becomes the next generation of homeowners and who stays in the rental market longer-term,” said Watt. “Many of these factors fall outside the statutory mandate and control of the Federal Housing Finance Agency and some are outside the ability of any participant in the housing market to control. But I believe we should all be committed to using our individual and collective efforts, whenever and wherever possible, to create a ‘new normal’ that includes solutions to these intractable challenges.”