From the WSJ:
he underpinnings of a housing recovery are hiding in plain sight: sharp price declines, low mortgage rates and rising rents have made owning more affordable than renting in a growing number of markets.
Yet housing largely remains in a funk. The prospect of continued price declines—led by the oversupply of foreclosed homes—has deterred some potential buyers, while others can’t qualify for loans.
Many economists, including some at the Federal Reserve, are urging President Barack Obama to do more, and the president will be “aggressive on housing” in his State of the Union address on Tuesday, his housing secretary said last week. The administration is already rebooting a refinancing initiative and putting finishing touches on programs to convert some foreclosed properties into rentals.
What more can be done? Economists cite three broad ideas that could advance a housing recovery.
First, local investors could play a greater role in spurring a recovery in their own communities. Some mom-and-pop investors have begun to buy up excess housing stock and rent it out.
Second, policy makers could restore clarity to lending by finalizing a clutch of pending regulations. The government’s extraordinary steps to rescue Fannie and Freddie helped prevent a cataclysmic shock but it has made no real movement to overhaul the companies and the nation’s broader housing-finance machinery.
Third, a growing number of economists are warning that the overhang of debt in some of the most distressed housing markets will linger for years, particularly if more borrowers default. They say mortgage investors and banks should consider reducing debt for more troubled homeowners.
Mustering the political will to take any of these three steps wouldn’t be easy. Given the state of the market, “there isn’t a solution which will make everyone love you and cost no money,” Mr. Ranieri says.
Indeed, no single idea will fix all of housing’s problems. Many involve taking on more risk or rewarding bad behavior.