WASHINGTON -- While lawmakers and the president scrap over deficit reduction and jobs plans, they're largely overlooking one of the biggest drags on employment and a major cause of our national economic woes: the moribund housing sector.
There's a growing cry in economic circles for new steps to revive this sector, which year after year has been the subject of optimistic predictions about soon hitting a bottom that turns out to be, well, bottomless.
New housing starts are hovering at 475,000 to 690,000 a year since the financial crisis exploded in late 2008. That's the slowest pace since record-keeping began in 1959, and a fraction of the 2.1 million homes built annually in boom times.
The number of existing homes for sale nationwide at the end of July stood at 3.65 million, according to the National Association of ealtors. That represents 9.4 months' supply at the current sales pace, an improvement from the record 4.58 million homes for sale in July 2008, but still a huge overhang of unsold homes.
On top of that, there are now about 800,000 lender-owned properties nationwide. Another 800,000 homes are in some stage of the foreclosure process, according to the foreclosure-research group RealtyTrac. There also are a staggering 3.5 million delinquent mortgages that aren't yet in the foreclosure process but are likely to wind up there.
Mortgage rates are at lows not seen in six decades, yet few Americans can take advantage of them, because anywhere from a quarter to a third of the homes that have mortgages are now worth less than the notes they carry.
Suffice to say, housing remains a whopping problem, and it's inseparable from the high jobless rate of 9.1 percent. The steep gain in home prices in much of the nation from 2001 to 2007 now is widely viewed as an unsustainable bubble. It follows that there was a corresponding employment bubble.
That's evident in the construction sector. From an employment peak in April 2006 of 7.726 million jobs, construction had shed 29 percent of those jobs, or 2.237 million workers, by the time it bottomed this January.
Since then, the sector has added only 46,000 jobs. Not all construction jobs are in housing, but many are. It's safe to surmise that construction workers make up a big segment of the 6 million Americans who've been jobless for half a year or longer.
Manufacturing saw a bubble during the housing boom, too, amid soaring demand for everything from wood floors and carpets to kitchen cabinets, lumber and lawn-care products.
There's also a less-recognized hit from housing woes.
"The collapse of the housing market has left many Americans with upside-down mortgages, hurting their financial stability and preventing some of them from moving to other regions where they might be more prosperous," Moutray said. "As such, housing presents both cyclical and structural problems for manufacturers."
From the peak of hiring in January 2007 through the end of 2009 -- a period that included the 18-month Great Recession -- manufacturing jobs shrank by 2.3 million. Since then, the sector has added only 289,000 jobs.
You get the picture: Any significant uptick in employment would help housing rebound.
"Increased buying activity will reduce the glut of distressed inventory and take pressure off pricing, leading to price stabilization, minimizing the risk lenders face in making the loans, making loans easier to come by and further increasing the amount of buying activity," said Rick Sharga, senior vice president at RealtyTrac Inc. "That's an organically driven recovery, which unfortunately will probably take another three to four years to play out, in a best-case scenario."
Sharga and other experts want additional measures from the federal government to boost housing. One idea is to make it easier for buyers of distressed properties who are getting government-backed loans to work repair costs into the loans. This could help first-time homebuyers, who often have less cash available.
Another idea that's gaining steam has the government -- which now controls mortgage finance titans Fannie Mae and Freddie Mac -- relaxing rules in order to give incentives to large real estate investors. Currently, the two are limited in how many loans they can underwrite for individual investors, but Sharga argues that it makes more sense for Fannie and Freddie to help investors who could buy 20 or 30 bank-owned homes than individual homeowners, who'd bring down the inventory of bank-owned properties much more slowly.
A variation of this notion involves pressing Fannie Mae, Freddie Mac and the Federal Housing Administration to convert their inventory of foreclosed homes into rental properties. The idea, which the Obama administration generally supports, is to reduce the number of distressed sales that are crowding out conventional home sales and driving down prices. It also would boost property tax revenues for state and local governments.