Breaking Dawn in the Housing Sector?

11/23/2011 11:00 am EST


David Wyss

Adjunct Professor, Brown University

Several developments have caused David Wyss to believe the US housing market is beginning to stabilize. But that’s not true everywhere, and new home buyers will continue to face challenges, as he explains in this exclusive interview with

Seems every day we’re asking if the housing market has bottomed, if we’re going to see increasing prices from here on. Our guest today is David Wyss to talk about that.

So David, talk about housing market. Are we at a bottom here, or anywhere near?

It looks to me like we’re finally stabilizing. I’m not saying we’re recovering, but we are beginning to see some stabilization. But it depends a bit on where you are in the country.

In most of the country right now, I think things have bottomed out. We’re seeing prices start to pick up. We’re seeing a little better sales numbers. But there’s still some areas of the country where extreme overbuilding may still lead to price weakness, particularly in a lot of the resort and retirement areas.

How do you see the fact that the banks still have a tremendous amount of foreclosures on the books that they haven’t dealt with yet, that they have to deal with first?

Well, the foreclosures have been delayed because of legal issues. It looks like those are starting to break. The banks are getting their paperwork in order.

Most of these were legal technicalities—who signed off on mortgages. There really was not much doubt that the guy did borrow the money and the guy didn’t pay it back, which should be the bottom line.

One of the big issues for banks, though, and for Fannie Mae and Freddie Mac, is the problem of multiple mortgages on the same property. This is very difficult to deal with outside of the foreclosure process.

If it weren’t for the existence of those second mortgages, I think you could do a lot of modifications of the mortgage and keep people in their homes. But at this point, if you modify the first mortgage, the main beneficiary is the guy that has the second mortgage.

And how long do you think it’ll take to get through all of these foreclosures, to get through the excess building? What’s your timeline?

Again, it depends on the city. Overall, for the country, I think three to five years is what I said initially. I think it’s been delayed because of some of the court issues, probably more like five years.

But the clock’s started to run in 2008, let’s say, so we’ve got another year or two to get out of this. However, in some parts of the country—places like Las Vegas, Phoenix, Miami—the overbuilding was just so big that it’s going to take longer.

Right, and then I think the final component is probably the lending. The banks are still very tight with their lending standards, even with low interest rates.

You hear about it on the radio. I can get fantastic rates but it’s almost impossible to qualify. Is that going to change?

It’s gradually changing, but don’t think you’re going to go back to where you were in 2007. These days of lending you money regardless of whether you had any income, any assets, or any ability to repay the money, those days are over, and frankly, they ought to be over.

But at the same time, if you’re a well-qualified buyer, if you can come down with 20% down and if you’re buying a house that’s within reasonable range of your income, you can get the money now. That money is available.

But it’s really sort of back to the future. This is the way things used to be when I was buying my first house back in the 1970s. We’re back there, and it’s probably where we should’ve stayed.

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