How significantly will the legislation affect the decline of U.S. home prices?
Our research shows that decline of home prices has already slowed dramatically in many cities across the United States. For example, month-over-month declines are now only 1 percent to 2 percent in most cities across California. These same markets had been falling 5 percent to 7 percent per month at the beginning of the year. On October 1, when the new incentives kick in, we will hopefully see first-time home buyers jumping in off the sidelines. This law will hopefully provide a shot of adrenaline to the economy; that is the first step in reversing the downward spiral.
How significantly will the legislation affect the number of foreclosures in the country?
I believe saving Americans from foreclosure is the best part of the law. We have seen neighborhoods turn into ghost towns, and that is causing Americans to give up. It really is a sad state of affairs when a homeowner would rather just mail in their keys to the lender than fight to keep their home. This law is projected to help save more than 400,000 homeowners from having to turn in their keys.
But ultimately, it's the lenders that will decide if this slows the rate of foreclosures across the country. They will need to choose between a significant write-down if they take advantage of this provision or more foreclosures on their books; we'll have to wait to see what they do. And while this could help reduce the number of foreclosures dramatically, it is important for homeowners to read the fine print. When you refinance, you are making a deal with the government that when you sell your property, you will share the profits with them.
What's the most important provision in the law for the housing market?
As I mentioned in the previous question, saving Americans from foreclosure in my eyes is the substance of the law. The morale of these homeowners is in the dumps. They got themselves locked into horrible loans, and every month they are reminded of the uphill battle they face.
We also asked our community, Trulia Voices, what they thought of the housing law. Click here to read thoughts and feedback from real estate agents and consumers.
When do you see home prices hitting bottom?
I do not have a crystal ball, and I am not one to make predictions. This is a complicated law, and the devil is in the details, but I think the housing law is a step in the right direction. It's possible that 2009 could be a much better year than the past 18 months.
Do you think the legislation was a bailout of the poor decisions of lenders and borrowers?
I am not one to point fingers, but I think lenders and borrowers are both to blame. Lenders took advantage of Americans by giving them credit limits they never should have qualified for (free money), and Americans just took the extended lines of credit without fully understanding the rules of engagement. At the end of the day, both groups acted irresponsibly.
Are you concerned that the legislation represents a moral hazard, in which future borrowers and lenders may take on too much risk because they believe the government will jump in if they get hurt too bad?
I hope not! I believe Americans and the lenders have learned a big lesson in the past 12 months. Some of our largest financial institutions no longer exist (Bear Stearns), and Americans are being reminded that nothing is for free. It is a sad state of affairs of how we got into this mess, and I hope this will be one of those times where we learn from our mistakes and history does not repeat itself.
Was there anything left out of the legislation that you think should have been included?
At the end of the day, I'm a free-market guy who believes that something needs to be done to help homeowners out of this mess. The government is extending a helping hand, and now it is up to Americans to decide if they want to take advantage of the options provided to them.