Some of the things that worked in addressing the problems in the South Bronx in the dark days of the 1970s might work in hard-pressed housing markets around the country today, U.S. Secretary of Housing and Urban Development Shaun Donovan told an audience at Crain’s breakfast forum Tuesday morning.
Mr. Donovan, the former head of the New York City Department of Housing Preservation and Development, said that without government investment in some severely depressed markets, like rehabbing foreclosed properties, home prices could spiral downward during a panic.
“A cycle of foreclosure and abandonment can feed on itself,” Mr. Donovan said after the event. “[In the Bronx], there’s clear evidence that those investments were not only good for those neighborhoods, they were good for taxpayers.”
Measures taken by the federal government to stem the national housing crisis so far—especially the recent mortgage-servicing settlement reached between 49 state attorneys general and five major banks—have helped prevent that meltdown, he said.
“We’re coming out of what has been the best winter and spring since before the housing crisis began,” Mr. Donovan said. He noted that the number of foreclosures nationwide has halved in the last three years.
Lenders are pausing as they wait to see how the settlement will affect the market, according to Jonathan Miller, president and CEO of Manhattan-based Miller Samuel Real Estate Appraisers.
Still, the local and national housing markets face hurdles. Even as banks make fewer foreclosures and more short sales, housing prices aren’t rising, according to most of the national indexes. Nationally, 3.5 million families have not been able to refinance their mortgages. And in Nevada, one of the states worst hit by the housing crisis, 60% of homeowners remain underwater.
Some states, instead of using money from the recent foreclosure settlement to help homeowners pay their mortgages, have used it for pay for budget shortfalls.
“I’m not a state housing secretary,” Mr. Donovan said. “I disagree with those governors and attorneys general who are using it for other things.”
On the other hand, he saluted New York State Attorney General Eric Schneiderman for his use of the settlement money, and predicted that the $700 million allocated to New York could be “a real boost” to the local economy.
This is the first post-war economic recovery that hasn’t been led by a recovering housing market. The recovery would be in worse shape if not for the rental market, he said, adding that the country needs a more balanced housing policy that focuses more on renters.