May 1 2014

Whose Recovery Is It, Anyway?

‘The market’ is doing fine—but homebuyers are still hurting

The housing crisis is reported to be over - but that doesn't mean people can afford homes.

The housing crisis is reported to be over – but that doesn’t mean people can afford homes.

If you believe the business press, and much of the general-interest media as well, we’ve been in the middle of a “housing recovery” for some time now. Home prices have been inching upward and sales are increasing, and these are, we are told, good signs. The crisis is over.

Like much of the reporting on the rest of the economy, coverage of housing is coverage of housing markets, rather than of the circumstances that all too many people still face. One might expect this from Fortune (2/19/14), say, where “the market” almost seems to have a personality and struggles of its own: It is “the market,” not homeowners, that is recovering, despite being weighed down by a “mass of foreclosed inventory.” Never mind that that foreclosed inventory used to be people’s homes.

In this narrative, it is the health of “the market” that we should be concerned with, even as questions arise about how robust this supposed recovery might be. In response to news that sales were back down in February, the Wall Street Journal (3/20/14) reported that “rising mortgage rates and soaring home prices have sidelined many prospective buyers, while cold and stormy weather has dissuaded others from going house-hunting in recent months.”

Those soaring prices are supposed to be an indication that there’s recovery afoot, and yet the admission that homes are still too expensive for many comes with almost no discussion of why those prices are skyrocketing, or why there might be few buyers for overpriced homes. If you asked such questions, “recovery” might begin to look more like a reinflated bubble.

But it’s not just the business press telling this story. At NPR, the housing recovery is seen as providing a positive spin on job losses. Weekend Edition’s Chris Arnold (3/2/14) reported on JPMorgan Chase layoffs: “It’s always a sad thing when thousands of people lose their jobs, of course. But a bit counter-intuitively, those people are actually getting laid off because the housing market and the economy have been recovering.”

Arnold also introduced listeners to a real estate developer, Bill Powers, who is perhaps unsurprisingly rather gung-ho about building “a lot more” homes “for people to buy and rent.” No one who has lost a home or indeed a job is invited on to give their point of view: It’s all market cheerleading here, and this isn’t even Marketplace.

Even Emily Badger at the Washington Post (3/17/14), who took up the way the so-called recovery has excluded people of color—the group that lost the most during the crisis—failed to mention the pace at which foreclosures are still happening, the jobs that have disappeared, the wages that have stagnated or shrunk. The recovery remains decontextualized from the crisis from which we’re supposedly recovering, and the tight credit that Badger points to as keeping black and Latino homebuyers especially out of the market is not explained.

Bloomberg Businessweek (3/5/14) does a bit better on this front, framing a feature with the story of a would-be first-time homebuyer who can’t find anything in his price range. “The biggest challenge to cracking the housing market for first-time buyers is that in much of the country home prices are rising faster than incomes,” the story correctly notes.

Yet even here there’s missing information, as in the context-free question, “How do you compete with all cash? You don’t,” asked by Leslie Appleton-Young, chief economist for the California Association of Realtors. The reader is left hanging, as “all cash” never reappears in the piece, nor does any other explanation for why house prices are shooting up all of a sudden, if everyday people can’t afford homes.

The answer to this question can be found, at least in part, in a different set of stories, stories about who is buying up many of those homes, often, indeed, in cash. As David Dayen explained at Salon (11/6/13), private equity firms and hedge funds have been purchasing homes, often incredibly cheap foreclosed homes, around the country.

The private equity firm Blackstone, for instance, collaborated with Deutsche Bank, JPMorgan, and Credit Suisse to create a “rental bond,” a security backed not with mortgage payments but with rent. Blackstone got $479 million in cash from this deal, which it used to buy the houses that will then be rented out. Dayen comments, “The irony is rich: Wall Street created the conditions for millions of foreclosures, then they sweep in to buy up the homes and rent them out, often to the same people they kicked onto the street.”

According to Michael Corkery at the New York Times’ Dealbook (1/29/14):

While this securitization market is still in its infancy, a recent Wall Street estimate put potential financing opportunities for the single-family rental industry as high as $1.5 trillion. Already some members of Congress and economists are worried about another credit bubble.

This kind of securitized financing, Corkery notes, “could give investors the upper hand in bidding for homes on the market.” No doubt.

The disconnect between the story of the “housing recovery” and the tale of who’s doing the buying (and why) looks particularly glaring when you consider the possible consequences of another bubble. Prices driven up by investors looking to either flip homes or securitize the rent payments are bad enough when they lock first-time homebuyers out of the market.
They’re worse, as economist Dean Baker explained in the Huffington Post (9/3/13), when working people do buy homes and then see those prices plummet. Baker noted:

If a homebuyer has an income of $60,000 and buys a home for $200,000, and the home subsequently loses 30 percent of its value, she has lost a full year’s income. That’s a pretty awful story even if she can still afford her mortgage and doesn’t lose her house.

And what happens if one of these big hedge funds decides to get out of the landlord business and sell off its properties all at once? Thousands of homes hitting the market at once could have a huge impact on prices.

That’s not even including the problems potentially caused by an overleveraged absentee landlord, who might not bother to make repairs or deal with local laws. The renters who have to live in these homes are often left out of the discussion, despite a nod from Dealbook’s Corkery to the fact that many of the now-tenants are in fact the same people who lost the home in foreclosure in the first place.

One simply should not write about the “recovery” without discussing the crisis that continues for too many people. 2013 may have been a six-year low in terms of foreclosures, according to CNNMoney (1/16/14), but there were still 1.4 million foreclosure filings last year. And in December, more than 9 million homes (19 percent of all homes with mortgages) were still “deeply underwater,” meaning the owners owe 25 percent more than the homes are worth. Well over 4 million homes have been lost to foreclosure since the financial crisis began.

Those people who lost homes have not, it bears repeating, been compensated for their losses, even when those losses were because of fraud by the banks. While the biggest banks have officially “met their obligations to provide relief to struggling homeowners” under the national mortgage settlement (Washington Post, 3/18/14), that relief took many forms, and often didn’t keep people in their homes at all.

The Post neglected to mention why the banks were obligated to spend some $25 billion on relief in the first place: They had been caught “robosigning”—illegally rushing foreclosure documents through unnotarized and without knowing if the documents were correct.

That relief, too, turns out to be much smaller than we were told it would be. While Shaun Donovan, secretary of Housing and Urban Development, predicted that as many as 1 million homeowners would receive a writedown of their mortgage under the settlement, Dayen (Naked Capitalism, 3/19/14) crunched the numbers and found that less than 84,000 actually received principal reductions on their primary mortgage. “In other words,” Dayen writes,

to pay a penalty for misconduct, Bank of America mostly did what it would have normally done anyway in its course of business, facilitating short sales and extinguishing worthless second liens. Only this time, they got credit for those routine activities, to rid themselves of their penalty.

So much for recovery, if by recovery you mean people who were injured being made whole again. When you scratch the surface of promises of recovery, whether it be weak or strong, it looks an awful lot like we’ve still got the same problems that caused the crisis in the first place: over-large financial institutions, trading in debt backed with people’s homes, and getting away with fraud. And the media that missed the story the first time around seem to be missing it once again.

Sarah Jaffe is a staff writer at In These Times and the co-host of Dissent magazine’s Belabored podcast.