In my last column we talked about how the government was causing more problems with every step they took. Every great idea they have implemented in Washington has triggered unintended consequences that exacerbate the problem. (At least we assume they were unintended.)
So what could the government do to help? Some have said “stay out of the way and let the market heal itself”, and that is half right. I would say “GET out of the way!”
“Stay” is passive. “Get” is active.
The housing recovery is waiting for one thing – an increase in demand. More demand means the “shadow inventory” will be burned off. More demand means competition for deals at the lower end, which creates upward pressure on prices that stabilize the market. More demand presents a clear, visible demonstration of some people’s faith that a recovery will come eventually. Faith, just like fear, can be contageous. More demand cures all ills.
The government is in the way right now because regulations are on the books that are holding back demand. The most motivated sector of new demand that we have today – individual investors – are deliberately disadvantaged by government regulation. Here are some examples:
· FHA will not make residential loans to investors.
· Fannie and Freddie cap investors at ten properties. If you have a great track record, qualify with provable income and have perfect credit, you cannot get an 11th mortgage backed by one of the GSEs.
· Investors are blocked from making offers on REO properties for 30 days to give home buyers first crack at them.
· Investors who pay cash cannot refinance some of that cash back out with a conventional loan until a 6-12 month waiting period expires.
· Conventional financing no longer counts rental income in the qualifying ratios. Borrowers have to qualify for the investor loan as if there is no rent at all!
These are all regulations that were put in place at another time in history when we were encouraging homeownership and inhibiting investors. Those regulations could be repealed in a day, and new incentives could be put in place. Imagine, for example, an FHA loan that counted rental income to qualify and allowed investors to own an unlimited number of houses. Make the investor put down 40% so it is a safe loan. Mitigate the risk and lend the money.
Individual mom and pop investors own more than 21,000,000 occupied rental units in this country, and investors bought 23% of all the houses that were sold in 2011. They are motivated, financially capable, realistic in their expectations, and willing to bet on an American recovery. They are a force to be reckoned with, and a constituency that should be cultivated and encouraged, not suppressed. Support them and they will support the recovery.
Save the housing market. Hug an investor.
To learn more about how I can help you support investors in your community, click the link below. Expand your definition of what it means to be a real estate professional. Represent houses as investments and you will multiply your earning potential, deepen your relationships with your clients, and contribute to the recovery.
OwnAmerica - Land of Opportunity
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