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29 APR 2013 RESEARCH & IDEAS

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Are First-Time Buyers Left

Out of Real Estates
Rebound?

19 AUG 2015 RESEARCH & IDEAS

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Real estate is again on the move in the United States. Nicolas P. Retsinas
examines the impact on home buyers, renters, and policymakers.

CODEACADEMYS
DELICATE WORK OF
ADDING MONETIZATION
WITHOUT CRUSHING
MISSION
19 APR 2004 RESEARCH & IDEAS

BIRTH OF THE AMERICAN

SALESMAN
14 AUG 2015 WORKING PAPER

The United States housing market is no longer the boat anchor dragging
down economic growth. Data from the S&P/Case-Shiller Home Price Indices
show that average home prices in an assortment of American cities have
been on the upswing, increasing by almost 7 percent across the country in
2012. Recent reports that sales of new single-family homes rose in March
are proof points that "the housing market recovery remains on track."

ARE BETTER IDEAS

MORE LIKELY TO
SUCCEED? AN EMPIRICAL
ANALYSIS OF STARTUP
EVALUATION

We asked Nicolas P. Retsinas to reflect on the re-emergence of the housing

industry, what it means to the rental market, and the future of the mortgage
interest tax deduction. Retsinas is a senior lecturer in real estate at Harvard
Business School, director emeritus of Harvard University's Joint Center for
Housing Studies, and former Federal Housing Commissioner.

WHAT HAPPENED TO THE

INNOVATION,
DISRUPTION,
TECHNOLOGY DIVIDEND?

Q: What factors have been contributing to the housing recovery?

Nicolas Retsinas: Several factors are generating a tailwind for the recovery,
although it varies from market to market. In large measure it has to do with
improvement in the economy as a whole, household formation (that is,
children moving out of their parents' home in an improving job market), and
abnormally low interest rates. Supply and demand, of course, always have
an impact, with an additional element in select markets such as Phoenix,
Las Vegas, and Southern California, where prices fell by half or more after
the downturn and where financial firms like The Blackstone Group have
been buying large numbers of single-family detached homes that they then
rent, hoping to eventually sell them as an exit to their investment. This kind
of institutional buying, however, is not happening as much in markets like
Boston and New York, where prices did not fall so far and where there are
not large numbers of foreclosed single-family homes. But all things
considered, there is evidence that we may have turned the corner.
Q: How successful have been the Obama Administration's efforts to loosen
credit for individual homebuyers?

05 AUG 2015 WHAT DO YOU

THINK?

17 AUG 2015 RESEARCH & IDEAS

WHO IS BOSS IN THE

SHARING ECONOMY?

NICOLAS P. RETSINAS
Nicolas P. Retsinas is
Senior Lecturer of Business
Administration (Leave of
Absence) at Harvard
Business School.
CONTACT

Send an email

A: It is, of course, much more difficult for individuals and families today to
obtain credit than it was at the height of the housing boom. Now you need
surprise, surprisedocumentation. Now you need to be employed. Now
you need to have a down payment. All those things were absent during the
housing boom. So we have tightened credit dramatically, which has
contributed to the reality that this recovery has not been as robust as those
in the past.

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CONSTRUCTION

ECONOMICS

GOVERNMENT & POLITICS

There are some mixed messages coming out of Washington as well.

President Obama wants to accelerate the housing recovery, because it is
such an important part of our economy and would help with the overall
economic recovery. However, in the mortgage market today, ninety-five
percent of all mortgage loans are guaranteed, insured, or securitized by the
US government, which is obsessed with not losing money on these
guarantees. And the way the government does not lose money is by making
the requirements even more stringent for borrowers. So on the one hand,
the political policy is to extend credit; on the other, the government-owned
enterprises (Fannie and Freddie Mac) are trying to narrow the credit box
because they so afraid of incurring a loss.
Q: Tax reform is high on the public agenda these days. What's your take on
the viability of the mortgage interest deduction in the midst of calls to
increase revenues and decrease loopholes?
A: First, let us put the mortgage interest deduction in historical context. It
came about when the federal income tax became permanent in 1913. At
that time, everything was deductible, including mortgage interest, a
deduction that came to be accepted as a means to helping people achieve
the "American dream" of owning a home. In 1986, however, that concept
began to run into some opposition, when President Reagan put forth some
proposals to simplify the tax codeeliminate deductions and just submit
your income on the back of a postcard.
All this was met with a barrage of criticisms, primarily from two groups:
charities concerned that it would undermine giving, and Realtors, home
builders, and mortgage bankers, who were afraid that removing the
mortgage interest deduction would lessen the incentive for buying a home.
Bottom line, the deduction remained, but with one change. Instead of
being unlimited, it was capped at a million dollars. As we look back at what
happened with the housing market implosion, I think it's fair to say we overencouraged and over-supported home ownership. A tax subsidy like the
mortgage interest deduction, which reduces the amount of money available
to the federal government by $100 billion a year, is understandably at risk
today because of our concern with deficit reduction. To put this huge
number in context, the total budget of the US Department of Housing and
Urban Development, the primary agency for dealing with affordable housing
in this country, is about $35 billion.
Realtors say the sky will fall if we end the mortgage interest deduction
that it would adversely affect the market and undermine home prices over
time, but the evidence says that if one did this slowly, maybe lowered the
cap, and changed it in a way that would be more supportive of first-time

NORTH & CENTRAL AMERICA

REAL ESTATE

home buyers and those below a certain income, people would adjust. The
mortgage interest deduction is a sacred cow, but I think that in an era when
everybody is trying to look at the budget, there is some question as to
whether the wealthy should continue to have a bite of that cow.
Q: Do you think more people these days are content to rent?
A: There have been a variety of surveys on the rent versus own question. A
recent MacArthur Foundation survey said that more people regard renting
as an acceptable option. But I saw another survey recently that concluded
that two-thirds of American families preferred to own. I edited a book 15
years ago, Low income Home Ownership: Examining the Unexamined Goal,
that supports the second finding. I found that the desire to own a home was
part of the psyche of just about everyone I studied, no matter where they
lived. The only exception was a nomadic tribe in North Africa that noted
that "homes were graveyards for the living." But every other culture and
country I looked at had a least nominal support for owning a home for the
sake of things like family stability and the opportunity to pass one
something of value to one's children.
With tightened credit in the mortgage market, renting has now become a
desirable option, and for many young families, it is the only option, since
they don't have the wherewithal for a down payment. But as rents go up in
the face of increased demand, the difference between renting and owning
will decrease. When that equilibrium happens, I suspect there will be a
return to ownership as the preferred long-term option. Again, the question
is: Can we design a system that will extend credit to young first-time
homebuyers while not incurring too much risk. That is our challenge.

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COMMENTS
J KNIGHT REALTOR, PILKERTON REALTORS, BRENTWOOD TN
The conclusions in the interview style article are well composed, and present a good summary of
the history of the issue targeted, and the current status - a rise in home ownership rates. The
consistent desire of the typical American is to own their home, and other property. Property
ownership, especially real property, has always been an essential piece of why the United States
exists.....Life, Liberty and the Pursuit of Happiness is an extension of principles of property
ownership, free from interference, especially interference of the government/state. There will be a
rise in home ownership as a percent of the population when the labor market improves. Families
will sacrifice much in order to own their own home.

DAWN REALTOR?, AVERY REALTY GROUP

Great article and pretty spot on. Here in Dallas area market (East of Dallas Kaufman and Rockwall
Counties) definitely see the investor buying and the price uptick. This has caused a resurgence of
the multiple offer situations- and purchase prices above list prices- a good 'new' problem to have.
As for the renters- many are simply in a position where they need to rent for now- they got burned
during the housing mess and they are biding their time. The overwhelming majority of my personal
rental clients all say the same thing- they plan to buy in the next 12-24 months,they are rebuilding
credit and this time they want the CASH for a downpayment and low monthly payments - not like
the previous home they purchased (in many cases with 0-minimal down). I'd say THAT is a WIN
WIN! Looking forward to the next 12-24 months continued upswing...with a few plateaus along the
way....stay tuned..

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