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In Our View: Homebuyers Beware

Potential exists for repeat of housing issues that led to the Great Recession

The Columbian
Published: November 18, 2014, 12:00am

The state of housing prices in Clark County and elsewhere should continue to serve as a cautionary tale.

As detailed recently by Columbian Business editor Gordon Oliver and staff writer Justin Runquist, home sale prices throughout the county remain far below pre-recession levels. For each ZIP code examined, prices range anywhere from 10 percent to 43 percent below what they were at their peak between April 2006 and April 2008. In Washougal’s 98671 ZIP code, for example, the median home price in September was $254,940 — 43 percent below the December 2006 peak of $450,000.

Of course, such methodology is not perfect for comparing home prices. Unless a specific home has sold multiple times within a couple years, there are other factors that could play a role in changing home prices. Yet the data is instructive for assessing the present and the future of the housing market.

To try to put a complex matter in simple terms, much of the economic downturn was triggered when the housing bubble collapsed. Easy money — loans provided to customers who likely should not have been eligible — led demand for houses to grow much more quickly than the supply, which drove up prices at an unsustainable speed. When that bubble popped, it reverberated throughout the economy.

It would be hoped that lessons have been learned. Which makes a recent announcement particularly disturbing, as federal officials detailed plans to ease lending requirements under the Fannie Mae and Freddie Mac programs. As syndicated columnist Froma Harrop wrote, “Taxpayers, you are being handed the bag once again. What makes you particularly vulnerable are the potent political forces determined to keep the game going — an odd alliance of Wall Street financiers and advocates for low-income Americans.”

Fannie Mae and Freddie Mac mortgages are guaranteed by taxpayers, and after the housing collapse last decade, the public was on the hook for $188 billion. “It makes little difference that the taxpayers were eventually paid back,” Harrop wrote. “Assuming the risk was not their job.”

Yet while the federal government appears poised to repeat the mistakes of the past, homeowners in many cases are dealing with a slow economic recovery. Taxable assessed values for all properties in Clark County, for example, dropped 26 percent in the five years leading up to the 2012-13 cycle. They rebounded in the past year, but remain 19 percent below the bubble-fueled high from 2007-08. “There were a lot of investors that were driving prices up, and they kept going until it crashed,” Clark County Assessor Peter Van Nortwick said. “I don’t think that exists any more.” We hope that Van Nortwick is correct, but he might be engaging in wishful thinking. An overflow of easy money triggered by an easing of the federal mortgage requirements could once again lead to a feeding frenzy in the housing market.

While lenders should remain cautious in providing stable loans, borrowers should demonstrate equivalent caution. Prospective home purchasers should be wary of borrowing money just because a lender tells them they can afford it. Financial responsibility requires an accurate assessment of one’s ability to make mortgage payments, rather than simply the ability to secure the loan.

As realtor Patrick Ginn told The Columbian, “I think the process that is happening in a way that’s sustainable, not something that’s going to crash again, is the key part.” In other words, lessons of the past decade should be heeded.

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