From Homescape

written by Amy Le on Friday, January 11, 12:50PM

Amy Le

Thanks to the five shots of espresso, 10 cups of coffee, and a really comfortable pair of high heels, it’s safe to say I made it through two high-octane days in New York City for the 2008 Inman Real Estate Connect Conference. This week, hundreds of real estate agents, mortgage lenders, economists and techies merged onto the Big Apple to get in on the conversation about the future of the housing market. Rather than bore you with all the details of the panel discussions and workshops, I wanted to share of the more controversial presentations during the conference. Below are some excerpts from the “What Went Wrong in the Housing Market and What Can We Do to Fix It?” presentation given by John H. Vogel Jr., a permanent adjunct professor for the Tuck School of Business at Dartmouth College. Let’s just say agents weren’t so gung ho on Vogel’s purposed plan.

Subprime and housing market crisis                                             

John Vogel Jr. is a permanent adjunct professor for the Tuck School of Business at Dartmouth College.

The blame for the mortgage market woes is often pinned on “greedy or unscrupulous lenders and naive or reckless borrowers,” Vogel said. “What was in the drinking water that suddenly caused our lenders to become dishonest and our borrowers to become idiots?”

Vogel argues that the causes of the housing market extended beyond the behaviors of housing lenders and home borrowers. He suggests the more likely contributors to the housing market debacle have to do with the substantial rise in the share of subprime loans, a disproportionate ratio of housing costs to income, and a long run of inflated home-price increases that allowed some buyers to safely refinance to lower-risk loans.

Housing crisis remedy
So what’s the solution to get us out of this housing mess? Vogel proposes a program with a fixed-mortgage interest rate of 3.5 percent to those families who are facing foreclosure. The real brow raiser to his plan: Participants in the program will be required to give up the chance to profit from any appreciation in home values, and the homes would become a part of a collection of affordable working-class neighborhoods throughout the country. Homes enrolled in the program would also be assessed at 80 percent of their current value.

“If you bought a home valued at $200,000, 10 years from now it will still cost the same price,” Vogel said. “Middle-class working families should be afforded the opportunities to live in safe neighborhoods with good schools.”

In the last decade, homes have turned more into moneymaking ventures rather than simply be places for raising a family. Rising values haven’t just made homeowners and agents a lot of money, they have earned state and local governments a bundle in higher property taxes, which have paid for improvements to schools and infrastructure. While Vogel admitted he hasn’t flushed out all the “details” of his plan, he believes it’s a step in creating a long-term solution to the immediate problems plaguing the housing market.

“If you’re going to deal with this massive problem, and do it in an intelligent and creative way, don’t just solve the problem. Let’s be better off at the end of the day than we were at the beginning,” he said. “The worst thing in the world is an empty house next to you.”

Do you think Vogel’s plan is realistic in correcting the housing market problems?

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