Koskinen: Housing market is cause and hope in economic crisis
John Koskinen, non-executive chairman of Freddie Mac, delivers Monday’s morning lecture in the Amphitheater.
Nick Glunt | Staff Writer
Monday’s morning lecture series speaker John Koskinen quoted Winston Churchill in saying, “You can always count on Americans to do the right thing — after they’ve tried everything else.”
Koskinen, non-executive chairman of Freddie Mac, said during his lecture at 10:45 a.m. Monday in the Amphitheater that rethinking the housing market, immigration and education can pull the U.S. from its economical hole. He was the first speaker in this week’s topic on “The U.S. Economy: Beyond a Quick Fix.”
Sherra Babcock, director the Department of Education and moderator for Monday’s lecture, said the week’s theme was chosen, like every theme, 18 months ago. She knew, even then, that the U.S. would not have recovered from the recession — hence the Week Seven theme.
“Everyone knows we’re in the middle of the worst economic downturn in 80 years. What’s surprised us is how long it’s taken to recover,” Koskinen said. “The combination of a slow recovery and a deficit growing to unmanageable levels, coupled with an inability or unwillingness to solve either problem, has caused many Americans to worry about our future.”
The housing market
Since as far back as 1959, housing has supplied about 16 percent of the U.S. gross national product. It peaked at 19 percent in 2006 but is down to 15 percent as of 2011.
Koskinen said housing has “typically led financial recovery”; however, housing lead the financial recession this time.
The housing market drew investors in 1999 as housing prices began to rise faster than incomes. As the prices increased, so did demand for housing; thus, mortgage securities became more and more popular, Koskinen said.
“The theory, or at least the assumption, was that any delinquencies would result in little or no loss since the house could always be sold for more than the mortgage,” he said. “With prices escalating, housing had now also become a high-return investment for owners, rather than a vehicle for savings.”
As demand increased, so did the need for people to buy those houses. As a result, people applied for loans after loans. Following that, home equity loans came into play. This allowed homeowners to “treat your home like an ATM.”
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