One on One with Susan Wachter, Professor of Real Estate Graduate School of Business at Wharton
Monday, September 08, 2008
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SUSIE GHARIB: Joining us now for more analysis of the Fannie and Freddie bailout: Susan Wachter, professor of real estate at the Graduate School of Business at Wharton. Hi, Susan.
SUSAN WACHTER, REAL ESTATE GRADUATE SCHOOL OF BUSINESS, WHARTON: Nice to be here.
GHARIB: I'm just wondering, are you more confident about the outlook for the housing market today than you were last week before this bailout?
WACHTER: Absolutely. This shores up the market in two very important ways. First, it stops a disaster of a spike in mortgage rates. And secondly, as we've seen today, mortgage rates are down.
GHARIB: Well, do you see mortgage rates going even lower. I know they did go down today. How much lower do you expect them to go?
WACHTER: Well, they can go lower. But even the decline of today will be very helpful in making housing more affordable to those on the margin. So -- and it prevents this potential disaster of interest rates significantly increasing, which could have really been a potential meltdown of the housing market.
GHARIB: Susan, you say that you feel more confident about the housing market. Do you think that we will start seeing revisions and expectations for home sales, home prices, housing starts, that sort of a thing?
WACHTER: Yes, I do think so. But it's not just the news of today. The news of today helps. It also helps -- it helps really because we now have lower mortgage rates. It helped psychologically in terms of just general reassurance that financial markets will not seize up or that there will be response if they do. But also, we are lowering the inventory slowly over time. And that's, of course, key. Just getting back to fundamentals, it's going to take time but this is another positive.
GHARIB: What about in terms of the whole lending situation? Do you think banks are going to be more willing to lend? I mean, many people who have high credit scores have had a difficult time to get mortgages, do you see a change in that because of the government's actions today with Fannie and Freddie?
WACHTER: Well, I don't see necessarily a significant loosening of that. Of course, their decisions absolutely depend on the decisions of Fannie and Freddie, which today is in the hands of a conservator, James Lockhart. And they're going to be looking at those credit decisions for the long run. But most importantly, we're not going to see those tightening. So in terms of expectations going forward, that's a very good thing because we've had great uncertainty.
GHARIB: But are you saying it's going to be easier or the same or harder for people to get a mortgage?
WACHTER: Well, it will be easier to get a mortgage because straight off the top we have got a decline of almost 10 percent in the cost of a mortgage as of today. So that will make it easier for people who are on the margin to qualify for a mortgage. That's going to be reflected in housing prices, housing demand and housing prices, and what we need is for those house prices to stop declining. We're not there yet, but this will happen.
GHARIB: Is there anything about this bailout as it relates to the housing market that concerns you?
WACHTER: Well, of course there are always issues of bailout and moral hazard going forward. And Paulson just pushed those down the line, those are going to have to be thought through over the next six months or so. This was necessary, it is not a great thing that it was necessary, there were mistakes made and it made it necessary. But it was necessary. So from that perspective, yes, this was a good thing. It had to happen. We had to have Fannie and Freddie shored up so that they -- so that lending can continue in this market.
GHARIB: What do you think, bottom line, this all means for the economy and consumer confidence? We just came off of last week having some very bleak numbers about the employment and job market situation. What do you think this news today means for the outlook for the economy?
WACHTER: Well, what we are really concerned about is this potential vicious cycle of interaction with an ever-declining housing market and an economy on the precipice of a recession. If the economy stays where it now, in this almost recession, and this really shores up so that the fundamentals are improving in the housing market, then it looks like, you know, the consensus may hold -- the positive consensus -- the optimistic consensus of a bottom in 2009 and slow recovery, but recovery.
GHARIB: All right. We'll have to see what happens. Thank you so much for coming tonight and giving us your thoughts.
WACHTER: My pleasure.
GHARIB: We appreciate it.
WACHTER: My guest tonight, Susan Wachter, professor of real estate at the Graduate School of Business at Wharton.
