The one issue — and perhaps the only one — that wasn’t discussed much in the recently-concluded elections was housing. Which is odd given the housing sector has historically led the way into and out of national economic recessions. Now that the elections are over, it’s time for Washington — that is both parties, both houses of congress and the president — to focus on how to help the housing market help the rest of the economy.

Over 3.5 million homes have gone into foreclosure since the last presidential election four years ago. Some prognosticators estimate another 3 million are likely to follow in the next four years. Almost 11 million homes, or more than a fifth of all homeowners, are underwater with mortgages greater than homes are worth. Yet we’re seeing signs of a housing recovery. Market fundamentals like historically low interest rates, affordable prices and ample inventory across most price points are all telling signs of an improving real estate sector. 

But while our markets are improving, there are potential problems on the horizon ... problems that can either be averted or aggravated by our newly-elected congress and/or president. 

As REALTORS^® gathered in Orlando the day after the election for NAR’s annual convention, their mood was a mixture of relief that the seemingly endless campaigning had ended, and trepidation over the immediate issues regarding the so-called “fiscal cliff.” 

The term “fiscal cliff” refers to a series of automatic tax increases and spending cuts that will take effect January 1, 2013, which everyone agrees is bad but few agree on how to fix. 

For housing, falling off the fiscal cliff could mean the end of the mortgage forgiveness debt relief law. If this happens, homeowners who have avoided foreclosures through loan modifications or short sales would have to pay income taxes on the amounts forgiven. The Congressional Budget Office says the average debt forgiveness in a short sale is $65,000, and a two-year extension of this program will save distressed families some $2 billion. Some estimate that failure to extend this program could reduce homes sales by as much as 20 percent. 

Another aspect of the fiscal cliff is called sequestration. This is a budgetary tool that has been around for 40 years but has never been used. It is the most powerful of budgetary tools because it cuts off funding to federal government agencies automatically without Congress having to vote on anything. Such cuts could negatively impact all HUD programs, including potential cuts to FHA; the future of Fannie and Freddie; energy, agriculture and environmental cuts could impact real estate; and base closings and other military cutbacks could hurt many communities and thus their real estate markets.

Beyond the immediate threats of this fiscal cliff, Congress and the president will face major tax reform issues in the new session, many of which will have direct and dramatic impacts on our industry. Chief among these issues is the future of the mortgage interest deduction (MID). While most observers don’t think Congress will deal with MID before the end of the year, they could agree on the principle of MID reform now and leave the details for later in 2013. Eliminating this deduction would raise nearly $100 billion a year in new revenues. Total elimination of the deduction seems unlikely, but there is serious talk of limiting or capping the deduction and/or eliminating it altogether for second homes. Other smaller deductions could also face elimination or limitation, such as deductions for mortgage insurance premiums, energy-conserving home improvements and tax credits for builders constructing energy-efficient new homes. 

Our industry also faces financial regulations that could disrupt mortgage lending practices. Under the new and far-reaching Dodd-Frank Wall Street Reform Law, Congress will consider new Qualified Mortgage (QM) rules where borrowers would have the right to sue banks for giving them loans they can’t pay back. Under another proposed rule called the Qualified Residential Mortgage (QRM), lenders would be required to keep additional capital in house on certain loans so they have “skin in the game” and could also require 20 percent down payments — all to prevent making bad loans. Finally, rules known as Basel III, could mandate how much capital a bank must keep on hand to back their mortgage-related portfolio. All of these regulatory uncertainties — what NAR calls the “perfect storm of regulation” — will exacerbate the already problematic hesitancy of banks to make housing loans.

Finally, our industry faces enormous uncertainty regarding GSE reforms, as Congress wrestles with how to change Fannie and Freddie. These two government mortgage behemoths currently provide more than 90 percent of all new mortgages. Some fiscal conservatives advocate for full privatization, while others (including NAR) say some government role is needed to ensure affordable fixed rate mortgages remain widely available.

This election was about jobs and the economy. While candidates can disagree on how to end the recession and create a growing economy, the winners must now find agreement — across partisan lines — on how to make their campaign promises a reality. As REALTORS^®, it is our duty to help our elected officials, of all parties and at all levels, understand how best to help housing help the economy.