I had the privilege last week to host Jay Brinkmann, chief economist of the Mortgage Bankers Association, at the Smart Growth Summit in Baton Rouge. Brinkmann flew in from Washington D.C. and spoke at two sessions, one on “The Cost of Doing Nothing” which looked at the costs/benefits of status quo versus growth and the other a lunchtime discussion of the state and national economies.
As I typically try to do in this column, I asked Brinkmann to differentiate what is happening here in Louisiana from other parts of the country and to help us understand how we are uniquely positioned in any recovery from the housing crisis.
According to Brinkmann, the housing crisis in other states was caused partly by an imbalance in affordability: home prices in the negatively impacted areas rose more quickly than personal incomes. Given a period of easy lending and a consumer propensity to treat home equity as a piggy bank to be raided, borrowers exploited these higher home prices by extracting the equity without sufficient income growth to repay the loans.
The situation was and is different here in Louisiana, Brinkmann says, where income growth has matched the growth in home prices, which has been fairly moderate compared to other parts of the country. It is also my sense, though I cannot find data to support this, that Louisianians did not overreach in terms of exploitation of home equity. I do know that our delinquency rates are lower than other parts of the country. Maybe this is because of our restraint, maybe because of our relative job and income stability, or maybe a combination of these and other factors.
In any case, the good news from Brinkmann’s presentations was that we do indeed have a healthier housing market in terms of affordability than other parts of the country and that the country as a whole is starting to come out of the recession.
At a private lunch after the summit I asked Brinkmann to address a question that I have heard asked many times recently: if Louisiana entered the recession later that other parts of the country, do we still have more painful times ahead while the rest of the country recovers? His answer was interesting and will be the subject of next week’s column.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
