The collapse of the national housing price bubble fueled by growing defaults on subprime mortgages in late 2006 and early 2007 has raised questions about whether Pennsylvania's housing market might be at risk of a downturn.
Between 2001 and 2006 housing prices in Pennsylvania grew by 54% on average. The increase exceeded the rate of overall inflation (only 13% in the same period) and the costs of rent and construction, trends suggesting the growth of speculation in the state's housing market. This circumstance suggests there is a possibility, should the national or state economy enter a recession, that Pennsylvania may face a housing market and mortgage crisis similar to those that have occurred in states like California, Michigan, and Ohio.
Such a housing market crisis could be expected to have a significant impact on Pennsylvania's overall economy by effecting consumer spending and employment in the residential construction industry.
The subprime mortgage crisis, the bursting of the housing bubble, and the economic slowdown are problems that affect the entire nation, not just the state of Pennsylvania, a fact that has led to federal action to stimulate the economy.
The importance of the national stage does not, however, preclude action at the state level. The 50 states have have long served as "laboratories of democracy" pioneering innovation in public policy. State government has powers that can help keep Pennsylvania’s homeowners and economy above water should a crisis arise if leaders prepare today. Pennsylvania can act to:
Reduce the number of future mortgages that end in foreclosure by enacting reforms that protecting consumers from predatory lending in the mortgage market and establishing regulations that require lenders to take into account the affordability of a mortgage interest rate after the rate on an adjustable rate mortgage (ARM) rises above an initial low rate.
Protect families currently at risk of losing their homes by expanding two new programs that offer refinancing assistance, or loans, to homeowners who cannot afford their current payments -- the REAL (Refinance to an Affordable Loan) and HERO (Homeowner Equity Recovery Opportunity) programs. Pennsylvania should adopt the subprime borrower protection plan proposed by Dean Baker of the Center for Economic and Policy Research that would give homeowners who face foreclosure the option to rent the home indefinitely at the fair market rent.
Provide near-term, state-level economic stimulus, by accelerating scheduled public and publicly subsidized construction projects already underway or about to launch.
Prepare for the possibility of a deeper national recession, by developing contingency plans for larger-scale investment in our neglected infrastructure (sewer, water, roads, bridges, public transit and high-speed rail, etc.), in energy efficiency, and in education and training (the human capital or skills infrastructure of the future).
Establish a governor's Commission on Investment in the Future to explore how state government and the private sector can maximize investments that will deliver a double benefit of short-run economic stimulus and long-run improvements in productivity
All of these proposals are presented in greater detail in KRC's January 2008 briefing paper A Building Storm: The Housing Market and the Pennsylvania Economy (download PDF).
5/16/08 - In PA, Home Prices Falling Plus Unemployment Rising Could Equal Further Foreclosures
1/31/08 - Housing Market Woes Endanger PA Economy, Keystone Research Center Finds.
1/31/08 - U.S. Consumer Spending Falls
PA Subprime Mortgage Map
See where subprime mortgages are concentrated in Pennsylvania. Select any PA county from the following list to see subprime mortgage by U.S. Census tract, or get an overview with the statewide map.
National Subprime Mortgage Map
The Federal Reserve Bank of New York provides an interactive national map summarizing "nonprime" mortgage conditions in the U.S.
The Giant Pool of Money
From This American Life, a special program about the housing crisis. We explain it all to you. What does the housing crisis have to do with the collapse of the investment bank Bear Stearns? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s? It all comes back to the Giant Pool of Money. Listen to the story.
This story from the PBS News Hour provides an quick overview of the national housing crisis as of August, 2007. CBS's 60 Minutes also recently reported on the dynamics of the U.S. housing bubble.
For Pennsylvania
A Building Storm: The Housing Market and the Pennsylvania Economy released by KRC on January 31, 2008.
PA Housing Market Steady as Other Markets Struggle press release from the Pennsylvania Association of Realtors.
The Philadelphia Inquirer recently provided data on subprime mortgages in the Philadelphia area.
The Pittsburgh Post-Gazette recently ran a six-part series on the Credit Crunch related to the subprime mortgage crisis.
The Credit Crunch: While Pittsburgh has avoided housing slump, worst of credit crisis may be yet to come. Part four of six by Tim Grant, Pittsburgh Post-Gazette
Mortgage woes lead to loss of jobs here Western suburbs absorb the brunt of 1,590 layoffs by Dan Fitzpatrick, Pittsburgh Post-Gazette
Mortgage banks: Branches close in Pennsylvania and New Jersey by Harold Brubaker Philadelphia Inquirer.
Credit crunch hammers Sovereign by Harold Brubaker Philadelphia Inquirer
New-home sales in Nov. drop to a 12-year low One bright spot: Philadelphia-area builders say conditions here are better than in trouble spots such as Florida and California by Harold Brubaker Philadelphia Inquirer
Outside Pennsylvania
The New York Times provides a summary of the US subprime crisis and an index of its articles on the subject.
The BBC provides an excellent summary of US subprime crisis in graphic form as well as a timeline of recent developments.
The growth and collapse of the housing bubble has been a subject of broad discussion and debate in the United States. A number of blogs have closely followed developments, drawing together news coverage of the national crisis from a variety of sources. A listing of many of the national and state-level housing bubble blogs can be found at The Bubblemeter.
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