Best columns: Business
The ‘prime’ mortgage crisis
We’ve been telling the history of the housing crash all wrong, said Gwynn Guilford. The conventional wisdom goes like this: “Poor people were reckless and stupid, and banks got greedy,” resulting in a global financial crisis. But the more researchers study the 2007 housing crash, the more we learn that’s not what happened. A new working paper from the National Bureau of Economic Research argues that it was wealthy and middle-class house flippers who inflated the bubble to “cataclysmic proportions,” not borrowers with bad credit. Researchers found that the biggest growth in mortgage debt came from borrowers with credit scores in the middle to high range, and that most of them were buying second or third homes they hoped to quickly “flip” for a profit. “Recall that back then the mantra was that housing prices would keep rising forever.” Meanwhile, mortgage debt belonging to the “subprime” borrowers who supposedly fueled the crisis “stayed virtually constant throughout the boom.” When the bubble finally popped, the affluent investors “accounted for a disproportionate share of defaults,” because they had less incentive to hold on to their extra houses. By comparison, “the share of singlemortgage borrowers who couldn’t keep up on their loan payments barely budged between 2005 and 2008.” Maybe it’s time to find a new name for the so-called subprime crisis.
Who will rebuild Houston?
Houston doesn’t just need money to recover from Harvey, it also needs construction workers, said Daniel Gross. “It takes a lot of labor to remove debris after a storm and then reinstall drywall, rebuild floors, and fix electrical and plumbing systems.” But with the unemployment rate at 4.3 percent, “it’s harder to find labor in the U.S. right now than at any point in recent history.” That’s especially true for the kinds of workers who are called upon after a major disaster. After the housing bust, hundreds of thousands of construction workers were laid off, and many of them left the U.S. or went to work in other industries. There were 225,000 open construction jobs in June, up 31 percent from the same time in 2016. More than three quarters of builders say they can’t find enough people to staff their framing crews, according the National Association of Home Builders; 61 percent can’t find enough drywallers. The Trump administration’s hostility to immigration—both legal and illegal—will make it even harder to fill these vacant construction jobs. After Hurricane Katrina struck in August 2005, an estimated 100,000 Hispanic workers, many of them undocumented, came to the Gulf Coast region to work on recovery efforts. “Houston will need a similar migration for it to recover.” But in 2017, where will those workers come from?