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What they need is a moratorium on price declines
Tuesday, February 12, 2008
The latest foreclosure moratorium plan, announced earlier today, is all well and good for delaying the inevitable - a major repricing of anything and everything that has to do with real estate and mortgages now that everyone has regained their senses - but it does little to get at the heart of the current problem.
Paraphrasing Countrywide CEO Angelo Mozilo, if banks and the government really want to fix the current mess, they should get at the heart of the problem - price declines, not foreclosures.
As the Orange One pointed out some time ago (see Angelo Mozilo is a moron), as long as home prices continue to go down, foreclosures will continue to rise.
The obvious solution? Stop home prices from declining. By decree.
You see, real estate ownership is not a winning bet anymore and if there's one thing that Americans can't stand, its a loser, especially when money is involved. Not winning might be an acceptable outcome, but losing is not. That's why people are walking away from their losing bet before the foreclosure notice ever hits the front door.
And there's no reason to place a time limit on the price moratorium either. Or, for that matter, to use current valuations. The national economy would be a lot better off if everyone could continue to believe that they'll always be at least as rich as they were a couple years ago.
If the banks and the government really wanted an effective plan to combat the mortgage and real estate meltdown, they should establish a peak value for each and every piece of residential real estate in the land, based on comparable homes sold in 2005, 2006, or 2007 (whichever is highest), and then decree that no property can be sold for less than its peak value.
If home prices go up, that's fine, everyone will be a little richer. But, home prices will never be allowed to go down again.
Mortage backed securities will regain their value, bond insurers will become solvent again, rating agency models will function again, and, most importantly, homeowners across the land will be wealthy beyond their wildest imagination once again, secure in the knowledge that it will always be that way.
11 comments:
This is great news! Now delinquent homeowners will get to stay an extra month rent free before they turn in the keys and walk away!
What could possibly go wrong?
In retrospect, I've had direct exposure to this since the 7th grade. There, I lent my friends money and allowed them to work up eye-popping balances of about $80. Guess what?
Let me guess; they're not your 'friends' anymore?
But does that not leave the problem that much of these bad loans were designed to solve - that a sizeable proportion of first time buyers and low-income earners couldn't afford to buy houses at the price they were and are at?
Whilst it may solve the immediate financial crisis, I suspect it may merely cause a similar credit bubble to form in a few years time when people realise that as the older homeowners die and younger ones can't get on the market, either house prices or house sales have to fall.
Perhaps the Fed and the government should get together and just send everyone a $1 million check with freshly printed money. Then we can be a nation of nothing but millionaires.
Talk about a stimulus package!
I agree to the proposal. Naysayers will tell that it can't be sustained when prices are not affordable. Govt should just provide guarantee for the prices. If new bidder bids amount lower than peak price, government should step in and cover the difference to the house owner or the lender. The prices at least when measured in worthless dollars MUST never fall and government should do whatever it takes to ensure the same.
Why do any work at all? Let the government do it.
If all sellers would just insist on asking price and dont dicker prices would stop falling and everything would be ok again.
We will be fine if people just stop dropping prices. That is the problem. If sellers stop taking lower prices they will not keep going down.
This piece show clearly how childish people are. Price control when prices are going down. Sky's the limit when prices are going up. Grow up.
Prices are going down because there is a extreme over-supply: people has maxed out their ability to pay, many just walk. In other words, house prices are just too high. The only way to bring price downward is to either destroy a couple of million houses, or print a trillion dollar and give it away. Of course the Fed is doing a bit of the latter - to make itself look good.
WOW! I see a real lack of critical thinking in this forum.
Firstly, a house is a market product. There is nothing in particular that should make a house go up in value, other than inflation.
Over the long run, there is value in 'owning' a home for most people, as there's a general short sightedness and lack of frugality in the USA that a (voluntary) forced savings plan is a good idea.
Now, lets consider some of the
First, a price by decree or 'fixed pricing?' Have you ever thought about the outcome of this?
"We will be fine if people just stop dropping prices. That is the problem. If sellers stop taking lower prices they will not keep going down."
I guess this means we want to remove housing from the free market exchange? I can't even BEGIN to elaborate how INSANE this idea is. What if you really need to sell your house fast? Well, you lower the price to make it more ATTRACTIVE to potential buyers. Should this not be an avenue available to people?
What about the fact that the places are simply over priced, and the average person can't afford the average home (as we are seeing right now, and I've said for 5 damn years). WHO is going to BUY these houses at the FIXED HIGH PRICE? No one.... No one can afford them and NO one will lend money to them.
And how about his comment...
"Govt should just provide guarantee for the prices. If new bidder bids amount lower than peak price, government should step in and cover the difference to the house owner or the lender."
Fine. I will offer $1 to buy my neighbors house, and he can offer $1 to buy mine! YAY ... $1 houses paid for by the government...
What about ME? I never bought a house when the prices were bubblisious like they became. Do I get to stop paying taxes? What about people who CAN afford their houses... Do they get a check from the government for the amount their house has dropped in price? This notion that money, forcibly removed from the hands of all citizens, should help create solvency for an individual who made a BAD PURCHASE is the most destructive mindset that exists.
What are the CONSEQUENCES to the home purchaser now. If prices go up, I win.. If prices go down, I break even? COME ON!!!
Get off the statism mindset that the "government" can ever provide some solution to fix the individual purchasing / building / working decisions people make each and every day to some PERFECT AND FAIR (as dictated by majority) standard. No matter WHAT the government does, it has to take from someone, and give to someone else. With this recent (and last 30 + years of spending) ... it seems the we are NOW paying for what was done 20 years ago (fighting a cold war), and many people simply pass the CURRENT (fighting... Oh no... Dropping housing prices) cost onto the next generation?
Anyone who says 'the government needs to fix the problem of dropping housing prices' can easily be shown to be a very greedy, selfish and lacks any long term, and critical thinking skills.
Grow up!
Welcome to Zimbabwe!
I guess I should start providing a warning label of some sort when my prose turns satirical.
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