Housing Prices Remain The Key Problem
If we don't stop the endless drop in housing prices, all of the stimulus will be for naught.
The problem remains that although current housing starts are at record lows, the geniuses at Lennar, Hovnanian, KB Homes et al. will immediately ramp up building and adding to unsold inventory if the current proposal ($7500 first time home buyer tax credit) passes without some restrictions on builders.
We really need a much more aggressive tax credit of up to 10% (limit $25,000) on the purchase of a house built "prior to 2009" and purchased before September 2009; no credit for the purchase of new 2009 construction; and the elimination of the "first time buyer" restriction. This would go a long way to reducing inventory to more manageable levels and to stabilizing current price levels.
Also, in any area where housing prices have decreased by 30% on average or more, Federally insured 4% mortgages should be made available to qualified homeownwers based upon a principal reduction to "current" fair market value (a forced cramdown) will be essential to prevent millions of people who can currently afford their mortgages from walking away simply for economic reasons. Why would any sane person continue to make mortgage payments on a house you are upside down in by 30% or more? The 10-15 year wait just to get back to even will be more than most homeowners are willing to bear.
We need drastic action here, not just band aids, or Great Depression II will remain a reality.
The problem remains that although current housing starts are at record lows, the geniuses at Lennar, Hovnanian, KB Homes et al. will immediately ramp up building and adding to unsold inventory if the current proposal ($7500 first time home buyer tax credit) passes without some restrictions on builders.
We really need a much more aggressive tax credit of up to 10% (limit $25,000) on the purchase of a house built "prior to 2009" and purchased before September 2009; no credit for the purchase of new 2009 construction; and the elimination of the "first time buyer" restriction. This would go a long way to reducing inventory to more manageable levels and to stabilizing current price levels.
Also, in any area where housing prices have decreased by 30% on average or more, Federally insured 4% mortgages should be made available to qualified homeownwers based upon a principal reduction to "current" fair market value (a forced cramdown) will be essential to prevent millions of people who can currently afford their mortgages from walking away simply for economic reasons. Why would any sane person continue to make mortgage payments on a house you are upside down in by 30% or more? The 10-15 year wait just to get back to even will be more than most homeowners are willing to bear.
We need drastic action here, not just band aids, or Great Depression II will remain a reality.
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I almost agree with you. As much as I loathe builders these days (having been fired by Lennar 13 months ago) The building industry employs too many people to just shut down. Not just the employees but the trades as well.
One of the things builders are guilty of is grinding their production to a near halt. it sends the signal that things are much worse than they are.
But in terms of the rest of your plan, I'm all for it. Big tax credit for anyone who buys a home. Guaranteed mortgages at 3 or 4 percent for anyone, not just purchasers. Let people refinance at the rates, too. Let the loans be assumable, so if the current owner can't make payments, maybe someone else can. That would protect values and start to build equity again. More importantly, it would give homeowners the feeling that their biggest asset is draining away from them, which can only help improve consumer confidence.
After all, 3 percent is still a profit. The Fedgov doesn't need to please shareholders with higher returns. And in the process, it might force the banks into more modest expectations as well.
But I think you're absolutely right -- nothing gets fixed without fixing housing. I hope the people in charge realize that already or learn it quickly.
January 29, 2009 4:11 PM | Reply | Permalink