Stabilizing the housing market (via government intervention)

[Kurt_and_Hunter]

Three point plan tossed off by a certain scratchy voiced gnome on TV:

1) Huge tax credit for purchasing an existing home (not new home)

2) Some new home builders go out of business--the market will take care of that once the government offers a big tax credit for buying existing. (I would think some of the infrastructure spending ought to be able to absorb some workers from the housing construction trade.)

3) Measures to keep banks from selling foreclosed homes while the market is down so much -- I would guess that would be something like a tax inducement to hold and rent the property.

Smash or Trash?

If done in concert with measures to make current very low rates more accessible for refinances I would vote "smash."

Here's the thing. You own a house at 7.5%. You cannot refinance at 4.5% because you don't make enough money. Banks wouldn't want to lend because since you are likelier to default they want more profit than 4.5% offers to off-set the expected higher losses in your class of borrower. But you are less likely to default on the 4.5% loan because it's hundreds less every month. It's a CATCH-22.

The government has two awesome powers right now. We can print money and assume risk. If someone is making their payments at 7.5% the risk of refinancing at 4.5% is small, but a risk nonetheless. But the government can assume that.

[CharmCity]

1. I like it.

I think that's a demand/supply idea. Part of the problem now is an excess supply of houses and a pretty low demand for them. The prices are falling, which is bad for homeowners, the banks, the states, etc.

So one approach should be to control supply.

TARP was supposed to loosen up the banks, but all the banks did was save the money -- to balance their books, pay executive bonuses, pay for planes, or whatever. They're competing with one another to stay alive. They would rather make less money today than take on the unknown of the future. They're more inclined to foreclose for nickels on the dollar than wait.

Which is screwing all of us. Inventory to high, prices keep falling, loans still hard to come by.

It really is time for big brother to step in. The idea of the government buying up "toxic assets" makes sense for several reasons. It can afford to hold the properties and sell them over a longer period of time, which can help stabilize prices. And in the meantime, it could allow homeowners to rent back in an affordable way and stay in their homes. If the banks can get these "assets" off their books, they'll be able to loosen up a little. And it's refreshing to hear the Prez give them grief for their bonuses and planes...

It also makes sense to starve new home developments, but that should have happened about five years ago -- the developers are already going under fast. The market is so taking care of them...