Inflating Home Prices

by Tony Chavira

Great article in the L.A. Times today!  I'm just going to slap up the best excerpts for ya:

You can't force someone to buy a house.

But as a society we've long tried to make homeownership an offer you couldn't refuse.

And since the real estate mega-bubble burst three years ago, the government has tried even more tricks to get people to sign home purchase contracts.

Now, a grim reality has set in: Despite the still-rich basket of tax breaks for residential property owners, and the lowest mortgage rates in a generation, the pool of willing or able buyers is dwindling. [...]

"It's not a housing issue anymore — it's an overall economic issue," said David Crowe, chief economist for the National Assn. of Home Builders. [...]

Congress figured the tax-credit giveaway would encourage buyers, and it did to an extent. [...]

But the risk of offering any giveaway with a deadline (in this case, April 30) is that it will artificially inflate activity for a limited period and simply steal from future sales.

Though government intervention may be well-meaning, each new effort "completely clouds whether there has been any fundamental improvement in the housing market [...]

Government policy has been aimed at slowing or stopping the decline in prices, for obvious reasons: A further drop in home values would push more owners underwater, meaning their homes would be worth less than their mortgage balance. An estimated 21.5% of single-family homes with mortgages were underwater in the second quarter, down from 23% a year earlier, according to Zillow Real Estate Market Reports.

A continuing rise in house prices would mean that more homeowners who can no longer afford their mortgages might be able to sell for enough to cover their loans, thus avoiding adding to the mountain of homes already in foreclosure. [...]

For government to stand in the way of a further price decline is unfair to the next generation of buyers, he said. "The people who get hurt the most are those who are overpaying for houses today [...]

The Obama administration's program to persuade banks to modify troubled home loans has met with relatively little success. And few banks over the last year have been willing to take the step of permanently reducing struggling borrowers' mortgage debt to keep them in their homes. [...]

Christian Weller, an economist at the Center for American Progress in Washington, argues that debt reduction on a huge scale is inevitable. "Right now the pain is with the consumer," he said. "We should force the banks to take some of that pain." [...]

All of these ideas, however, are bailouts of one sort or another. "There is no 'fair' answer here," Green concedes.

Well, there is one: Leave housing to market forces, let prices fall until buyers are motivated to come in, and hope that the economy can stand one final cathartic wave to clear the excesses of the bubble.

I don't need to be an economist to know that something fundamental needs to change regarding how we purchase homes.  Maybe that change is simply that the entire market is inordinately inflated, and that those who took out multiple loans to pay for their homes need to come to grips with the idea that their homes were never worth from the beginning. 

I suppose it's hard being told that after you put yourself in debt for 30 years to afford the American Dream though.

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