Three Things That Won’t Help End the Foreclosure Crisis
Dean Baker and Liz Chimienti from the Center for Economic and Policy Research share their view on the foreclosure crisis.
The government is stepping up to help home owners keep their houses while protecting the economy from going deeper into recession as the US housing market declines. With foreclosure rates rising every day there are many government regulations that could help stop the foreclosure crisis. Of those regulations, here are three things that will not help end the foreclosure crisis:
1. Subsidies for Home Buyers
“Homeownership can be a useful way for families to accumulate wealth and to provide good secure housing. However, if families are buying homes with bubble-inflated prices, then they are not likely to accumulate any wealth in their home, since the price is likely to fall back to its trend level before they sell their home. (The median period of homeownership for moderate-income families is just four years.) Furthermore, they are likely to pay far more in housing costs each year, than they would to rent a comparable unit.”
2. Artificial Price Floors
“This has nothing to do with linoleum, and everything to do with how prices get set for homes that are refinanced and backed by FHA loans as proposed in legislation being considered by Congress.
If home prices continue to decline, and the government issues guarantees of mortgages at prices that are near current levels, then the government is likely to face a substantial cost associated with a high default rate. The most important factor determining both the default rate and the cost of each default is the movement in house prices.”
3. Incentives to Build More Homes
“Not letting prices fall back to their equilibrium (see above), or giving generous tax credits to homebuilders will encourage them to build more homes. The more homes that get built, the greater the over supply. This will imply a longer adjustment process and a larger price decline. There is no public interest in taking any steps that can delay the process of price adjustment in the housing market. This process is very painful, but delaying it will only make it more painful.”
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Tags: Foreclosure, foreclosure benefits, Foreclosure Crisis, Foreclosure News
