Registered: Jan 2010
06-29-12 11:49 PM
Stardust...lowering interest rates is a supply issue....expanding credit is a demand issue. That was the whole point of the too many words I have already written in this thread. Just becuae the lower interest rates make it possible to afford more debt at the same income doesn't mean that the investment model is different. Interest rates rarely are the key issue in an entrepreneural decision.
The best that can be done for housing is to let it find its clearing price and to remove all the distortions and subsidies to home ownership. The reason that the middle class lost 40% of its net worth in the last decade is becuase they were conned into thinking that housing was an asset. They saw the inflation and they appreciated the tax subsidy so they invested in housing as thier largest investment for retirement. Now that housing is revealed not to be a real asset (becuase its income stream is the rental value and not the tax subsidized leveraged momentum value) the middle class has lost the largest part of thier retirement savings.
We should stop trying to prevent foreclosure and keep people in thier houses. People who are underwater should be alowed to walk away without diffeciency judgements so they can start over without having to go through bankruptcy. In fact people who are underwater should be paid a stipend to leave thier houses and go find something they can afford in a place they can have the best chance of getting a job. The banks that have the underwater loans will have to write off the losses and bundle the vacant homes for auctions to buyerys who can deal with them, rent them out to people who can afford them or sell them at the market clearing price to people who can affort them. If we did that three years ago instead of all this crap we have been doing, the housing crises would have been over a year ago.
You have a tendency to look for command solutions to issues, like you think the government should do something about housing prices...I am suggesting they have already done too much. Housing will find its proper value if you just stop distorting the market.
Land Use law, Tax deductiblilty of mortgage interst, Capital gains exclusion, Property Tax structures all impact home pricing. The cost of owning is really property tax, mortgage cost, capital cost, insurance, utilities and maintenance. The house is cheap or not only compared to your income. The decision to own a house for a lot more than it would cost to rent is a decision to use your surplus income to consume rather than to invest.