New York Times: "Grim Housing Choice: Help Today’s Owners or Future Ones"

[newtothegame]

NYT: The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.

“Housing needs to go back to reasonable levels,” said Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”

More at http://finance.yahoo.com/news/Grim-Housing-Choice-Help-nytimes-2501800868.html?x=0&sec=topStories&pos=1&asset=&ccode=

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[tridim]

1. I'm betting that by the time I'm able to buy another house..

(After my impending foreclosure), home prices will be right back where they were in the 00's.

Looks like I may be a renter for the rest of my life.

[EFerrari]

2. They can let the market crash AND help current homeowners.

As it is, what the Feds are doing is leaving working people on the hook for Wall Street -- again.

[Kweli4Real]

3. The paragraph captured below is part of the problem, and is based on a fallacy:

"The poorer these owners feel, the less likely they will indulge in the sort of consumer spending the economy needs to recover. If they see an identical house down the street going for half what they owe, the temptation to default might be irresistible. That could make the market’s current malaise seem minor."

The problem is that homeowners see their homes as "investments" as opposed to long-term assets. After nearly three decades of wage stagnation, we have been convinced of the fallacy that homes are supposed to make us money (e.g., investments) ... they aren't. There are a place to live, e.g., long-term assets.

These same people that see the house down the street going for half of what we owe, believe that they have lost/are losing money, are the same people that looked at their retirement accounts, thinking they were millionaires. It's all on paper folks.

[Demeter]

4. There aren't going to be new buyers--better concentrate on existing owners

housing will be an inheritance issue from here on out.

[Shadowsmith]

5. Let them fall.

We need to let housing prices fall. That will drive down rent as well. Housing needs to become affordable again, then renters will be able to save or spend on other things.