Monday, September 06, 2010

Housing Choice - Help Today’s Owners or Future Buyers -

Housing Choice - Help Today’s Owners or Future Buyers - "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."
Home values have already dropped 30%. What does "crash" look like, please?

1 comment:

Fred Pilot said...

News flash: The housing market will fail again if lending hazards on both sides of the transaction are not somehow mitigated.

Much to the surprise of Alan Greenspan, mortgage lenders did not act in a rational self interested manner by employing prudent underwriting standards. That means the free market failed and government regulators must now babysit irresponsible lenders to ensure they don't screw themselves. Ironic, isn't it?

I believe the exercise of prudent mortgage underwriting standards that ensure borrowers can pay their loans will also go a long way toward mitigating moral hazard on the part of borrowers. When lenders extend mortgages with so little diligence, naturally borrowers feel little compunction at walking away from their obligations when they don't like the current value of their property. This wave of strategic defaults is in large part prolonging the recovery of the housing market.