How to Solve the Housing Crisis

President Obama inherited the worst recession since the Great Depression, but he has done nothing to get us out of the current economic mess.  After 3 ½ years,  he now owns the economy and the outlook is terrible.

The root cause of the recession was the housing crisis and it remains the housing crisis.  Though certain areas have shown a slight uptick, it’s far from over.   Until the housing crisis is solved, we can’t move on.

Obama’s  failed policies have best been described by housing experts at the Real Estate Center at Texas A&M University as “extend and pretend.”

Let’s “pretend” that all those people who bought homes they couldn’t afford will someday miraculously be able to pay their mortgages.

Let’s “pretend” that the banks holding the paper for all those underwater mortgages are going to get 100 cents back on every dollar.

Let’s “pretend” that all those repossessed homes are going to sell at a price that will cover their mortgages.

Let’s “pretend” that Fannie and Freddie, the quasi-government agencies that bought or insured over half of those risky mortgages, will be made whole.

Let’s “extend,” just kick the can down the road a little longer and maybe, just maybe, all of this will go away.

The end result of Obama’s policies is a ton of vacant and boarded-up homes, a stagnant economy, failing businesses and high unemployment.

Romney’s prescription is let the market hit bottom. While this may seem harsh, the housing crises cannot be solved any other way and, until the house crisis is solved, the economy cannot get back on track.

My husband and I are small landlords.  We invested in houses as we could afford them.  We saved money for each down payment and made sure those down payments were large enough so that the rents covered our expenses and we would not go in the hole.  That’s how we financed our retirement.  As a result, we have held on to these houses in good times and in bad.

Now, a strange thing is happening: Every week, we get postcards and letters from investors asking to buy those houses.  Why is this happening with a glut of foreclosures on the market? The simple answer is the government and the banks’ policy of “extend and pretend.”

Ever tried to buy one of those foreclosures?  It’s not as easy as it would appear.  Far too many banks are holding on to their foreclosures so that they can keep these houses on their balance sheets at inflated prices.  They will not make deals in order to hide the true amount of their loses.

Likewise, Fannie and Freddie have not taken the necessary markdowns on their loans. This helps the spendaholics in Washington hide the true amount of our national debt.

While the best government is less government, there is something the government could do to hasten the recovery.  It could require banks to unload these houses in a reasonable time frame or adjust their balance sheets to reflect the current market value of these homes, not the price they hope to get five or ten years down the road.  Fannie and Freddie must do the same.

Everything will sell at the right price.

What does a grocery store do when it buys too many watermelons?  It has a sale on watermelons!  It may have to sell them for less than it paid, because if it holds onto them too long, it won’t be able to sell them at all.

Houses are a bit like watermelons.  The longer they remain vacant, the more they deteriorate.  In a few years, they begin to pull down entire neighborhoods.

There are plenty of investors who would be happy to buy these homes at the “going rate.”  What’s the going rate?  The price at which they will sell.

These investors will, in turn, fix up the houses and rent them at no cost to taxpayers.

Tax incentives can be added to speed up the process, which will pay for themselves down the road when the economy improves.  Lower the depreciation schedule on these homes or, better still, put a zero capital gains rate on houses held for five or more years.  That will bring qualified buyers out of the woodwork!

It is sad, when a family loses its home, even when due to a bad economic decision.  It is sadder still when the home is lost due to illness or unemployment.

In good economic times, these things can be only temporary setbacks and be overcome.

Let the market solve the housing crisis so the economy can recover and we can move on.

 

4 thoughts on “How to Solve the Housing Crisis

  1. Here is some sound economic advice, but the nutty liberals won’t recognize or act on sound advice if it conflicts with their big government (that can solve all problems) mindset. I endorse Jane’s suggestions that these houses be marketed and drop the capital gains tax on houses held more than five years. Since the real estate (housing) crisis was the major cause of our economy going south, we need some legislators to get this prescription for our illness out of this article and put it into practice. Thanks Jane for the good advice.

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  2. Wow. Right on. Wish there were single women who saw things the way you do. Didn’t know you were still in the public eye. I remember when you were doing the little short sports segments they would show on our local TV station back in the ’60’s.

    I said for at least a decade that the housing price rise was unsustainable. Here in the Chicago area, housing prices are down but taxes are up, so housing prices are even more depressed.

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  3. I along with many others agree with Jane on this. The Feds need to take their hands off the housing bubble. Instead of trying to blow air back into this leaking bubble let it collapse on it’s own terms and within 1 year things will begin to slowly turn around. Like any bubble there are winners and there are losers.
    This is free market principles at work.

    When government messes with free market principles we end up with decades of subsidized farmers, business and many other groups. The taxpayers and the consumer lose out.

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