What the Government Should Do to Help the Housing Market: Stop Meddling in Housing and FIX THE ECONOMY

How should the government fix the housing market? The answer, stop meddling in the housing market. Instead, the government should focus on the economy. The fundamental question is why have jobs been leaving the US for the last 3 decades? Answer: taxes, government regulations (think environmental regulations that punish companies while doing nothing to help the economy such as CO2 emissions, etc., hiring quotas, employment laws, etc.) and labor unions. Fix those problems and employment and income rises. After several years maybe incomes will catch up enough and housing prices will fall enough that we actually reach a sustainable ratio of median home prices to median incomes (normally median home prices in an area are 3x incomes in that area) when overall employment is stable.

Right now we have increasing unemployment, increasing foreclosures and short sales, but artificial government meddling. This is causing confusion and chaos. For those who think we can ride this out with a 1 year extension of the tax credit, etc., please look at the stats. Foreclosures will remain at very high levels for 3-5 years and at high levels for several years beyond that. Unemployment, will start to go down in about 12-18 months, but it will not go back down to the 4.5%-5.5% levels of 2004-2005 because the economy (and the employment market) was so dependent on consumer spending and that spending will not come back since it was fueled and enabled by easily obtainable debt that is no longer available.

While this mess hurts me right now as a REALTOR and a homeowner who is trying to sell their home due a relocation, I know this is true. Declining housing prices are good for the economy. It will free up homeowners' capital that can be spent and/or invested in other areas instead of being sucked up by artificially high housing payments. It will enable people to actually eventually own their own homes and live with less debt and stress instead of living on the absolute edge. It is better to pay less for a home with higher interest rates then to pay more (and borrow more) at lower rates. This is all just a deleveraging of the US economy, which IS NECESSARY.

Mark my words, eventually the government subsidizing of the real estate market will end and the housing market will decline more. It is unavoidable.