Thursday, October 8, 2009

Boosting home prices

The more I think about it, the more I am convinced home prices have a long ways to fall. They are just not low enough yet. Prices are currently 41% higher than they were in 2000. At the same time income has not increased at all and unemployment has doubled. Where are people going to get the extra money to afford that? Spend less on energy than 2000? Health Care? Education? This seems way less likely than a continued drop in home prices.

It is true prices have stagnated recently but this is just the government wasting tax payer money. Without the 8,000 dollars for first time buyers, or the FHA insuring low down payment loans, prices would still be falling. Even all this effort hasn't completely stopped the decline, and the best they can really hope for until inflation eats up the last 40%. More likely is a 3-10 year period of slowly declining prices. The larger part of the decline is over though so nothing so dramatic as the past two years can be expected.

One depressing thing is how poorly the people in power seem to understand the problem. Prices will fall. People simply cannot afford these homes. Therefore any government involvement should center around keeping as many people in their homes as possible while bringing prices to reasonable levels as quickly as possible. Instead they seem to be trying to find more suckers willing to over-pay and prop up prices. Inevitably many, if not most, of these people will find they cannot afford the home and go into foreclosure. Resulting in the same declining prices they tried to avoid.

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