The calls for foreclosure moratoriums, like this one from the New York Times, are a failure of short-term thinking. We need policy to be focused on building a stable and sustainable housing market, not just on fixing a problem in the short-term.
The focus so far has been on using government programs to “fix” the housing market. But whether it’s the modification plan (HAMP), the refinancing plan (HARP), the First-time Homebuyers Tax Credit, or Treasury’s mortgage-backed securities program, prices are still low and there are still significant housing problems.
The tax credit only temporarily boosted sales. HAMP has only delayed some foreclosures; over half of its modifications have failed. Combined, these programs have boosted the so-called “shadow inventory” for homes in America – basically, the homes that should be for sale on the market today and would be if not for a government program or foreclosure procedural backlog. The problem is that when this inventory of homes eventually gets put up for sale, it will boost supply and put downward pressure on housing prices. Everyone who is buying a home today might be overpaying, since the market has not been allowed to find its true bottom.
On a side note, this is the very subject of a paper I’ve written that was released last week: “Rethinking Homeownership: A Framework for 21st Century Housing Finance Reform.” The basic thrust of the paper is that while it will be painful, we need to let the housing market fully reset and then pursue a comprehensive plan to reform the housing finance industry that takes a long-term view focused on sustainability.
A blanket foreclosure moratorium like the Times calls for would just increase the shadow inventory, creating problems down the road. If we really want to help taxpayers, we will end the government programs that are skewing supply and demand signals, end tax favoritism for home ownership, put a plan in place for shutting down Fannie and Freddie, and change the way we think about home ownership to favor a stable market with sustainable growth. This would certainly be preferable to short-term benefits promoting a boom-bust.
— Anthony Randazzo is director of economic research for Reason Foundation in Washington, D.C.
Kicking the can down the road hasn't worked for Social Security, unemployment, the increasing deficit and other problems that ail us, so why would it work on foreclosures? A moratorium on foreclosures doesn't stop people from losing their homes, but rather prolongs the agony and increases the debt they cannot pay. Who pays the property taxes, insurance and maintenance on the homes that should be foreclosed upon and resold, but sit in limbo instead? We all know the answer to that one.
Reply to this commentLinkReport AbuseWhile I mostly agree that government is warping the market through its interventions in this regard, it's a tone like I hear in this article that leads to charges of GOP heartlessness. A home is more than an asset... I'd argue that in most cases it's not even primarily an asset. Viewing the housing market through the investment lens can too easily lead someone to advocate, well, misery for tens of thousands in the name of stabilizing a market.
"...it will be painful", you write. Are you sure you fully realize the level of personal pain you're talking about here?
I fear your wish to change the way we think about home ownership is doomed to failure, because most people think of home ownership not in terms of investments and markets, but in terms of where they're going to raise their children and make a stable life for themselves. Upending all of that might be "painful" for investors and institutions, but that's not quite the word for what it does to the homeowner.
In short, I think you're missing the point of efforts to keep families from losing their homes...
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