Friday, July 3, 2009

Mor On Negative Equity Mortgages

The Wall Street Journal had a piece today from Stan Liebowitz discussing foreclosures –

http://online.wsj.com/article/SB124657539489189043.html

He points out that “the single most important factor (for foreclosures) is whether the homeowner has negative equity in a house.” Over 30% of homes with mortgages now have “Negative Equity”.

Read the article. It reinforces my points that it is folly to try and use policy to prop up prices via artificially low interest rates – if somebody can’t afford the home they are in and the mortgage is worth more than their house, then they are going to walk and rent the house across the street for less money than they are paying on their mortgage.

It still cost twice as much to buy a house in my neighborhood than it does to rent the same house. Until prices get more realistic relative to rent, real estate will not work.

The longer you try and hold off the inevitable, the longer the economy stays in the toilet. The more you try and print money to artificially prop up asset prices, the deeper your currency with crash and the more basic necessities will cost the consumer.

All they had to do was take over a few banks and write all of this bad debt off and we would now be 8 months into recovery. However, the banks rule Washington, so the stupidity continues.

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