October 12, 2011

Underwater homes, underwater recovery

Until we get housing and mortgage debt issues addressed, places like Phoenix and Las Vegas, where home prices fell another 10 percent in just the second quarter of this year, are going to be a long-term drag on the economy.

Former Reaganite economics adviser Martin Feldstein has some reasonably sensible ideas, focused on wiping all debt above 110 percent of a home's current value off the books, with owners in turn signing a simple, hardcore statement that if they accept the cramdown, they could lose other assets in case of a default. 

As he puts it, large parts of the country are in a deflationary housing market.

That said, this isn't enough. We need to address the larger issues of:
1. Tax deductions for mortgage interest;
2. The myth of home as investment;
3. The quasi-myth, at least, of home as ATM.

And, that's just within the world of housing. We're not even talking about things like the widening income gap.

Until we look at the larger context, we will have some variant, if not as big, on this housing bubble in the future.

1 comment:

cstoreoffice1 said...
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