I wonder what would happen if the federal government reduced its role in the mortgage market and let the housing market finds its own balance.
I suspect that home prices would drop another 20% in the next 18 months. Foreclosures would stay high. But eventually investors would find value in under-priced homes and would start buying them and renting them out.
As I hear about more and more expensive plans to restore the housing market, I wonder why my woes will never get a government bailout. I’m just a poor blogger. I rent. I scramble to pay the bills every month. I’m self-employed. I don’t get unemployment insurance. I pay my own health insurance. I pay for everything. I have to look out for myself. I’ll never get a government bailout. I guess I’m an entrepreneur and the Obama administration is not friendly to entrepreneurs.
Nearly three years after the financial crisis began, a third of residential mortgages in America remain underwater. Since then, about 1 million homes have been foreclosed on every year, and by one estimate, an additional 11 million households — one out of every five — could lose their homes unless something is done. A large-scale government program to restructure residential mortgages and help households refinance underwater mortgages would reduce the debt overhang and support consumer demand. Most important, by channeling public money to help individual families, rather than Wall Street, this initiative could alter the political dynamics that currently doom any government efforts to jump-start the economy.
It wouldn’t be cheap. But it would be less expensive than another deep recession.