Is it a bad thing that home prices continue to slide? I know that, over the summer, prices seemed to have stabilized (at least according to the media and some of the AR bloggers). Unfortunately, I didn’t notice that trend here in North Idaho. In fact, according to the recent S&P Case-Shiller Index data, home prices are slipping again;
I am in the camp that believes continuing falling home prices are a necessity to eventually help stabilize our economy. The housing bubble has definitely popped but it has not yet “evaporated”. According to the Wall Street Journal, 25% of home mortgages are still underwater (negative equity) and, with a further decline in home values, that number is bound to increase. Even more alarming is that more than 40% of borrowers who took out a mortgage in 2006, when home prices peaked, are under water. This means that home owners will have two choices; 1) stay put in their homes until the market recovers sufficiently to move on (which I think is a good thing) or, 2) face the prospect of a foreclosure and all of the ensuing consequences.
It appears to be an inevitability that the housing market will continue to slide until a stabilization has been achieved. This will, by necessity, leave “home-owner shrapnel” in its wake. What we need to be leery of is continuing the policies that helped create the bubble. The FHA, Fannie Mae & Freddie Mac needs to adhere to tighter lending standards to help insure against risky financing which, in turn, will help to prevent higher home prices. In addition, tax credit incentives for home purchases sends the wrong message. These tax credits are scheduled to end March 31, 2010 and should not be extended.
In short, the thoughtful, prudent and QUALIFIED home buyer gets rewarded for his/her “wise” purchase…if you can’t afford a mortgage, you shouldn’t OWN a home.
It is in the best interest of our economy to consider a home as a place to live, not as a "quick-fix" investment to flip. While the first bubble is not yet behind us, we have to take measures to insure a second bubble is not lurking ahead of us.
So... “Is it a bad thing that home prices continue to slide?” I think not. Homes need to be affordable, but within a more strict and practical lending guideline. Owning a home is the reward for hard work and adhering to a reasonable family budget.
Comments(9)