Wednesday, September 1, 2010
How to help homeowners who want to sell? Should we keep helping?
I think this article from Fortune compliments the article posted by Andrew on whether it is better to buy or rent. Dean Baker, an economic policy researcher suggests that the market should dictate prices, and that no help should be given to keep people in homes they really can't afford. Baker says that people in this housing crunch should be given the option to stay in their homes by renting for up to five years. In the "buy or rent" article by Andrew, the author says that after six years, it is better to buy than rent a home. That being said, maybe this option proposed by Baker makes sense, that in the short term renting is a good option (for everyone) but eventually people will want to buy (and there will be sellers) and the prices that the houses sell for is dependent on willingness and ability to buy. This may be a tough lesson for Americans to learn when it comes to the housing market.
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I agree with Baker in that housing market should be left to market forces so that housing prices can free fall but I feel that an integration of the two program ideas would reduce the blow back for banks and the broader economy. By this I mean the government should refinance homeowner mortgages where they are paying more than the houses are worth but should also cover the difference instead of funding mortgages. I accept that some people would lose their houses (here the option of renting could be implemented) but it would not be as drastic as in a free fall or not as drawn out as we have now. The government assistance can then be terminated after markets stabilize.
Apart from government intervention in this subject matter, there is a more strict need for banks to have a thorough credit check of the people who are applying for mortgages. This whole crisis would not have taken place if the banks had scrutinized the applicants in a more watchful manner. So it does make sense to rent apartments for short term purposes and then buy houses for longer terms however, banks need to give loans to people cautiously to avoid another meltdown of economy.
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