Ever had your computer crash? The mouse and keyboard won't function. Nothing else you do will get your computer to operate. What do you do?
You reboot! You push the "reset button"- system restore to an earlier time when the problem didn't exist.
Housing lead us into this Great Recession, housing will lead us out. We need to act instead of continuing to set and look at a frozen screen.
America's housing market has crashed. We need to push the reset button. By resetting the value of the real estate, we will fix America's economy and begin to repair our job market.
Pushing the "mortgage and housing reset button" could get America out of our economic funk.Joblessness, foreclosures, bank failure were all brought on by the mortgage meltdown. Why?
There are many reasons that lead to the financial crisis. Briefly, the Fed's 17 straight interest rate increases between 2004 and 2006, deregulation of the banks with the repeal of Glass -Steagal, and corruption in the mortgage market by both banks, politicians, and those that lied about their incomes in order to get a mortgage.
To fix the problem, we need to establish an "intrinsic value" for each piece of property in the United States. Too often, appraisals are arbitrary as to the actual value of a home or commercial property.
These valuations should be established in a way that would be honest and uniform across the country taking into account the area and economic trend in the area the property is located. This intrinsic value would be used for loans and local property taxes.
The only way the property value could be increased is by an improvement to the home or as established by a regional trend, an annual appreciation would occur based on the economic activity of that area.
These rates would fluctuate depending on the region and it's growth. Regional markets could be established- Northeast, Southeast, etc.
No home would depreciate ever again. Americans would have confidence that the investment they were making would have the value they purchased their home having.
Confidence is key here because few will buy a home they believe will fall in value from the time they bought it. That why home sales are well below what we would expect for both existing homes and new homes.
Many homes have dropped in value from the appraised value they had before the Great Recession. The causes were varied but mostly it was because of foreclosures in the home's immediate area and a freeze in the credit markets.
People found that the value of their homes dropped below what they owed on the home for no good reason. The value they had in their homes evaporated and they weren't able to borrow against their homes for improvements or for buying what they needed or wanted.
These homes that are under-water have stifled economic activity in this country.
What we need to do is to re-establish the actual, intrinsic value back to what these homes were appraised for prior to the financial disaster.
Some of the appraisals were done fraudulently. This must be taken into account. However, by establishing appraised value back in homes currently under water, we would spur economic growth in our economy.
Banks that issued CDOs and MBS would see the value of their portfolios soar.
Freddie Mac and Fannie would be out of trouble because the underlying value of assets previously written down would again be closer to what the values were.
AIG would benefit because the underlying securities (the home and properties) values would increase.Credit default swaps (insurance against default) would reset because the risk of default on the homes and commercial real estate would be diminished.
Until our Federal Government establishes confidence back in the housing market, the U.S. will languish along for years as Japan did with no meaningful recovery either in GDP or in the creation or jobs.
We can see that the government programs established to fix the housing problems haven't worked as they were intended. More needs to be done to stop the foreclosures and put Americans back to work.
We must push the reset button on the housing market in the U.S. These home are our homes. Whose to tell us what they are worth?
Should artificial circumstances cause us to continue to suffer when all we have to do is decide to value our homes again at what they are truly worth?
What do you think?
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