Let the Market Correct Itself

Let the market correct itself

Tough times are on the doorstep of many home owners. Houses all around me are being foreclosed! Should I help them out of their predicament, Should I help my neighbor’s pay their mortgage? Were they victims of unscrupulous mortgage lenders, or, did they let greed get the best of them? Were they trying to flip the house for a quick profit or did they buy more house than they could afford? Did they expect the rapid house price appreciation to continue indefinitely?

The real problem with the real estate market is the lack of affordable housing! From 1997 to 2005 Soaring house prices and higher mortgage rates put homeownership out of reach for more people than at any time in more than a decade. It was a painful time for those that could not afford to buy. Now the market is correcting itself and becoming painful for those whose greed overcame good sense.

The Housing affordability Index for a given area is defined as the share of homes sold in that area that would have been affordable to a family earning the local median income. According to Moody’s economy.com 57 of 379 metro areas nationwide, homes were so expensive that a family earning the median income couldn't afford the median-priced home. Tracy is in one of those unaffordable markets!
Our homes are primarily places to live, they are not supposed to be our bank accounts. Home prices here are much higher than elsewhere in the country. When California homes have such a low affordability index, is it any surprise that California has such a high foreclosure rate? The more affordable homes are, the quicker they sell. Why should we buy anything that is overpriced and unaffordable?

At today’s prices, young couples would like to buy their first home but have been priced out of the market, older couples who already own a home are having trouble trading up. That creates a "domino effect" as people who already own a home find it tougher to move up.
A government bailout, Federal, State or City, will only shift risk from the borrowers and lenders to the taxpayers and future borrowers. It is nothing more than a taxpayer-subsidized program that will rescue disreputable mortgage banking. rich flippers, and people that bought over their heads, at the expense of working families, taxpayers, and lower- and middle-income homeowners. Responsible buyers and taxpayers should not have to pay for poor decisions by a handful of consumers who took out loans they could not afford, nor should they be forced to bail out the lenders who helped these folks buy more than they could reasonably afford.

Let the market go through a correction cycle! When home prices are lowered to the correct price, buyers will return and homes will start selling again. It will be painful for awhile, this is the correct decision for the long run. It was government meddling in the mortgage marketplace combined with greedy owners that created the problem in the first place, further meddling will further exacerbate the problem.

Denny Kessler