With the bailout placing the federal government in control of the financial trauma of the last few years, keep an eye out for changes in housing prices. The government’s intervention will cause a marked decrease in prices, or at least extend the recovery period, as government interference in the real estate market is notorious for being inept.
Cries for the government to save buyers in foreclosure will not help housing prices stabilize. Keeping borrowers from foreclosing will do nothing for the housing market, as buyers will not materialize to purchase troubled borrowers out of their trouble, so long as prices remain artificially inflated.
A few things need to happen for an optimal housing correction:
1. The basic real estate economic principles must again become the guideline for setting housing prices. The pace and ethos of Wall Street do not belong in the housing market.
2. The market must return to a sound lending policy. There must be a regulation of downpayment amounts, and only qualified, financially solvent applicants should be able to borrow for the purchase of a home. This will create a more stable demand base, and keep builders from oversupplying.
3. Borrowers who are not financially solvent and were only qualified to purchase a home based on a low teaser rate or similarly skewed lending practices must be removed from ownership. There is no wisdom in touting homeownership if homeownership leads to financial ruin.