Just let the housing market fall, already...

Via fw comes this article about the next stupid plan to save the housing market. It includes a $7000 tax credit to people who buy foreclosures and allowing homebuilders to use losses in 2008 and 2009 to offset profits in earlier years.

Both are horrible ideas. The foreclosure cash will make anyone trying to sell a house themselves less competitive, because if a buyer is looking at 2 similar houses at the same price, the foreclosed house is now $7000 cheaper.

Th homebuilder one is even worse. It encourages builders to keep building - if they have a project that they have a bunch of sunk costs (land, drawings, permits, ect), it may well make it worth developing anyway, as long as they make enough to pay the actual materials and labor, since they will get a tax credit if they lose money. That means more houses get built, in a market that already has more houses than it does buyers - especially buyers who can get mortgages.

The WSJ Editorial Report had an interesting conversation today (transcript here about the political implications of bailouts to borrowers. One guest pointed out that if a politician could communicate that since 6% of people are in foreclosure or 90 days plus past due, that means 94% aren't - and are footing the bill - and those people shouldn't be happy about it.

That's my viewpoint, but it doesn't seem to be a view many people share - this survey blames 40% of Americans blame the government for the housing mess, while 28% blame banks and 14% blame borrowers - you know, the people who bought houses they couldn't afford and now aren't paying for them.

What I would love to see is the government step away and let the market take it's course. Prices will drop. Builders will go bankrupt. People will lose their houses and be forced out on the street.

But all that stuff will happen even if the government gets involved. It will just take longer. The way I see it, the sooner the market hits bottom, the sooner it can start going back up. A wise rap artist once said that "you've got to get up to get down" - and you also need to get down to go up. Until people feel that housing prices are unlikely to go down significantly, people who are thinking about buying houses won't be willing to buy, and banks won't lend. Once they feel secure that the market has hit the floor, demand will increase, and then prices will start to go back up.

It may seem counterintive that madanthony - who bought a house at the top of the market in June 2006, and isn't sure he could get as much as he paid for it - certainly not as much as he's put into it - would advocate a hands-off approach. But I'm paying my mortgage, even though it means I have a lot less money to spend on a lot of other things I would like to. I have no plans to move in the near future, so staying in place isn't a big deal. But I'm sure I will want to sell at some point, and I figure that the sooner the market hits bottom, the sooner it will go back up, hopefully by the time I want to sell.

And part of it is annoyance at the idea of the government rewarding those who were irresponsible - who couldn't bother to read the terms of their mortgages, who lied on their apps, who bought more house than they should of, who drove the price of housing up in the first place so that my house cost twice as much as it would have a few years before I bought it. The people who aren't paying their bills get forgiveness for not paying their mortgage, lower interest rates, deferments, while I get a house that will be harder to sell. Doesn't really seem fair.