Without dark, 48-point headlines of doom and gloom in the papers, it’s easy to think that we’re out of the woods in terms of the mortgage crisis. If only that were the case. If the housing market of 2009 was a patient in critical condition on the operating table, the market going into 2011 is that same patient in a coma, silently fighting off a systemic infection. In my opinion, it might be time to stop the IV drip and go to a major transfusion.
This article on CNNMoney.com highlights some of the underlying problems, and its a classic economics problem: supply and demand. Without the “free” money and exuberance of a few years ago, people aren’t willing (or able) to pay as much for homes, so the value of those homes has dropped like a rock. This puts a lot of mortgage holders “under water”. Meanwhile, unemployment and reduction in earnings means more and more of them can’t make their payments.
It used to be if things got too tight you could just sell for an equal or higher price than you bought and walk away clean, but that option’s gone for most folks. If the banks moved on every foreclosure that’s in the queue right now, they’d flood the market with homes for sale, take massive losses, and further depress prices. But the longer they sit on these bad situations, the worse the disease gets. Just look at this quote from that same CNNMoney article:
The Manleys say they won't consider it, but the social stigma of default may be fading. David Averell, a mortgage broker, says that a neighbor who stopped paying "is the pop star of the neighborhood. Everybody wants to know how to be that guy."
That’s a secondary infection! The kid gloves that the mortgage industry is using to avoid killing the patient is encouraging another cult of fiscal irresponsibility! So what can we do? Homebuying incentives from the government? Nope. What we’ve seen is that those just shift buying from one time period to another. They don’t really fix the market. Some type of federal mortgage forgiveness? Horrible. Every parent or teacher knows that if you reward bad behavior all you’ll get in the future is more bad (or worse) behavior.
In my opinion, here’s the crux of the problem: every solution so far involves shifting money from one pocket to another. You can do that twenty times over and you’ll never have more than you started with (but you may drop some accidentally and have less). We have a lot more houses than we did a decade ago. Unless we start knocking them down, the supply won’t change that fast. We need to juice the demand, but not from within.
The U.S. has a unique homebuying incentive to offer that is valued the world over: citizenship. So far, rather than economically leveraging this valuable resource, we’ve given it away or had it stolen. I think we can make some changes and come out better for it. Here’s my radical solution to the housing crisis: Offer foreclosed homes at a significant premium over market value (cash sale only) to foreigners who qualify at a wealth level that represents sustainable consumption, and include a green card (pending security clearance).
We have immigration at all levels right now. We have it at the illegal migrant worker level, at the educated, specialized worker level, and at all levels through marriage and family ties. Imagine a new class of immigration that simultaneously takes houses off of the overcrowded market and injects new wealth into the economy and the communities. We’re talking about real dollars coming BACK into the country, accompanied by people with the means to become very active new consumers. Best of all, it doesn’t create new mortgages!
Like a real transfusion, this would help flush out the infection and bring in valuable nutrients to make the entire body stronger. Otherwise, we can just stand here passing around $75 waiting for it to somehow turn into $100.