From 2Day's Wall Street Journal: The success or failure of the U.S. Treasury's plan to spend up to $700 billion on soured mortgages may depend on whether it can stem the slide in housing.
Don't expect too much, said Douglas Elmendorf, a senior fellow at the Brookings Institution. The Treasury plan won't alter the fundamentals of falling home prices, because it can't alter the fact that many people can't afford to live in the homes they are in, he said.
Don't expect too much, said Douglas Elmendorf, a senior fellow at the Brookings Institution. The Treasury plan won't alter the fundamentals of falling home prices, because it can't alter the fact that many people can't afford to live in the homes they are in, he said.
Declining home prices have been at the root of the crisis gripping the financial market. Overextended borrowers who would have been able to refinance or sell their homes and pay off their debts had prices continued to rise have instead seen the value of their homes fall below what they owe. The number of homes going into foreclosure has risen, adding to a glut of unoccupied homes that has helped further depress home prices.
So where's the good news? Well let's consider all sides here. First of all the vast majority - somewhere around 98% - of all home owners are paying their mortgages on time. Secondly, lower prices are now the reality- if you're a buyer that is music to your ears. Prices rose at a stupefying pace for years. You remember - folk were bidding up houses as if they were at a cattle auction. Talk about irrational exuberance.
So what do we do now? 2 things are in order. #1 - Turn the news off. Their job is to sell advertising. They may have a tough time doing that if all they have to report about is good news. If you don't believe me consider this. When the media reports unemployment statistics they always tell you about the percentage of folk who are "unemployed". You never hear about the other side. "THIS JUST IN - UNEMPLOYMENT IS AT 5%!" OK so employment must be at 95%. That is excellent when compared to many other nations - France for example, has an 8.3% unemployment rate while Germany is at 8.4%. So remember to put things into perspective. The media would love it if aliens landed on the White House lawn and announced "We're here to enslave 50% of you and eat the other half."
#2 - The nation has seen its fair share of calamaties - financial and otherwise. We've snapped back each time. All of those in the media comparing this time in our history to the Great Depression are really displaying a ginormous lack of historical understanding. Today is NOTHING like the 30s. We don't have bread lines, we don't have Hoovervilles, we don't have 25% unemployment. In fact in the 2nd quarter we had 3.3% GDP. Unfortunatley the housing market got very drunk and now we're dealing with the hangover. Now it's time to take our medicine, get back up and move on.
