Pundits Opine Preventing Foreclosure Will Harm the Real Estate Market
The general opinion is that the market will stabilize by preventing foreclosure. But another school of pundits opine that this will rather harm the real estate market. On the other hand the only way out of this impasse is by speeding up foreclosures.
By reducing the amount paid by borrowers towards mortgages might delay foreclosures, drag on the crisis but not solve it. For instance the owner of a house that is worth $200,000 but is weighed down with a mortgage of $300,000 will try to keep the property off the market to avoid the loss of $100,000. The house would be kept in a state of limbo while the government pushes down the monthly repayments. This results in reducing artificially the listing of foreclosed homes but in reality these are waiting in the sidelines ready to rush in. It is just that they are not on the formal inventory.
Apparently the suggestion of pushing foreclosures seem cruel because it is akin to pushing people out of their homes. Bu the reality is that many of these borrowers cannot afford the house they live in – even after modification. Reality ultimately tells on the system and the economy. Thus these so called owners will never be able to really ‘own’ a house. It will be impossible for them to clear the principal. These houses will not enter the market while the prices are tumbling. Meanwhile there are no government plans of controlling the price of houses at their present levels while more and more people are becoming jobless. If homes are lost then others will at least get the opportunity to purchase units that are affordable to them. But for that the price level has to be reached by a normal market process and not through artificial prop ups.
The various programmes being undertaken by the government should be strict about drawing the line between those who never could afford the houses and those who have recently fallen into bad days due to circumstances beyond their control. It must be borne in mind that games are being played with the taxpayer’s money. Thus the focus should be on the cream – those who need temporary assistance to get back to a stabilized situation.
There is no sense in artificially keeping some people to continue to stay in houses that are still well beyond their means. It would just delay the agony and the time gone is time wasted causing more losses.
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