Monday, September 5, 2011

How to Help the Housing Market Recover

How hard is this?

Would anyone like a recipe for restoring home prices or any other form of real estate?

Which people need government help?

It seems like our government keeps trying to bail out the helpless. In some cases, this is okay. On an individual level, we all need a lift now and then. I am pretty sure that most government aid programs INITIALLY intended to target those people with mostly good habits who happen to crash into a big pile of bad luck.

Okay...Let's give them a hand so that they get on their feet and return to being productive.

However, there are many other people who see these other people benefiting, and they suddenly feel entitled to "their share."

Politically, I get that there are some people beyond help who will behave better for the entire population if we "give" them enough to survive. Otherwise, many of these people will turn to more aggressive types of activity that will likely cost us more than we're paying them.

Here you go! Here is your "free" handout. Essentially, this is a bribe for these people to mostly behave themselves.

Both of these groups are worth helping for different reasons, and they are not part of my "recipe" for real estate recovery. The recipe does not involve throwing good money after bad.

Throwing Good Money after Bad

What do I mean?

Notice that most of today's real estate recovery programs focus on people's mortgages. Some of these proposed solutions allow people to modify their loans to better reflect today's market. Others focus on facilitating the foreclosure process more easily. Other programs help encourage short sales.

None of them seem to address the REAL problem.

They all seem to focus on helping people who--after they are rescued--still are pretty likely to fail.

I am not only talking about deadbeats here.

What is the REAL issue? People do not have money to pay for their homes. If they do, they often cannot move from their home, because they cannot sell their home in today's market and get enough money for it to repay their loan on it. So they are stuck there.

Why do people suddenly not have enough money?

You might want to blame poor saving habits, but frankly, we've been pretty poor with that for several generations now. In fact, this is what made the mortgage industry boom so much. People have pretty much always stunk with their own finances.

There are exceptions, but saving habits do not explain today's issue.

Today's issue is that we do not have enough JOBS!

If people had good paying jobs, banks would give loans more frequently.

What do jobs have to do with real estate prices?

Housing Prices: It's Simple Supply and Demand

What makes people pay a higher price for anything?

Because they HAVE to pay a higher price. Most people do not purposely pay a higher price.

The DEMAND is there. Paying the higher price is the only way they can get what they suddenly want.

Real estate housing prices are no different. People pay higher prices when they HAVE TO PAY higher prices.

When does this happen?

Where there is a demand for these houses.

When is there a demand for these houses?

People WANT to live there!

Why do people want to live in certain places?

One reason is that the area is visually stimulating, but there are only so many of these.

The most common reason is that people want to be close to GOOD PAYING JOBS!

People are willing to pay to be near places that will allow them to get more money.

People cannot spend money if they cannot make money.

How to Help the Real Estate Housing Market Rebound

We need to focus on solving the real problem. We have a lack of jobs.

When do jobs expand?

Jobs stop expanding when one of two things happen.

One of these things is when businesses perceive that there the money to be made by expanding is no longer available. So the people that they hired to help them expand into this new profitable slice more quickly are no longer needed. Fewer people are needed to maintain an operation than to expand it. (At least, that SHOULD be the case...but that is a different topic...and a different problem.)

The other explanation is that businesses do not have the money they need to expand, even when they see the opportunity.

RIGHT HERE!!!! THIS is where the government NEEDS to help!!!

We do not need programs that help us modify or eliminate our mortgages. That is simply shifting the problem--not solving it. Instead of a person losing a home, we will just have the bank lose profits and weaken its ability to hire workers.

We need the government's help providing money into businesses that will use that money to hire people to help them expand.

The businesses will profit and grow more rapidly, and they will HAVE TO HIRE more people.

If more people are hired, banks will be more willing to make loans on homes in these areas.

If banks give more loans, more people will be able to buy these homes.

Guess what that will do to the price of these homes?

Am I overlooking something here?

I am not saying that we should throw good money after bad businesses, either.

We are no longer a manufacturing country today. We should manufacture our own weapons regardless of economics. Other than that, we should only manufacture things that allow our country to get them more cheaply than if we paid someone else to do it.

Otherwise, we need to shift our focus on becoming an information leader or shift toward whatever industries allow our country to grow.

THAT will create jobs, which is pretty much the only thing that will help the housing market prices rebound in areas other than the worldwide vacationing hotspots.

Washington! We need your help, but we need the RIGHT help from you.

Save us before we finish our economic suicide mission. Save our housing prices. Please!!!

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