We Need a Home Price Decline Moratorium Plan

The latest foreclosure moratorium plan, announced yesterday, is all well and good for delaying the inevitable - a major repricing of anything and everything that has to do with real estate and mortgages now that everyone has regained their senses - but it does little to get at the heart of the current problem.

Paraphrasing Countrywide (CFC) CEO Angelo Mozilo, if banks and the government really want to fix the current mess, they should get at the heart of the problem - price declines, not foreclosures.

As the Orange One pointed out some time ago (see Angelo Mozilo is a moron), as long as home prices continue to go down, foreclosures will continue to rise.

The obvious solution? Stop home prices from declining. By decree.

You see, real estate ownership is not a winning bet anymore and if there's one thing that Americans can't stand, it's a loser, especially when money is involved. Not winning might be an acceptable outcome, but losing is not. That's why people are walking away from their losing bet before the foreclosure notice ever hits the front door.

And there's no reason to place a time limit on the price moratorium either. Or, for that matter, to use current valuations. The national economy would be a lot better off if everyone could continue to believe that they'll always be at least as rich as they were a couple years ago.

If the banks and the government really wanted an effective plan to combat the mortgage and real estate meltdown, they should establish a peak value for each and every piece of residential real estate in the land, based on comparable homes sold in 2005, 2006, or 2007 (whichever is highest), and then decree that no property can be sold for less than its peak value.

If home prices go up, that's fine, everyone will be a little richer. But, home prices will never be allowed to go down again.

Mortage backed securities will regain their value, bond insurers will become solvent again, rating agency models will function again, and, most importantly, homeowners across the land will be wealthy beyond their wildest imagination once again, secure in the knowledge that it will always be that way.

Comments

[MarketBoy]

What an idiot. As if you can force anyone to pay a set price based on valuations 3 years ago. Markets control price, not the government. Let the market go - and punish these yahoos that thought we would always have 30% appreciation per year.

The markets are just starting to realize that not everyone is responsible enough to own a home, or at least make payments on those homes.

Here is another great plan - lets never sell our cars for less than our purchase price. Or how about my PC? Or my toothbrush?!! Yeah, I should be able to force someone to pay "peak value" for my toothbrush. No losers anywhere...... puuleeease!! Wake up buddy. Get out of your textbook and welcome to the real world.

[ike]

i agree - you're an idiot. what about the affordability for first time buyers - the loans were based on false prices to begin with- by mandating that those false prices are now the real prices is absurd - while you are at it why not make into law that my 3 year old sneakers are worth $1000, i'll invite you to the yard sale

["Magazine-Cover-Indicator" Indicator....]

LOL....your satire article put a smile on my face

["Magazine-Cover-Indicator" Indicator....]

heh heh....you forgot -- we also could nationalize the Banks

[SwT]

I'm seriously hoping that this article is an excercise in writing satire, and is Iacono's attempt at a "Modest Proposal".

If he's serious, I propose we push for the same price-cap resell mandates on cars. I'd love to get back what I put into my very used American made sedan. Oh but wait, I forgot, this is a 'free economy', sellers price at what buyers can absorb, based on affordability and supply and demand. My bad.

[tradeking13]

Awesome idea! We should do the same for the stock market, too! Then, I can sell my shares of JDSU for $900!

[John S]

Surely your not serious? Haven't we gone to war to stop these communist ideas?

[User 121302]

Good sarcasm! I would also add that we need to get all the illegal immigrants back that fled this country. We need them to buy more homes to bring the prices back up. Also, when these illegal immigrants are hired by the builders again, the illegal immigrants will spend money and prop up our economy again. This is one way to get taxes from the illegal immigrants, ie., we get property tax revenue. This will make the county supervisors smile with glee.

Also, I like the idea of freezing prices on homes because the builders aren't making enough money. Selling a house for a million bucks that is built with cheap illegal immigrant labor doesn't have enough profit for the builders.

We also need to keep the prices fixed because the city councilmen and county supervisors still need to tack on extras in order for the developer to proceed, for example, a fire truck here, some public art there, etc. Our buyers don't really care about the extra cost these uncaring politicians tack on to the cost of a house.

yippee eye ah, yippee eye oh, it's a wonderful idea to freeze prices, else they could drop another 20-50%.

One Dusty Cowboy
San Jose, CA

[Dave T]

I am a recent real estate agent in northern California. Your argument here is beyond ridiculous. RE is so over inflated that I can't in good conscience sell property right now. I do believe that this years good deals are next years foreclosures. I hope the value decline down to the 2001 level so that people can purchase a home especially first time buyers, based on what they can realistically afford and not some bogus loan application.

It used to be that it was cheaper to pay a mortgage than it was to rent. Now a mortgage is 2 to 3 times higher, makes no sense. Home prices are 1300% higher than they were in the '70's and incomes have not risen 1300%. Prices have to come down!!

[Malkiel]

Not good when your audience can't tell your satire from your real stuff--best not to try it on audiences with no sense of humor (that is, readers of financial publications).

As for your modest proposal, great, but the downside is we can all expect to live and die in the houses we currently own because nobody in the future will ever be able to move for lack of a buyer...

[Johnc]

The fact that some didn't get the joke is especially disheartening in an election year. I commend the writer for using satire to point out the limit of what government can do and how emotional we can get when it comes to property (most peoples' largest investment by far). Hopefully those who "took the bait" will reflect on how much of their election choices will be made based on taking the candidates election promises at face value.

[NOT Shirley either]

Of course he's serious.
And DON'T call him Shirley!

[Refuse to buy overpriced]

There needs to be a pressure group called "Future Home Buyers of America" to pressure politicians to stop intervening in the economy to prop up house prices at ridicoulously high levels.
Raise interest rates to a normal level, do not use tax payer dollars to keep Mr. No-downpayment-lied-to... in his McMansion.
I would rather live in a tent the rest of my life than buy a house at current prices.