It Might Be Impossible to Stop the Decline of Housing Prices

Nov. 09, 2008 5:00 AM ET41 Comments
Steven Hansen profile picture
Steven Hansen

One of the keys necessary to solving the latest economic crisis is stopping the decline of home prices. The home is a source of wealth for the majority of Americans. While these home prices keep dropping, the majority of Americans are spending a lot less due to uncertainty or inability to have access to credit. The whole economy is being poisoned.

The first signs of the problem began in early 2006. The supply of houses remained within statistical norms. It was the demand for houses which fell. Actually, the buyers were there but they just could not get loans as the banks tightened lending practices as foreclosures began to become more and more common.

The solution to solving the declining housing prices should be easy – just create a lending mechanism so that the buyers can start buying again. There should be a lot of potential demand out there because they have not been buying for several years. This is exactly what the National Association of Realtors (NAR) proposed in their press release last week. According to NAR President Richard F. Gaylord:

The U.S. Treasury and Congress need to work together to ensure that the American people benefit from the economic recovery plan. The Treasury Department has gotten off track by focusing too much attention and stimulus money on Wall Street and banks that are in turn using the money for mergers and acquisitions. The administration needs to get back to the original intent of the plan – stabilizing the mortgage and housing markets – to help families avoid foreclosure.

The NAR simply wants lower mortgage rates, loosening of loan limits, and some mechanism to force banks to loan money to buyers. They want to create stimulus to the demand side of the housing issue.

Catch 22

How is a banker supposed to loan money if the asset

This article was written by

Steven Hansen profile picture
Steven Hansen (A.K.A "The Hand") was born, raised and educated in California. Steven worked for 25 years for a major international engineering and construction corporation. He has lived outside of the USA almost continuously since 1978. Steven retired in 1995 to sail the world. He is still sailing today and is currently located in Malaysia. On the financial side, Steven is a pragmatist. His motto is to "go with the flow" and believes that the only correct investing method is one which makes you money both short and long term. He does not fall in love with philosophies – only results. He has invested well enough to retire at 45 and stay retired.

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