The Housing Market Can Be Saved By Hastening Foreclosures

June 4th, 2009 | Tags: Foreclosure

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The housing market can be saved by hastening foreclosures. The US government has formulated a plan by which the housing market can be saved from the deepening crisis. The government is planning to reduce the monthly payments of the borrowers. Congress members assume that home prices will stabilize and the fall will be less dramatic this way. Eventually, the real estate prices will go up and foreclosure rates will decline.

This is no doubt a good step but it may not work.

The reason: as unemployment peaks and home values crash, people will realize that they may never have enough money to pay the principle. They may want to move into another space; subsequently defaulting on the mortgage payments.

Such a stark reality can make a revival of the housing market impossible. After all, unemployment is expected to touch record levels before the end of the year. This will make foreclosures more common. The increasing foreclosure rates will make the house prices decline further. Subsequently, the homeowner will realize that the mortgage assistance program will only keep them in homes whose values have already crashed.

Experts suggest that the best way to stem the housing crisis is to push the market further into a furrow. This can be done by withdrawing assistance to homeowners and not giving any financial help to those who may buy a home with tax credits. If only the government does not help people by providing assistance or helping residents to buy houses will the market see stabilization. The market forces should be allowed to play a level game and there should be no government interference.

Putting a brake on foreclosures by cutting down the monthly payments of homeowners will mean housing prices will take a longer time to reach the lowest point before it swings up further.

Take for instance, an owner with a mortgage amounting to $300,000 on a home that is valued at $200,000. He will definitely try and avoid paying $100,000 which means that while the government’s step of lowering monthly mortgage sum has only stopped that house from appearing at an auction bid. The stock of such homes is only being arrested artificially.

Although it may seem cruel to hasten foreclosure filings, yet it must be remembered that many of these people cannot afford the homes. The irony of taking a beneficial step is that the government is letting people stay back in homes they cannot afford.