With all the emphasis that the government and federal reserve are putting into stabilizing home values, including purchasing 1.2 trillion dollars worth of risky mortgage backed securities (bundles of debt backed by mortgages as collateral), providing an $8,000 refund upon the purchase of a home, offering loan modifications to underwater home owners, providing FHA loans with 3% down, and remarkably, often for principal greater than the assessed value of the home being purchased, I have the following questions:Is the housing market ready to be stabilized?
Wouldn't it make the most sense for the market to return to historic valuations?
What would a swing to historic valuation look like following the most massive bubble in housing, and arguably, credit over the past 110 years?
Doesn't it seem feasible that housing prices would not only return to mean valuations, but possibly even mirror the spike up with an exaggerated devaluation of home values as excess credit is purged from the system?
If home values do come back to Earth, what will all the incentives aimed at decreasing inventories, boosting consumer sentiment, and jump starting the credit markets really promote? To my thinking, just the opposite. People getting into these new mortgages may again find themselves under water. If they do, this will likely lead to another round of loan defaults, foreclosures, and the tightening of consumer and lender purse strings. Not to mention that in this scenario the stimulative efforts of our government pertaining to the housing sector will add to the weight of already unprecedented US debt relative to economic production.
A grim scenario, but based on the chart, and our as of yet unpurged credit markets, one with reasonable potential.
Fubsy
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