Democrats’ Housing Plan Bad For America And The Economy
Democrats in the House and Senate are working feverishly to harm those they claim to represent: lower income Americans.
In a desire to help alleviate the “foreclosure crisis”, Democrats are proposing ways to prop up the price of housing. The problem is that housing values in America have gotten ridiculously out of line with inflation and wage growth, meaning that housing eats up more household income than it should. In many areas of the country, housing values have appreciated at 8% to 10% per year for the past decade or so prior to the collapse of the housing bubble. In my area, a house that sold for $65,000 in 1995 would have sold for $180,000 to $200,000 in 2006–a near tripling in value. Wages in that time have certainly have not tripled.
Democrats are trying to spin the housing crisis by framing it in terms of average Americans losing their homes because this is what resonates with their voting base and because it helps make the economy look worse than it is. What they don’t tell you is that in many of the hardest hit communities, 70% or more of the homes in foreclosure are not owned by families, but by investors. Certainly, some families will lose their homes. Some because of greed and refinancing their mortgages to convert the equity to cash, others because they weren’t smart enough to research the price history of the house they purchased or because they bought into the myth that housing values never decline.
Anybody who bought their home before 2002 and is still living in it should emerge from the deflating housing market unscathed. The only thing they will lose is paper value, nothing out of pocket. People who bought homes more recently will surely be upside down in their mortgages, owing more than the house is worth. This presents a special problem.
Democrats want to federally insure $300 billion in mortgages so they can be restructured. They are ignoring the fact that many people who are upside down in their mortgages are voluntarily defaulting and stop making payments because it makes no sense to continue to pay on something on which they owe significantly more than it is worth. I’ve read several articles about this phenomenon recently. In fact, there is a website, youwalkaway.com, that helps people to abandon their homes so they can walk away without owing a penny.
The only thing the Democrats’ housing plan will do is push the United States further into debt since many people will continue defaulting on their mortgages because they owe more than their home is worth. They should stop meddling in the economy and let the housing market run its course. In the long run, housing values will decline. People will be able buy houses for less money, leaving them with more discretionary income every month to fuel further economic growth. Housing should not be prohibitively expensive. Let the market fall where it may, please!
Inexpensive housing is best for everyone–especially the people the DFL claims to represent. The Democrats’ plan will make housing more expensive than it otherwise would be if they let the bubble deflate naturally.