Pres. Obama has unveiled a new, $275 billion dollar plan to assist homeowners at risk of losing their homes stay on top of payments (and stay in their homes). The article in the Times claims the package will
help as many as nine million American homeowners refinance their mortgages or avert foreclosure, … shore up housing prices, stabilize neighborhoods and slow a downward spiral that was [according to Obama] “unraveling homeownership, the middle class and the American Dream itself.”
That sounds nice, I guess. But I am worried about the shoring up of housing prices – didn’t overestimation of the values of houses get us into this whole mess in the first place? We cannot pull our economy out of any “downward spiral” until we can be sure that home values are no longer being set artificially high, either by wild speculation or the government.
This is not to say that we should sit around and do nothing while people are booted out of houses and their values decline further: deflation in every area of the economy is certainly a problem during a recession. But as Yglesias points out,
we’re not talking about real assets that vanished. The houses are still there, and they’re still as good or bad or useful or non-useful as they ever were.
Homes are real assets, that will always have some value for somebody, and if the rest of the economy gets going, there will be many people willing to buy up all that surplus housing at lower prices. I guess this is another good reason why there should have been more dollabillz in the original stimulus bill. Hopefully this latest cash outflow from the government will help things, not hurt them.