Recently, Boston Federal Reserve President Eric Rosengren called on the government to do something to bolster home prices. I find it incomprehensible that someone who is educated and informed, like a Federal Reserve President could be this short sighted. For some reason, the government and politicians fear being perceived as doing nothing, which is exactly what the current dilemma requires, because meddling with the natural way in which our economy works is what got us in this mess in the first place?
Even with the last 2 years worth of declines, home prices NEED to come back at least another 20% to approach historical norms, parity with the cost of renting and approach reasonable levels with respect to personal income.
Anything that artificially maintains current home prices will only serve to set the table for another economic crisis in the future. I believe that this crisis will be of epidemic inflation. The only thing that is going to get housing moving again is if younger people can afford entry level homes, which will allow subsequent echelons of home owners to move up. That is the way it has worked in this country for generations. Short circuiting the natural flow of home owners and buyers can only end negatively.
If entry level home prices, and other strata of home prices for that matter, remain at artificially supported levels the consequences will be dire. Cost of living indices will be higher and employers will be forced to pay higher wages to attract quality staff. Higher wages will translate into higher costs for other non-housing related goods and services. Thus, in the long run the working man will see little real growth in income. The relative growth in income will be another mirage that will suck in more and more unwitting people. While I lack the PhD in economics needed to forecast exactly where and how the next disaster will strike, my horse sense tells me that any kind of individual home owner bailout will be the catalyst for it, just like the CRA was for the housing bubble.
A final note on any potential bailout of the individual home owners ... If you are not a home owner and you are a tax payer, your tax dollars are being used against you. In a sense, the government is denying you your right to pursue the American dream; they are denying you, your Constitutional right to pursue happiness in order to help out the foolish, greedy, ignorant home owners who purchased homes that they truly couldn't afford. The time has come to pay the piper and putting off that bill will only make it worse in the future.