The collapse of the housing bubble triggered the snowballing events which landed us into the current economic situation. Politicians have been trying all of the standard methods to prop up the market: tax incentives, artificially lowering mortgage rates, and throwing billions of tax dollars at the problem. These approaches have proven to be insufficient to put a floor under housing prices.
Current projections suggest that home values may fall another 10% before the end of 2010, so the pain is not over yet.
Economist Gary Shilling has an outside-the-box idea which might be far more effective, at no cost to the taxpayer.
Instead of stop-gap approaches, focus on the root of the problem: the current oversupply of houses. The housing bubble of 1996-2006 produced a surplus of 6.7 million homes. Shilling estimates that 3.9 million of those were making up for underbuilding during the S&L collapse in 1987-1991. Reduced building over the past two years has compensated for another half-million extra homes. That leaves a surplus of 2.4 million homes today.
In other situations when a glut of certain kinds of farm produce was driving prices down, the government has paid farmers to not produce certain crops. The analogous action for the current situation would be for the government to buy houses and demolish them. This would certainly alleviate the surplus of houses, but it would not be productive use of tax dollars.
Shilling has a much more sensible idea. If we open up our borders to legal immigrants who can buy homes, the housing surplus can be absorbed, resulting in the stabilization of housing prices. A million immigrants in 2009 and a million more in 2010 should go a long way to rebuilding the foundation of our housing market.
Buy a home. Save America. Become a citizen.
Sounds good to me.