No easy fix

Harvard’s Philip Greenspun asks an intriguing question today. Why do we want to maintain the world’s highest housing prices?

We spent most of our investment capital over the last ten years building huge and luxurious houses. Americans were by far the best-housed people in the world before, but now many of us are truly living like kings. Does this help our international competitiveness? Does an employer care that we can go home to a 6,000 square foot McMansion and watch a 60″ TV in our media room? I don’t see why the employer would care. In fact, an employer would probably prefer that his workers be housed in sufficiently squalid conditions that employees were encouraged to linger in the office. Certainly the employer doesn’t want to have to pay a worker extra just so that he or she can afford to pay rent or mortgage in an artificially inflated housing market.

In Minnesota, as in many places, the pols are trying to come up with a fix for the foreclosure mess. Several bills are making their way through the Legislature, which has a little over a month left in its session.

The problem is figuring out an answer is like playing whack-a-mole. Fix a problem here, and two crop up over there.

Alex Steinbeck, who writes the blog Behind the Mortgage, says a mortgage foreclosure bill may make it more difficult in the long-term for people looking to buy homes. Because the lenders lose their right to foreclose, they may demand a higher premium in exchange (higher interest rates, bigger downpayments etc.).

To be fair, the moratorium targets owner occupant, sub-prime borrowers, so it remains to be seen whether a bill like this will meaningfully impact the pricing and/or costs for the “other 98%” of borrowers, but it is a real risk.

Also, the proposed moratorium may have costs beyond “higher future rates.” That’s because interest, penalties, and tax bills continue to accrue, and are not forgiven (only deferred) under this bill. The borrowers are still on the hook after the moratorium expires – and precious few will be able to pay then what they can’t pay now.