As housing industry falters, so does our economy
I’m always amazed when people complain about the federal government’s bailout of homeowners who are facing foreclosure. Yes, some of these homeowners did use adjustable-rate and interest-only mortgage loans to purchase more house than they could afford. They were greedy.
But there are many other homeowners who are in danger of losing their homes because unscrupulous mortgage lenders talked them into stretching their finances to get into a home that cost too much. Others face foreclosure because the family’s primary earner has just lost a job. Serious illnesses or injuries can also cause otherwise responsible homeowners to miss mortgage payments. Surely, we can’t begrudge some help to these people?
A recent study by the University of Southern California and University of California at Los Angeles offers more evidence that the government should do what it can to help boost the health of the country’s housing industry. The study, which you can read about here, says that when housing values dip, consumer spending falls, too. In an economy that depends on people buying as much as possible, a significant drop in spending helps no one.
The study’s authors report that a 10 percent drop in home values from 2005 — when housing values were at their highest — would equal a drop of $105 billion in consumer spending in the country. This would cause serious ripples in the U.S. economy.
The study is especially important because the U.S. housing industry is in the midst of a terrible slump. The sale of existing homes, which includes single-family residences, townhouses, condominiums and co-ops, fell 3.1 percent in October, according to the National Association of Realtors. And even as sales slowed, the value of housing in much of the country continued to decline. According to the same Realtor association report, the median existing-home price for all housing types stood at $183,300 in October. That’s down 11.3 percent from one year earlier, when the median hit $206,700.
People are quick to blame real estate agents, mortgage lenders, government officials and homeowners for creating today’s housing mess. And each of these parties does deserve some of the blame. But assigning blame isn’t going to help our country’s economy. Like it or not, the United States’ financial health depends largely on a vibrant housing market. If assisting people facing foreclosure plays at least a small part in pumping life back into the residential real estate market, then I think we should all be grateful our government is at least doing something to protect homeowners.
