The stimulus package has failed to halt the rise of unemployment and has done little to improve investment spending by businesses. Real estate prices are still dropping and the default rates on credit cards and mortgages are still rising.
The next great idea for helping to salvage the wreck of the economy is to give the unemployed aid to stay in their homes.
According to Reuters, “President Barack Obama is mulling new ways to delay foreclosure for jobless homeowners who are unable to keep up with monthly payments.”
The idea is brilliant but for two things. The first is that people without work may not have as much incentive to find a job if they can stay in a home without being employed. It is hard to underestimate the effects of taking away an incentive to work. The chance to stay in one’s own home has to be important, at least for the majority of people who do not want to live in cheap rentals or on city streets.
The other drawback to offering help to unemployed homeowners is that the real estate market can never find a bottom if it is possible for people who cannot afford a home get to keep one anyway. Many of these mortgage holders eventually default, at least according to government statistics. The homes of the unemployed stay in limbo while they look for work. If they do not find work, when do they lose their homes? If that time is a year off, the home market could be facing another large increase in unsold inventory.
Until the government allows those who cannot pay for homes to default, the supply of extremely cheap homes that may bring buyers into the market will not materialize for months, and perhaps years. That is no way to build a foundation under housing prices.
Douglas A. McIntyre
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