02 Sep 07 Benefits of the Housing Crisis

President Bush implemented measures to to soften the blow of the so called housing crisis. The fact is that the so called crisis is not really a crisis. Will a lot of investors loose money both in the lending industry and in the speculative housing market. Yes! and will many home owners who got in over their heads loose there home? The answer to that is also yes. But these are necessary side effects for a free economy to function properly.

The real crisis began a few years ago when real estate prices were growing at rapid rates. Two factors need to be in place for proper housing inflation to take place. First the average citizen needs to be able to afford housing. In many of the hot areas this was not the case in the heat of the housing boom. In order to get this to work many lenders issued creative loans to get people into homes that were far beyond their means to pay them back. The other issue is that investors should at minimum be able to make loan payments on a 10 year business loan with the rent. Prices of real estate inflated far beyond what the market could afford in rental incomes. The Real Estate market simply had gone to high to sustain itself. When this happens a correction is necessary at some point. The worst thing that can happen as this correction is for the government to get involved and try to minimize the effects of that correction. Unfortunately President Bush has interfered making the correction that must take place a more drawn out and long term process. He has reduced the impact of poor lending practices which left as is the industry would have self corrected the issues. our legislature is also likely to step in and put more unnecessary regulations on the industry.

We need to recognize that the best way to make a free economy work is to let it run it’s course. Government regulation and interference only makes things worse.