Use the Fed to Fix Housing Market Crisis: Suttmeier
According to a recent Yahoo! Real Estate survey, a majority of Americans believe the Federal Government should do more to assist homeowners. Four out of five adults think the 2012 election will have an impact on the housing market.
The issue, as the same study found, is that nobody can seem to agree on which party, let alone specific policy, is going to help. Said another way, Americans have no idea how to solve the housing crisis, but we're positive the people we elect are going about it all wrong.
Richard Suttmeier of ValuEngine.com has a solution that's sure to offend and outrage both sides of the political fence, despite being so crazy that it just might work. In short, the market strategist thinks the Federal Reserve should "reuse" its $2 trillion balance sheet to lower the rates of healthy homeowners and, in so doing, invigorate housing construction.
Here's how it would work: The Fed would set aside funds at the yield of the 10-year note (currently under 2%) then lend that money to regional and community banks. The banks could then loan that money with 30-year fixed rate mortgage 60 to 100 basis points above the 10-year rate.
Suddenly you have mortgages priced in the 2.5-3% range. The banks could use the same funding to provide construction and development loans to restore what he calls "the lifeblood of the economy" by starting to build homes again.
Okay, there are some issues with the plan that spring to mind, not least of which being why America would fund the building of new homes when we already have what Suttmeier estimates to be roughly 150k unsold new homes on the market already?
His two-fold answer is that demand is stymied by the lack of financing options available to homeowners and the supply is unappealing.
"No one wants to buy a foreclosed home," he says.
It's true, as far as it goes, but it still leaves a lot of houses sitting around unsold clogging up the residential real estate market.
Could Suttmeier's plan work? Maybe but it would require leaps of faith in terms of policy that neither politicos nor voters are prepared to make. What we know for sure is that the best alternative seems to be decades of "austerity" (read: economic suffering) and a lost generation of Americans with no stake in their communities.
Got a better idea? We want to hear it in the comment section below.