How To Fix The Housing Crises

Re-building The Economy: One Tear Down At A Time

There is no shortage of opinion around how to best go about correcting the housing problem in this country.  And there's been a lot of talk about how to get this economy "moving again".  A lot of talk on how to "re-build". 

The Problem:

In it's simplest form, the current housing problem is one of supply vs. demand.  There's a glut of over-priced inventory available for a shrinking pool of buyer finding it difficult to sort through the mess and, in many cases, even get a loan to finance a home.

The catch-22 is how to go about "re-building" a housing market when it's "building" that got us into this mess in the first place.  The short term help for over-leveraged home owners is a "too little too late" answer to a problem that is more vast and complex than we're willing to recognize.  Propping up prices by stemming the tide of foreclosures will likely work in the short term.  Short term thinking is not what we need right now.   We need long term solutions.

The Answer:

In an average market - the supply problem would correct itself over time.  But this is no average market and time is an enemy to an economy on life support.  Another way to is try to generate demand through incentivizing would be buyers to get comfortable with the chaos (ie the governments $8000 hand-out to supposed "first time buyers").  But even still this won't create the demand needed to absorb the current supply.  

So what's let, you ask? Well...when there's no demand for what you have to sell (homes) - then what you have is worthless.  And if something is worthless - then why keep it? A viscious cycle that feeds on itself - throw good money after bad,  rinse, repeat.

Remember that we're dealing with an over-supply of housing right now.  Too many homes.  Not enough buyers.  So if we keep our thinking focused on this simple fact the answer becomes an obvious one.  The only way to correct an over-supply is to get rid of the supply itself.