This is Mark Warner with propertiesandoptions.com. I would like to comment today about an article that appeared in the Dallas Morning News in mid-September 2011. It’s an article written by Scott Burns who quotes a Michael Castleman. Michael Castleman is the founder and CEO of Metrostudy, Inc., a firm that does a lot by lot review of minimarkets throughout the country and new home markets and lot prices. He had an idea which I’d like to talk to you about and that is the hair of the dog strategy.
Evidently this hair of the dog strategy is about a well-known antidote for hangovers where the hair of the dog is drinking more tequila. I don’t drink; I’ve never hear of hair of the dog strategy, but in this case, when it comes to housing, it means to do more lending. He says we need to come out of the foxhole, or get the consumers out of the foxhole and get them lending to those people so the consumers start spending their money and have the confidence to go out there and purchase homes. He talks about the risks and the rewards. Let me quote. He says, and again this isn’t Scott Burns, this is Michael Castleman who says, “We’ve lost two years. The throttle for housing is the availability of mortgage money. It used to be the cost of money, but now it is its raw availability. Credit scores are down, credit standards are up, today the consumer is in a foxhole. The home industry is on its back and the government is saying we need to tighten down. Worse, if they start forgiving mortgage debt home prices will drop still more.” My comment to that is hooray! That is a great strategy.
We need to loosen the credit and allow people to get out there and consume some of these houses that are now on the foreclosed market or about to be. He says the down side risk is some of those loans, if they leant a trillion dollars and they had 40% of those mortgages go bad, they’re facing the same risk that they face today in the 400 billion that they’ve got potential exposure to. Not only do we need to increase the amount of loans that are being made and make the investors comfortable that the government will stand behind those mortgages and at today’s low interest rates we need to get that $450 billion that Obama wants to spend on the job stimulus that he’s talked about and use that for the current home owners who are out there. Not new home owners, but the current home owners and lower their interest rates.
Fannie, Freddie, and every other mortgage holder out there is exposed to the risk regardless of whether they’re at today’s interest rates or at former, higher interest rates. Allowing those people to lower their interest rates would free up additional income in their pocketbooks that would then go out and be spending the economy. Those purchases would force additional jobs, those addition jobs would force more people into the marketplace to buy homes and thus we’d prop up the economy. We’d build it back up and have a thriving economy again. The government needs to get their act straight; they need to give those people the opportunity to come out of the foxhole.
Also in this article, real quickly, Scott Burns quotes Gary Shilling who talked several years ago about giving green cards to any foreigner who has cash who wants to move to the United States and will buy a house. He said it’s time to start thinking out of the box in terms of our housing market which will stimulate the economy a lot better than extending unemployment benefits. There’s not return on extending employment benefits like there would be to help homeowners who are underwater or be able to lend more money to new homeowners who would come into the market and prop that up.
This is Mark Warner with propertiesandoptions.com,