Liz Chimienti

Let the Bubble Burst!

As a renter, I have been watching the bubble inflate and deflate from the sidelines. I have neither made a fortune, nor seen my life’s savings disappear as my mortgage sinks “under water.” But as a young person who hopes to buy a house someday, I’m more than a little alarmed by the latest rumors that the new bipartisan solution to the foreclosure crisis will include a proposal from Senator Johnny Isakson (R-GA) for a $15,000 tax credit for people who purchase foreclosed or vacant new properties.

Why worry? Well, for one, the longer it takes for home prices to return to their historical average, the longer it will be before me and a whole lot of young people can afford to buy homes – particularly in bubble markets, like New York, Boston and LA. Not only do bubble prices contribute to sprawl and pollution, but this proposal essentially bails out banks and developers with federal revenue that could be used to provide any number of good things, like health care or child care for working families. Further, any econ professor will tell you that price floors don’t work. Keeping prices high may help current homeowners in the short term, but will result in more building, which in turn will cause prices to drop.

It would be much more efficient, and less expensive, to change federal laws to allow bankruptcy judges to renegotiate the terms of a family’s mortgage. This would require no federal money and would provide immediate relief to households that are in crisis, rather than speculators looking for a bargain. Senator Durbin has proposed this bill, but it’s facing opposition from conservatives and President Bush who are more concerned about the approval of banks, than their own constituents.

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Posted at 7:05 AM, Apr 04, 2008 in Economy
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