Housing Crisis

Abstract

By most accounts, housing crisis in the United States was “ground zero” for the global economic crisis.

In this paper we analyze different causes of this bubble and provide telltale indicators that may help us know the present state of the housing market and prepare us against future housing (and other) bubbles. By studying basic drivers of the housing market, we present a simple but effective way to estimate future demand for homes.

And finally, we propose 4 Craz-E ideas to solve the current housing crisis. Some of our ideas also have salutary effects that go beyond the housing market and also improve the overall economy and taxation.

Key Points

  1. Financial bubbles are hard to identify definitively until they have burst.

  2. Home Price Index (HPI) used in conjunction with Rent Index and Median Income can and did give us early warning signs of building of this housing bubble. Good news is that it can also be used to determine if the bubble is finally over or if we have more pain to endure.

  3. Our analysis shows we are getting close to the bottom and in some states we may have already reached the bottom.

  4. However, "reaching the bottom" and "recovering from the bottom" are two different things. Current programs and policies costing over $900 billion have not made much of an impact on solving the housing crisis.

  5. We propose four Craz-E ideas to jump-start the recovery. Some of the proposed ideas have a positive impact on the wider economy as well as our debt situation.

    1. Craz-E Idea #1: Quit building new homes for a few years.

    2. Craz-E Idea #2: Reduce principal on underwater mortgages AND take away mortgage interest deduction from those benefiting from this program. This idea will cost only a fraction of all current programs and get us on a firmer economic footing faster.

    3. Craz-E Idea #3: Consider Eminent Domain for mortgage write-downs in conjunction with elimination of mortgage interest deduction.

    4. Craz-E Idea #4: Encourage buyers of second homes and foreigners to buy homes in the US.

Read our paper on the Housing Crisis.

Video

The following video clip is from a presentation made at Parents' Weekend at Sierra Nevada College on October 13, 2012.

 

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