On the House: Readers tell how they'd revive real estate

Posted: February 08, 2009

What will get the real estate market moving again? That's the question I posed a couple of weeks ago, and once again readers seem to have better ideas than the experts do.

The response was overwhelming, though I preferred suggestions that didn't push an agenda or business plan.

My favorite came from Mike Hudson of Pottstown. He took issue with my quoting Ravi Batra, a Southern Methodist University economist who suggested that raising wages to bring them in line with years of price increases, thus reducing the need for consumers to get deeper into debt, was a realistic alternative to bailouts.

"Since we have a 'market' economy in which the only way to raise profit is to lower cost," Hudson wrote, "I assume your intent is to advocate lower taxes and a generally less intrusive and burdensome government as the means to raise wages.

"However . . . I suppose there is the chance that you espouse a command-and-control economy that would dictate prices and wages. Which is it?"

Well, we've seen that the recent government spending has done little to turn the economy around. You need a plan more than you need $700 billion, or $825 billion, or whatever. Batra, to his credit, suggested one as an alternative to a bailout, whether or not you agree with it.

Economists suggest that the Philadelphia market may turn around quickly when the downturn finally hits bottom.

The Case-Shiller Index for the third quarter of 2008 - the fourth-quarter data will be out later this month - showed that Philadelphia metro area prices were flat year over year, or 0.0 percent. The median price was $174,000. (Nationally, prices fell 16.6 percent.)

Raymond Smith of Cherry Hill offers a well-thought-out idea for turning things around:

"Have the federal government, as part of its bailout plan, look at each individual case of 'underwater' mortgages, and mortgages in default or near default. It would then provide an infusion of funds, partly to buy down the mortgage rate, and partly to reimburse the lender for a partial mark-to-market.

"In return, the feds would share in any capital gains when the property was eventually sold. The amount of rate buy-down, sharing of the loss between the lender and the feds in marking the price close to market, and the proportion of eventual profit-sharing would be determined by algorithm, taking into consideration all the relevant variables.

"Somewhat ironically, the excessive federal spending, monetary creation and debt creation is a key to having this work . . . the current flood of dollars will create significant inflation, including inflation in housing prices, once we begin to pull out of this recession or depression.

"This prospect will provide an additional incentive for financially stressed homeowners to keep up their payments and stay in their houses."

Smith's plan seems to have it all, as he says: Effectively, it's a bailout of homeowners, lenders and laid-off workers in a manner perceived as fair by nonrecipients, with the prospect that a substantial proportion of funds will be returned to the taxpayers.


On the House:

Inquirer real estate writer Alan J. Heavens is the author of "Remodeling On the Money" (Kaplan Publishing). His home-improvement columns appear Fridays in Home & Design.


"On the House" appears Sundays in The Inquirer. Contact Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com.

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