Housing bubble may be long gone – but we are still living with its inflated prices
Behind the plunge in home sales is a standoff between sellers stuck trying to unload overpriced homes and skittish buyers.
A nationwide phenomenon, it is particularly intense here in Greater Boston, the land of perpetually overpriced homes in need of work.
There are lots of homeowners out there who bought during the bubble years and now, for one reason or another, are stuck trying to sell their homes at what are now widely seen as inflated prices. Having taken out jumbos to pay for $800,000 fixer-upper capes in Newton or Wellesley, there is no wiggle room now.
And buyers, for their part, have no appetite to buy homes still priced as if it were 2005 at a time when sales are plunging again and prices are pointed downward.
So what's to be done?
That brings me to Martin Feldstein's remarks yesterday to Bloomberg Television.
The Harvard University economics professor and former top Reagan Administration adviser is calling for a new housing initiative.
OK, like we need another foolish save-the-housing-market program like a hole in the head, but stick with me.
Feldstein argues that mortgage principal needs to be knocked down so underwater homeowners can refinance. The alternative, he contends, is another big wave of defaults and foreclosures - as if what we are seeing isn't already epic enough - that would put even more downward pressure on home prices.
There's no mention in the piece on Feldstein's remarks of who would pay for this, but with Uncle Sam himself facing bankruptcy and foreclosure, there's no way this happens unless the banks cough up the cash.
If nothing else, Feldstein's proposal gets to the core of what is holding the housing market hostage right now - outsized mortgages written during the bubble years.
What's your take?
