Low house prices are good for the economy because low house prices make for low loan balances and less debt-service. When borrowers have excessive home debt, the excess comes directly out of disposable income. Since consumer spending is such an important component of the economy, the excess interest payments are a direct financial drain. As long as the debt on real estate is excessive and capital is tied up in non-performing assets, the economy will suffer. It’s really that simple. The solution is equally simple: foreclose on delinquent borrowers, wipe out the debt, and extract the remaining capital value. With the excess debt removed, borrowers can use their wage income to buy goods and services rather than giving it to the bank. When the mis-allocated capital is returned to the market, new investment will be spurred in areas where capital is most needed. Right now, we don’t need more real estate.
» Low, stable house prices key to consistent economic growth » OC Housing News
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