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We need to stop asking Uncle Sam to make us whole

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POSTED September 13, 2012 11:57 p.m.

Let’s say someone has a home they either own free and clear or have very little left to pay off on their mortgage.

They are in the market for a move-down home. Prices couldn’t be better to buy. But they don’t like the idea that the home they bought for let’s say $65,000 and once reached $450,000 in value is now only worth $200,000 in today’s market.

There are people out there in the banking and real estate industry that contend there is anecdotal evidence that is why the housing market isn’t picking up faster and inventories are dropping.

A survey conducted by the University of Michigan in August showed those surveyed view this as the best time to buy a home since 2004. At the same time respondents rated this as almost the all-time worst time to sell beaten only by the year 2008. To tell you how wide the gap was in the survey, the ranking of 100 was equilibrium. Those that thought it was a great time to buy pushed the number up to 55 on the scale while those with a negative viewpoint for selling pushed that end of the scale down below 10.

Obviously it’s a great time to buy but not so great for selling.

 So what are some of the banks and real estate concerns doing? They’re starting to beat the drum for federal intervention via the Federal Reserve for another round of quantitative easing so mortgage rates can go even lower. Forget the fact they are already at almost historic low levels to begin with.

It sounds like a great idea until you ask the next obvious question: What happens when someone buys a home at 2 percent on a 30-year fixed mortgage and is in a position to consider selling a few years down the road when rates are back up around 7 to 9 percent?

All that would be accomplished is creating a large group of reluctant sellers in the future who could drag down the market then . Of course, that would be worse because in terms of real money lost - and not perceived value - potential sellers would indeed be locked in.

Right now the potential sellers that some folks are worried about that are staying out of the market are likely to still experience doubling or tripling of their initial purchase price and probably have stayed even or ahead of inflation. They in turn would be able to buy more home with less money at lower rates.

Right now it is a psychological problem. Do what some people want done and down the road it will be a financial problem that keeps sellers off the market.

The bottom line: We need to stop looking at government intervention as the end-all to housing market concerns when it comes to overt manipulation of rates, financial qualifications and such.

Uncle Sam shouldn’t be in the business of reducing people’s losses when their investments - which is how the sellers in question view their homes - don’t make as much money as they believe they should have.

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