Housing Market Failure, the Resulting Recession, and How to Fix It

As far back as 2007, analysts were predicting a coming recession because of the collapse of the housing market. The housing market bubble has been seen as another example of irrational exuberance, especially since the current recession may be turning into a depression.

The federal government failed to take the situation seriously enough to enact immediate rational measures to halt the bubble. And now, even more drastic measures are necessary to prevent a full-fledged recession. Those measures are relatively simple to enact and will put the housing market on a rational basis once and for all. What could have been done and, more importantly, what should be done to prevent any recurrence of the disastrous situation? The solution lies in the proper use of data that have been easily available but not proactively used.

The federal government should have been using data on material and labor costs and land values to determine the inherent actual worth of all houses in the country. Careful monitoring of the sale price of houses would have shown the irrational exuberance of the housing rush. The federal government should have immediately fixed the price of all houses.

We missed a window of opportunity to rationalize the country's housing system and office rentals. It is not too late. Here are some of the steps.

All property titles should be required to be on deposit with the Federal Housing Bureau (FHB). There should be no question of ownership. Unless and until a change of ownership is registered with the FHB, there should be no changes in current rules. As well, any mortgages should also be federally registered. The money spent on title searches and title insurance, as well as maintaining paper copies of mortgage documentation, is completely wasteful. Digital documentation with the FHB is the answer.

Sales should be made only through the FHB. The price cannot be different from the current rationally determined value without extensive justification using a standard application for housing price change. When a request is made to sell a house, and properly announced, sale will be on a first come first served basis. This will eliminate the totally wasteful current practice of real estate brokering and New York Offices.

Whoever makes the first application to buy a house for sale can buy it. The actual money required from the buyer will depend on the buyer's income. (A buyer with median income pays the FHB price. A sliding scale determines how much above or below the FHB price is paid, depending on the percentile income level of the buyer.) The seller will always receive the FHB determined value. Any amount over the fixed value which is due because of excessive income will be escrowed. Escrowed funds will be used to compensate sellers whose homes sell below the FHB price due to the lower income of the buyer.

Implementing this system will remove any chance for an irrational market to upset housing prices and to cause widespread damage to the economy. Many have turned towards office rentals New York for help. Otherwise, some have been settling for Manhattan apartment condo.

Photo Credit: Casey Serin

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Phil Sexton

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