When people talk about plans to "help" homeowners they must (yes, I said "must") ask two simple questions:
- Are the homeowners being "helped" paying less in mortgage and other housing costs than they would to rent a comparable unit: and
- Are the homeowners likely to end up with equity in their homes?
Neither of these questions get asked in this discussion of the merits of the Obama administration's plans to "help" homeowners.
This means that the NYT wasted readers time and killed trees for no good reason.
The point should be really straightforward. We help homeowners when we actually put money in their pocket. If homeowners are paying more in housing costs than they would to rent the same unit, then we have not put money in their pocket, we have put money in the banks' pockets. This is a policy to help banks, not homeowners.
That can be offset if there is reason to believe that the homeowner will eventually end up with equity in their home. Do we have any reason to believe that this will be the case? Well, that would depend on things like current ratios of sale price to rents and vacancy rates. These issues are not discussed anywhere in this piece or indeed in the overwhelming majority of pieces that discuss mechanisms to help homeowners.
In markets where prices are still bubble-inflated, giving people money to stay in their homes as owners is giving money to banks. In other markets, the owners could actually benefit. However, it is impossible to discuss the issue seriously without being able to distinguish between these situations.
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