Phoenix Fixing Its Own Housing Market As Foreclosure Sales Go Crazy

In Phoenix, the real-estate market is fixing itself with no help from the government.

How? Houses owned by folks who can’t afford to own them are being sold at auction.  In some cases, happily, the buyers are then turning around and renting the houses to their previous owners with at rents that are much lower than the previous mortgage payments.

This is the free-market at work.  And it’s better than any solution that has so far been floated by the government.

Note the important features of this solution:

  • Homeowners who can’t afford their houses stop owning them.
  • The entity dumb enough to lend the homeowner the money to buy the house (or to own the loan) takes the loss.
  • The bad loan is permanently eliminated, not “modified.”
  • The homeowner, in some cases, doesn’t even have to leave the house.
  • The market “clears” fast: Houses that have to be sold get sold, at market prices, instead of piling up as over-supply and continuing to weigh on the market for years.

This is the only solution that has a chance of fixing the housing market rapidly.  It will NOT bail out people and banks that paid too much for houses: In most cases, all the equity and some of the debt will be gone.  But it fixes the market as fast as possible and paves the way for recovery.  And if people can remain in their houses instead of being shoved into the street, the main goal of the government’s bailout will have been achieved.

David Streitfeld in the New York Times:

PHOENIX — Every weekday morning, Lou Jarvis drives the sun-baked suburban streets looking for investment gold: a family that will lose its house in a foreclosure auction within a few hours.

If the property looks promising, Mr. Jarvis puts in a bid on behalf of any of his dozens of clients eager to become landlords. When he wins, he offers to let the family stay in the house and rent for much less than their mortgage payment.

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