Michigan is probably one of the hardest hit states by loss of jobs, and the resulting foreclosures, which has become big news and sparking debate on whether the government should intervene and save the borrowers, lenders or both. Cries for “relief,” calls for legislation on “forgiveness,” and the direct injection of more money into the economy by the FED is something we need to be very wary of. These fixes are very short term and would tend to make worse a problem who’s fix has been a long time coming.
In the last 25 years, I have noticed an increase in home and land pricing which eclipses the increases in the income level of most middle and lower middle class wage earners. IMO a primary cause was the ever increasing availability of money by way of lowered interest rates. A house which sold for $75,000 which was a reasonable purchase for a wage earner making $30-35,000 in 1983 could become affordable as a $200,000 home for a $40-45,000 earner in 2007. It was all about payments.
This led to Speculative buying, and the additional pressure brought about by those who had a great deal of funds on hand has driven the home and land costs to even further points as the buyers for resale are willing to sit on unused properties making them unavailable till the desired sale price is met. Also, “flippers” (which generally refers to the speculative buyer who will purchase a home which needs only a small amount of work done to it, dress up and put back up for sale.) had entered the buying further driving up starter home prices etc..
This correction in the housing market should cause speculative buying to reduce, mortgage lenders to be more cautious of whom they are lending to, and bring housing costs to affordable levels again for first time buyers. A bail out is unnatural, and will only cause the current problems to be worse in the future. Michigan residents who are seeing a decline in average income (when adjusted) stand to benefit from this correction, but in the meanwhile must bear out the pain of the poor Michigan economy which has it’s roots in the incompetent legislative and executive branch.