The latest resolution of the Treasury Department regarding the housing crisis is believed to be more of a short-term relief rather than a permanent solution. Economists argue that reducing interest rate to 4.5 percent is not enough to improve home sales and decrease foreclosure incidences. Even worse, the proposition could cost $25 billion dollars yearly.
Proponents of the plan uphold that lowering interest rates will help increase home sales. Rise in home sales would then mean rise in house values. Stable home prices determine the stability of the economy, according to them. They further say that the plan would actually be profitable without incurring any cost at all.
On the other hand, critics say that the government would only earn the assumed profit if all borrowers pay their mortgage in full. That is very unlikely to happen especially during these difficult times. Foreclosure statistics are at 3 percent right now.
In addition, economists say that there is no relationship between lower mortgage rates and higher housing prices. Increase in home sales result from availability of credit which is not the case right now.
What ever little help the measure is going to provide is surely going to be overshadowed by the cost. Without providing any long-term benefits and foreclosure prevention measures, the huge sum will be put to waste instead of being used to fix the housing industry.
Only new homebuyers are eligible for the low-mortgage program. Therefore, people who are already on the verge of foreclosure will not be helped in any manner. According to experts, housing prices will continue to drop until foreclosure incidents decline.
The government must adopt more efficient and effective measures to deal with the housing crisis and, alongside, address foreclosure cases. These measures must be designed for the long run so that what ever economic growth would result would be sustained longer than the present.
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