[RLRWai4B]

The housing market is recovering nicely...

Aug 23, 4:42 PM EDT

New-home sales fall, 2011 could be worst year yet
http://hosted.ap.org/dynamic/stories/U/US_NEW_HOME_SALES?SITE=AP&SECTION=HOME&TEMPLATE=DE FAULT&CTIME=2011-08-23-10-14-07

[DebtDetox]

This is great news for home buyers. Prices and mortgage rates are low.

But for most Americans, it's yet another great excuse to just keep renting. When the mortgage tax deduction is eventually eliminated as the tax code is cleaned up, home buying should find its natural pace, which ideally would be about half of what it is today.

The tax subsidies that keep home purchase volume artificially high also keep home prices artificially high. And that combination fuels the speculation that created the housing bubble.

We'd be in a much better place in terms of home finance stability if home prices continued to drift downward (sorry mortgage-holders) and mortgage requirements became more conservative (25% down minimum and higher qualification requirements).

That type of scenario would ideally minimize any sense that home prices would appreciate significantly in a lifetime and squeeze out the speculators. If real estate tracked more like savings bonds and maintained that kind of stability, they'd find a much more stable place in the economy.

I'd much rather see a Southern California where a 3 br home within 15 miles from the city centers averaged about $250k but you needed $85k down to even think about buying it. That means something similar in more rural areas would be half that price or less. But thinking about flipping it would be silly, because in a more stable real estate world, your $250k hour might appreciate to $300k in 10-15 years, not 1-2 years. You want in, you stay in for the long haul.

The massive amount of housing inventory on the market in the wake of the housing bubble might accomplish a lot of that price capping on its own. Let's hope common sense does the rest.