The Republican Primary and Housing…

As the Obama administration continues to seek out the best route for fixing the housing market – which in turn, should help fix the entire economy – at least one Republican candidate has his own idea.

Rick Santorum, the former Senator from Pennsylvania and recently declared winner of the Iowa primary, seems to think we should just wait it out. In an article from Reuters Thursday, Santorum apparently told a potential primary voter in South Carolina “Markets have to find their bottom. Let the marketplace work and then build from there.”

As Reuters noted, the constituent he spoke with was less than impressed.

While I’ll be the first to concede that the President hasn’t done what has been needed to fix the housing mess, he certainly understands that letting the markets work themselves out is not the answer either.

As we enter what is basically year 5 of continued depreciation in most U.S. real estate markets, there are two conclusions most people have arrived at as ways that will not turn things around:

1) Provide the banks with billions of dollars in bail out money and hope it’s used to successfully modify mortgage payments and help keep people in their homes.

2) Let the markets “work” and wait for the upswing.

Yet, it seems like the second option could be the campaign cry for the Republican Party, as they try to secure Tea Party voters who believe no government is good government.

While I understand the argument against government intervention, let’s be realistic. If we’re happy with the status quo, then fine, let the markets work themselves out and prolong the problem for another decade, if not longer. But if the goal is to stabilize housing and in turn, the economy as a whole, then that will not work – whether you like it or not.

Too many homeowners that did nothing wrong – borrowed responsibly, paid their mortgage on time, etc. – are now caught in the net unleashed by the mortgage meltdown. They can’t sell their homes because the values have dropped too much, leaving owners too far underwater. As more and more people walk away, prices plunge further pulling more and more people in.

As I’ve said in the past, most are casualties of a decimated housing market that they had little or no part in causing.

Last week, I blogged about the report out of the Fed discussing the various problems plaguing the housing market, as well as some possible fixes. While the report debates various ideas, it does share one certainty – something must be done.

In a blog Tuesday on The Washington Post website, Ezra Klein discussed the possibility of President Obama (based on the suggestion of two Columbia University professors) authorize Fannie Mae & Freddie Mac lower the interest rates on millions of mortgages to where there rates currently are – around 4% to 5%.

The idea being the rate cut will act as the equivalent of “a high-powered tax cut” for those who took advantage of it. Further, the study released by the professors concluded, “Empirical evidence suggests that consumers spend a larger portion of permanent increases in income than temporary increases.“ These cuts would be permanent, meaning more money would be infused into the struggling economy.

I’m a little further to the extreme, thinking principle reductions are the only way to go. The point is, those who have followed the housing crisis closely virtually all agree that something must be done. Too many other components of the economy rely on stability in the housing markets and simply put, waiting will delay the overall recovery…

As election season heats up and the President’s opponent is decided on, I’m curious to hear how/if the rhetoric changes. Should the Republican candidate take the same stance as Rick Santorum, they could be in for a rude awaking when they encounter the millions of potential voters on the campaign trail, tied to the housing mess and looking for the fix…