Lois Capps’s reference to foreclosures impacting values of neighboring homes is exactly what should be happening, as many homes are still over-valued by some 20-25%. Tax credits, historically low rates, HAMP, HARP, and swathes of other government initiatives to buoy home prices, compounded by lenders’ stranglehold on supply, is preventing this from happening.

Ms. Capps’ s reference to diminishing tax receipts should not be a justification to prop up prices, especially if tax dollars are being used to that end. Lower prices means that once interest rates go up, home prices will be more resilient. It also means once home prices have bottomed, they can only go up, which will fuel the re-finance market. Certainty will then recover and the economy will find a sure footing.

The housing market still suffers a bifurcation. While many areas of the country have seen a price correction, pockets of resistance remain especially in California. Although I am a great fan of Barack Obama, the GOP has got it right this time. Prices need to find a true market bottom. However expedient–politically or otherwise–it is to direct funds at victims (mostly lower-income groups) of the housing bubble, the higher end housing market gets a free ride. And that is where we still need to see substantial falls in prices. One clue as to why this is happening may be in last week’s article by Brandan Fastman, in which he refers to the foreclosure problem. By all accounts it is still a blot on the landscape, yet there is ample reason to suspect that preferential treatment is given to the high-end market, in spite of the high number of distressed homes.

Looking furthier down the road to where this is all leading, one conclusion may be that it is no longer enough to be a mere millionaire to retire in Santa Barbara. The massive looming public debt problem creates a conflict between today’s over-valued home prices and long-term retirement goals. A sensible course of action for many will be to give many of the Californian coastal areas a wide berth, in search of better value, a notion that is lost in the noise of pseudo-affordability arguments, which have gained traction as low rates are assumed to be the new norm.


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