THE BLOG
05/09/2010 05:12 am ET Updated May 25, 2011

Obama's $1,000 Homeowner Assistance Joke

The headline is certainly promising.

Program Will Pay Homeowners to Sell at a Loss

Is President Obama and the administration and Washington in the broader sense finally getting serious about doing something serious to help the economy? I am not a big fan of price supports or subsidies because I like my capitalism a little more pure and cold blooded than that, but I do believe that the inability of the housing market to accurately reset to realistic prices is a significant long term inhibitor to the recovery.

I also happen to believe that things are very very serious and we are about to enter a period of extreme economic hardship, driven by states having to take increasingly draconian measures to balance increasing budget deficits. This is happening right when much of the stimulus impact is wearing off and I believe we are in real trouble.

As this happens, housing prices will continue to slide, and as they do so the percentage of people under water in their mortgages will continue to climb. This creates a false pricing model for existing home sales where people continue to price at least 5% above what they owe and not to the market. Houses and homes then sit there for longer and longer and periods and the only sales are the short sales, sales because of death or divorce et cetera.

It's amusing to see real estate professionals claim that foreclosure sales are driving prices down, actually they are not. Foreclosures are the market acting well, and the price a house is sold at foreclosure is the market price. The inflated prices people are asking are either delusional or based upon money owed on a property.

Back to Washington where the government first allowed the housing bubble, then allowed it to pop, then hasn't done a thing to really help and now the government is going to help homeowners by giving them:

$1,000

Yes, you read that correctly. $1,000 on your first loan, $1,000 on your second, and $1,500 to help you move, $3,500 maximum.

I am sure people who owe tens of thousands of dollars, or hundreds of thousands of dollars on their mortgages are rejoicing and calling their real estate agents as we speak.

Or then again, maybe not.