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09/19/2007: "Taking Issue With Fed Rate Cut Opinion"

I have to take issue with my co-editor Richard Risemberg on his opinion that the Fed rate cut is bad for homeowners and the environment. On the contrary it’s good for homeowners who need to refinance in order to keep their homes. It’s good for cities who need to keep people in homes to collect the taxes on them.

Per square foot, urban houses can be far more expensive than suburban ones, and while some may be enticed by low rates to move out and “up” into bigger houses that they don’t need others joined the condo craze and moved in to where they don’t need to drive. Foreclosure may send them back to suburbia.

I agree that low rates and interest-only mortgages encouraged people to buy homes they couldn’t afford and now stand to lose. The low rates in recent years have also inflated home prices and encouraged consumption paid for with equity, equity that’s now eroding. The rate cut at this point only serves to ease the pain for many regular people with homes caught up in powers beyond their control.

More, a tightening noose on the availability of mortgages is pushing up rental prices. Without a rate cut rents can only go even higher.

Yes, some may have bought a home they couldn’t afford and yes, they may have spent equity on consumer goods that’s now eroded. If lowering rates will help slow the bleeding and maintain economic health, why not?

Also, homes foreclosed on in most cities are not going to become abandoned, they will be resold with the banks in most cases taking a loss. Looking for bankruptcy and foreclosure to protect former homeowners from spending too much is not a very good way to go about protecting the environment.

Eric Miller, on 09.19.07 @ 13:18PST