Goldman Sachs: A Housing Fix

Here's what the Smart Money Crowd thinks about housing:

-- The case for more aggressive and comprehensive intervention in the housing sector seems compelling.  Supply and demand remain significantly out of whack, with vacancies at record levels and foreclosures surging.  Home prices continue to decline with significant damage to the broader economy.  To date, government and private-sector homeowner assistance efforts do not appear to have made meaningful inroads into the problem. Any intervention should consider the impact on incentives for delinquent borrowers, borrowers who are current in their payments, and renters, and it should focus on reducing the overall number of foreclosures.

-- A bewildering array of proposals has been mooted by policymakers, private sector analysts, housing market participants, and others.  These proposals generally involve one or more of three elements:  1) reduction in borrowers’ monthly payments, 2) forgiveness of principal or other measures to move borrowers into a positive equity position, and 3) actions to spur demand for housing.  

--Although media and policymaker attention has focused on the first approach, this is unlikely to be sufficient.  Bringing mortgage rates down further is likely to be part of the solution, although the unfortunate truth is that no panacea exists.