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Let immigrants fix the housing mess © Ingram Publishing / SuperStock

The Basics

Let immigrants fix the housing mess

Perhaps the US should consider a radical change in tactics to eliminate the housing surplus and stop falling home prices -- without costing taxpayers a dime.

By Scott Burns

Our friends in Washington continue to reward witless members of the financial sector. Meanwhile, those of us who don't fly bonus class think about importing guillotines from France.

Thankfully, we may not need to place the order.

All we have to do is to get Washington to listen to the best idea I've heard to end the decline of housing prices and thereby restore our confidence in the most important assets most Americans ever own. The idea comes from economist A. Gary Shilling and real-estate developer Richard S. Lefrak.

Their suggestion: Don't think about artificially low mortgage interest rates and other stopgaps. Instead, eliminate the oversupply of houses. Too many were built during our speculative bubble. And, by the way, don't spend a dime of taxpayer money doing it.

How can this be done? Simple: Open our borders to immigrants who can buy homes in the U.S. Let a million immigrants a year do this for two years and the entire oversupply of homes and condos would be absorbed. Supply would no longer dwarf demand. Prices would stabilize. The most important assets of the vast majority of Americans would, once again, be a source of pride and security.

Although there has been much attention to the incredible decline of equity markets around the world, the reality is that the vast majority of Americans have far more at risk in the housing market than in any financial assets. Indeed, many Americans have more at risk in the used-car market than in the stock market.

According to the Federal Reserve's 2007 Survey of Consumer Finances (.pdf file), households at every level of income had more at risk in the values of their homes than in financial assets. Those in the top 10%, for instance, owned primary homes with a median value of $500,000, compared with median financial assets (of any kind) of $404,500.

Households in the middle of the income distribution owned homes worth a median of $150,000 and had median financial assets of only $18,600. Middle-income Americans, in other words, have about eight times as much to lose in the home resale market as in all of the financial markets.

As you can see from the table below, 80% of all households in America have at least three times as much at risk in the housing market as in our financial markets:

 
Percentile of incomeMedian primary home valueMedian value of all financial assetsRatio of home value to all financial assets

Top 10%

$500,000

$404,500

1.2

Second 10%

$300,000

$129,900

2.3

Second quintile

$215,000

$ 58,300

3.7

Middle quintile

$150,000

$ 18,600

8.1

Fourth quintile

$120,000

$ 7,000

17.1

Bottom quintile

$100,000

$ 1,700

58.8

Source: 2007 Survey of Consumer Finances

Economist Shilling estimates that the 1996-2005 boom left an excess of 2.8 million homes, or about two years' worth of building. Slower building rates in 2007 and 2008 reduced the surplus to about 2.4 million houses.

Reducing interest rates or resetting mortgage payments won't reduce that surplus. The only way it will disappear is if new customers appear and buy those homes. The fastest way to do this is to offer green cards to immigrants as a reward for buying a home in America.

Here's the formula: Buy a home. Save America. Become a legal immigrant. That's admirably direct when compared with the expensive and complex programs Congress has already funded.

Shilling writes: "If the current excess of 2.4 million houses were purchased at today's median home price of about $184,000, the inflow from foreigners would be $88 billion, assuming they put 20 percent down and borrowed the rest in this country. If they paid cash, the inflow would be $442 billion. Besides stimulating the domestic economy, this would vastly help the U.S. foreign accounts and support the dollar. The mere announcement of this program would probably go a long way toward stabilizing house prices."

And stabilizing house prices is very important. It may be the whole ballgame. Without productive action, economist Shilling estimates home prices will fall an additional 20% by the end of 2010. That would leave nearly 25 million homeowners "upside down," owing more on their homes than they are worth.

This is something worth writing about to your representative or senators.

Questions about personal finance and investments may be e-mailed to scott@scottburns.com. Questions of general interest may be answered in future columns. More columns by Scott Burns can be found on MSN Money and at AssetBuilder.com.

Published April 28, 2009

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Monday, April 27, 2009 8:56:12 PM
We want the illegals to leave...they have made more of a mess with bankrupting our hospitals, killing or educational system and leaving most kids behind, so why would you want them to glob up the houses...ahh, and can you say SWINE FLU? rest my case. If the dumb liberal mental patients in office were voted out, then we can restore some sanity back to America. In the meantime, we have to wait it out. Folks who don't deserve a house (i.e are not credit worthy) should not get a house as in the old days until ACORN, Jimmy Carter, Bill Clinton, and Osama ruled. Typically, such undeserving folks have their priorities so out of wack that they won't take care of the home anyway. This has been my obeservation in buying 7 foreclosed/short sale homes that are now vibrant rentals.
Monday, April 27, 2009 9:24:01 PM

The concept sounds simple.  I see a few holes the size of the Titanic though

1.  Where do you find 2 million immigrants with $37,000 cash for a down payment?

2.  This does nothing to fix the banks balance sheet problem & thus the 80% will be tough to borrow.

3.  Where do the jobs to support these 2 million loans come from?

 

Our economy has to contract.  We used the housing ATM to grow the economy & now that we have to live within our earnings & actually pay back the money cashed out of homes we suddenly can't support that level of GDP.

Monday, April 27, 2009 9:29:44 PM

I hope you enjoy Mariachi music at 2 a.m. on Friday night, garage sales on Saturday morning and large extended families straining the resources of your state, city and school district.

Monday, April 27, 2009 11:00:15 PM
You've got to be kidding me!  This article is not a joke?  If not then the author and Pool & Sham reply must both be Mexican Illegals, because that's the only ones who would agree with this rediculous idea.  You had better listen to knowledgable people like the reply of Donna316, she knows what she's talking about!
Monday, April 27, 2009 11:15:55 PM

What about the illegals that are already here?  Most already have jobs but are too scared to go public.  If they are already here, they have jobs and can prove it and want to buy a home, give them a green card and let them stay.  Believe it or not, some probably already saved the money and want to buy homes; they want to buy cars, but are not legal here so can't. (Of course, do an extreme background check on them and only let the ones with the clean record stay. ) Many immigrant came here in search for the "American Dream".  Both my husband & I are U.S. citizens.  (I was born here!)  Everyone that's here should be treated equally.  This is the land of the free.  Believe it or not, these people that we call "the illegal immigrants", they spend money here!  They buy clothes, they buy groceries, they were contributing and can continue contributing to our economy as far as boosting in sales.  However, now they're probably holding on to the money they saved just-in-case they might get deported.  WAKE UP PEOPLE!  STOP BEING NARROW-MINDED!!!!  You want the economy to change?  Your minds and ways of thinking need to change!  We need to do what's best for the economy.

Monday, April 27, 2009 11:20:49 PM

 

 

Those who long to be rich, stumble into temptation and a trap and many senseless and harmful desires that plunge people into ruin and destruction. For the love of money is the root of all evils. Some people in reaching for it have strayed from the faith and stabbed themselves with many pains.

Tuesday, April 28, 2009 12:12:46 AM
Open-mouthedIt is a good suggestion.  Minimum Basic qualifications be fixed, like education, business experience and minimum net worth, with a clean record. USA is a competitive economy and many may evaluate benefits of immigration.
Tuesday, April 28, 2009 12:18:47 AM
Good Lord people calm down! I agree this is not a good idea at all but we do not need to get all uppity about it.
The last thing we need is to bring in more immigrants into our vastly over populated country. While this may serve in some way to help the housing market it would in turn create greater problems for already struggling tax payers. We do not have enough jobs at this time for the people that are here. Bringing more people to this country would prove useless because while they might be able to buy a home....how is it that they are going to make a house payment if they have no JOB! It would not be appropriate to bring in more people to take up more jobs that could be given to people that are already established citizens.
In turn if they can not get a job to pay the mortgage how will they afford food, medical and basic necessities of life? Well they wont. They will become a drain on tax payers far and wide who will inevitable be supplying the funds through our welfare system. A system that is already drained because of the economy and the vast number of layoffs and lost jobs we are experiencing at this time.
What should happen in this country and they should force the over inflated price of homes way down, drop interest rates to next to nothing and limit the number of homes that a person can own.
One of the big problems we are facing now is a direct result of people who bought homes with the intent to flip and make a quick buck. They bought houses cheep(making money off of the misfortune of others I might add) then they put very little money into the home, slapped a coat of paint on the walls and resold a dump or became slum lords.  Being a society that feeds off the misery of others as we do found nothing the matter with this and milked the cow for all they could then lost it all when the economy could no longer support the high cost of housing. And now we have the result of what comes with greed. 




Tuesday, April 28, 2009 12:52:55 AM
The borders are already open to anyone -let alone those wealthy enough to buy a house. Tons of foreigners have already bought houses here.
God forbid we should do anything for American citizens-like buy them a house.

Tuesday, April 28, 2009 1:12:20 AM
I strongly agree with his idea, this will do well to clear all surplus of houses and stablize the housing prices.  The only problem is who will lobby this idea at Washington.  Hope everybody will write to your senators and representive to share with them this great idea of solving the housing bubble and financial crisis.  I know everyone is losing in their retirement a/c. 
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