During the Crash the Fed should have let things fall. It would have been painful. Very painful for some. But the market would have cleared. Some people would have picked up deals and many people would be in houses now, even many who would have hurt in 2008/2009, with positive equity.
Instead the Fed intervened and tried to put a bottom under house prices. As such we have the situation we have now. Millions of homeowners still underwater and a much less mobile workforce. Neither of these things is good for our economy.
“Even after four years of improvement, the recovery has not reached all corners,” said Ben Graboske, senior vice president of Black Knight Data & Analytics. “When we looked at the population by home price levels, we found that over half of the nation’s underwater properties are in the lowest 20 percent of their respective markets. That’s the highest share on record.”
At the current rate of improvement in home prices, it would take more than five years for the negative equity rate at the low end of the housing market to reach 2005 levels, which is twice as long as homes in the top tier of the market, according to Graboske…
…”The economy has become less dynamic, and so you have less movers in the real estate market. You’ve got folks who are more reluctant to move because they’re not comfortable with the job market. They view their employment much more skeptically,” said Sam Khater, chief economist at CoreLogic.
Going forward we will see more and more of these central planning failures from the Crash presenting themselves. (Many have already of course.)