Everyone agrees that the economy won’t recover until house prices stop falling, and the government is frantically trying to find ways to make that happen. Alas, there’s nothing that can be done to stop the fall, says Whitney Tilson, author of More Mortgage Meltdown: 6 Ways To Profit From These Bad Times.But the government’s decision to aggressive reduce mortgage rates is helping, Tilson says. The artificially low rates (produced by the Fed buying mortgage securities) have reduced the impact of violent mortgage-rate “resets” that were driving many homeowners into foreclosure. They’re also allowing families to refinance at a lower rate and thus have more money to spend.Some worry that creating artificially low rates is just “kicking the can down the road”–delaying the inevitable foreclosures and thus dragging out the housing cycle. In some cases, Tilson says, this is in fact what is happening. But overall, low rates are allowing the country and economy to absorb the body-blow of tanking house prices more gradually. And because the real “subsidy” is coming from those who are lending money to the US government at startlingly low rates, this bailout (unlike most of the others) is not coming at the expense of the taxpayer.
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