Maybe falling home sales aren’t a bad thing for the economy

“We don’t need more intervention. We have four-and-a-half percent mortgage rates. We don’t need it,” Klinge said. “Foreclose on everybody, give me something to sell, and get out of my way. It would be a fire sale.”

Klinge’s enthusiasm has its downside. According to Cavanaugh, “If you see another 25% drop in house prices, you’re going to see a lot more underwater people defaulting.” But that’s not necessarily a bad thing. “Foreclosure is absolutely a legitimate way to conclude a business deal that has gone bad for both parties,” he said.

“All the social harms or externalities or ‘impact on the neighborhood’ you hear about? That is all straightup bullshit,” he continued. “Crime rates are lower than they were at the start of the crisis, there is no evidence that houses priced at market-clearing levels are failing to sell, [and] the army of zombie squatters has not materialized. Neighborhoods are managing to ‘heal’ just fine.”

The smartest way to use tax dollars, added Cavanaugh, “would be to encourage both banks and borrowers to wrap up the foreclosure process as quickly as possible. Right now banks are failing to foreclose on defaults because they don’t want to deal with the expense of putting the house back on market and take the loss when it sells at a low price.”

At that point, realtors like Klinge would do what they do best. “I think it’s mostly because I was around in the 90s that I remember what to do when this happens,” the brash Sand Diego realtor said. “You got to lower your price. Most people got into this business in the last 10 years when it was gravy, and what you get is an entire industry of people who have no idea how to sell houses.”

And how exactly would he do that?

“I have a great rule of thumb,” Klinge said. “if people are coming around making offers, the price is about right. If people are coming around, but not making offers, your price is wrong by about 5-10%. If nobody’s coming around, you’re off by more than 10%.”