You know, there are some laugh-out-loud moments in this New York Times piece that dares to imagine the unthinkable: Housing Woes Bring New Cry: Let Market Fall.
As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.
When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.
Ya don’t say!
Still, the NYT, always careful to point out both sides, says that this could also be very bad because some people might actually SIN by bailing out of their current homes and paying less for the same thing down the street, which would be a disaster, since we all know that prosperity relies on paying far more than we should for housing, sinking our incomes into losing investments month after month forever!
The poorer these owners feel, the less likely they will indulge in the sort of consumer spending the economy needs to recover. If they see an identical house down the street going for half what they owe, the temptation to default might be irresistible. That could make the market’s current malaise seem minor.
Oh and please don’t forget those pour souls who believed that housing was on its way to recovery. They deserve some consideration, if only because they believed the NYT editorial page.
an unchecked drop of 10 percent or more might prove entirely discouraging to the millions of owners just hanging on, especially those who bought in the last few years under the impression that a turnaround had already begun.
Even given this sad, sad state of affairs, “there is a sense that, even with much more modest notions, government intervention is not the answer. The National Association of Realtors, the driving force behind the credit last year, is not calling for a new round of stimulus.”
Clearly, when even pressure groups representing special interests are considering the terrifying prospect of letting the market work, all is lost.
{ 14 comments }
Is The Infrastructure Rathole Better Than The Housing Rathole?
Instead of more ridiculous housing intervention dump billions of funny money into roads and railroads and airports! The infrastructure rathole is the most politically correct way to allow government graft to satisfy some of the disenchanted voters. At what point will socialism hit America across the side of the head like a frying pan? In the meantime keep passing the bacon to the corrupt and economically ignorant politicians and their sycophants!
Bruce: The beauty of the plan is that the government can give with the one hand– funding for infrastructure– and take away with the other– taxation– and in the end we have new roads, bridges, railroads and airports! The money has gone for a round of activities and given us a lot of stuff we didn’t have before, and it gets retired again after doing its work.
All we have to do is follow through on the taxation part.
Why tax when Helicopter Ben has already announced that he will counterfeit as much as is necessary to bloat the bureaucracy, hoping that the illusion of ‘growth’ materializes.
Either the state is counterfeiting its own fiat money, or you didn’t think your sound byte through before uttering it. My money is on the latter proposition.
I’m pretty sure Koerber’s point was that fiat currency is all counterfeit.
Printing money is counterfeiting even when you have a really shiny head and a professorial beard.
If it is not counterfeit then explain otherwise. If it is counterfeit then the money you are wagering is losing its value!
Once again:
Are these roads, bridges, railroads, and airports more valuable to society than whatever would have been done with those resources had it not been taken away? If it is, then why do we need to take it from them by force to pay for it?
And if it is not, then what justification can taxation possibly have?
At michael’s table, everyone wins, and no one loses.
@ Michael: you miss some important points. One, building roads, bridges and airport strips costs resources that otherwise would not have been spent on this but on other things. Given the fact that private investors do not want to invest in these things begs the question if they are necessary. Two, the stimulus money has to come from somewhere, it crowds out sound private investments and private consumption. Three, the stimulus is temporary (or let’s hope so), the idea is to stimulate the economy now so it can carry on by itself later on. However, the effect of the stimulus is that is upholds economic activities that are not needed now, otherwise they would not be in a slump. Even worse, stimulus often leads to increasing economic activity in the areas stimulated-b/c stimulus is temporary the upholding/increasing activities are as well, it is a bubble. Four, you make it seem as if stimulus money is mana from heaven which the govt. can later tax. The point of stimulus is that it has to be taxed first (either by crowding out private investment, taxes, or inflation).
In an ‘ideal’ world your stimulus does the same thing as private stimulus (investments), but given the potential and very real pitfalls mentioned above it is a negative sum game. Both quantitatively (it costs resources) and qualitatively (the wrong areas are stimulated, causing new distortions in the economy).
One can call it stimulus, but as often is the case with government policy labels, the opposite meaning is the case.
michael reminds me of Chance the Gardener from the classic Being There.
Let’s compare.
Chauncey Gardiner: In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.
michael: The money has gone for a round of activities and given us a lot of stuff we didn’t have before, and it gets retired again after doing its work.
So deep man.
Thank heaven for some common sense solutions to the housing market. Buyers who default on their existing mortgages to buy another home at a lower price should be hounded by collection agencies for what they owe until the day they die. In addition, applications for new mortgage should make it clear that this practice is fradulent and that violators will be blocked from buying the new home by the mortgage on the old home and that violators will be prosecuted for mortgage fruad. We have enabled buyers to get away with mortgage fraud for the last 5 to 10 years and we have to put a stop to it.
@Jack Mullen
The last time I checked defaulting on a mortgage is not fraud. It is a legal remedy to a situation where bankers made bad loans. Without bankruptcy and default the free market would not function properly. There is absolutely nothing wrong with walking away from an underwater loan (if the loan is non recourse the banks/investors have agreed to use the home as collateral for the loan). It’s a legal contract, nothing more. You bring up a good point because loan modifications in many cases require people to make the loan a recourse loan. It’s far better to just default than try to hang on to an overpriced house; would you rather pay for the rest of your life or have bad credit for a few years? (and likely get to live for in the same house free for many months if not years).
Couldn’t agree more. Let it crash, then self correct on it’s own. Loose analogy: you can’t teach a child to walk by holding their hands all the time. They have to fall down enough times to get the strength and necessary balancing skills to do so. This market is so screwed up, we have to let it self-heal, then LEAVE IT ALONE.
Still, the NYT, always careful to point out both sides, says that this could also be very bad because some people might actually SIN by bailing out of their current homes and paying less for the same thing down the street, which would be a disaster……
And might I ask how would this segment QUALIFY for a new home ever since more stingent lending standards (at least on the convention side of lending) have been put into place even if this theory is true.
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