Last October, Mitt Romney declared that the housing market must “run its course” and reach its bottom. Although I find little inspiration from any presidential candidate, Romney’s statement was spot on. We need to let the market for housing find its natural bottom and stop supporting it with inefficient and expensive government programs. Although they may have helped slow down the housing decline, these programs also delayed our ability to start a real recovery from the effects of the bubble.
The government’s programs to save the economy and housing market have done little beyond increasing the national credit card balance. However, letting the market run its course would have led to a much more severe downturn, but it would have allowed us to rebound much quicker. It is difficult to believe that the government played a significant role in the creation of the crisis.
Joel Bowman, of the Daily Reckoning, outlined the differences between the free market/state/government well: “The two entities [are day and night]…white and black…truth or government statistic. The former exists to the exclusion of the latter. The one produces, the other consumes. One adds value to people’s lives and gives meaning; the other subtracts value from their lives and feeds off their self-worth. The one is responsive, creative, agile, and dynamic; the other is lethargic, brittle and inelegant in every form. The one serves customers and the other serves sentences. One serves customers, the other serves sentences.
We could yank all government housing programs over the past five years, end FHA (Federal Housing Administration), which allows down payments as low as 3.5%, and reduce the size and scope Fannie and Freddie. Housing prices would drop rapidly and the economy would suffer. We will reach that point anyway. Why not just get rid of this Bank-Aid immediately, rather than dragging it around for a few years? If we allow this to fester, the end result will be worse. Instead, let’s allow housing costs to fall to levels that are more in line to current incomes.
A FEW RECENT FACTS
Nationally, housing prices fell by almost 4% last year. For seven consecutive years, home ownership rates have declined and over one-eighth (13.9%) of housing units were vacant in the last quarter.
The median income in the U.S. dropped 3.5% between 2007-2010 to just above $51,000. According to Huffington Post, 15% Americans live below the poverty level, while 43% of Americans would fall below that threshold within three months if their jobs were lost. Are these families going to be purchasing real estate in the near future?
Over the last three years, 389 thrifts and banks have failed. According to Invictus Consulting Group, 758 more banks and thrifts are at risk. Do you feel that Congress and Fed are in control and that trillions of dollars have been spent to save the financial sector has been a wise investment? Mr. and Mrs. The FDIC insures the deposits of those banks, which means that Mr. and Mrs.
It would be hard for homeowners to get lower home prices. This means we will lose more equity in our homes. It would be better to let it go if we are going to lose it. Housing values must reflect this new reality. Unemployment will continue to rise and average wages will remain low for many years. I don’t think there will be an immediate rise in housing prices even if they hit their bottom. Graphically, property values would look more like an “U” than a V. That’s what I would choose over an ever-longening right side or an “A” any day.
California’s deed-of-trust note buyer is Adam Mcbrian. A deed-of-trust note buyer is someone who purchases trust deeds or mortgages that result from owner-financed transactions.