Stone Pigs

undeniable underlying truths

Housing Doesn’t Need Fixing

Posted By on November 13, 2008

I’ve been doing a fair bit of reading and thinking lately about this alleged financial crisis we’re facing.  I think there is a great deal of media-manufactured hype and hysteria and things aren’t nearly as bad as they seem (as long as one doesn’t examine their stock holdings too much).

I will admit that a growing number of people are in homes that they cannot afford to pay for.  Of course, I also believe that this is largely a regional problem specific to the previously hot housing markets in Florida, California, etc.1 Where the bubble in prices did not appear (a vast majority of the country), the correction is likewise not now making much of a mark.  For example, the market here in my part of the middle of South Carolina is only stagnating at worst.  I have been tracking sales very closely for over 4 years and the trends are pretty clear — no bubble bursting to be found.

So here’s my question: why does housing need fixing?  I have seen a growing number of ‘expert commentators’ talking about the need for a fix in housing as the basis for economic recovery.  I’ve heard parallel remarks in the past day suggesting that Treasury Secretary Henry Paulson seems to be leaving the reservation, so to speak, by abandoning the initial plan of purchasing bad assets from banks and instead taking larger equity/ownership positions in them (I think it is interesting, and not just coincidental, how this tack toward a more socialist position seems to be coinciding with Obama’s election).  These people seem to be accepting the notion that there needs to be a housing fix and that such a fix must come from the government in some manner.

It seems to me that housing would very quickly fix itself if the market were just allowed to take its natural course: homeowners default on mortgages, get foreclosed, banks sell asset at a loss to investors, who turn around and rent the house (possibly even back to the original resident).  Rents would come back down to a more reasonable level.  Perhaps some people who had no business in such expensive homes to begin with would have to downsize to where their budget allows.  No one is left in the street.  Residents have more free cash flow and can continue shopping.  The only losers are the banks (for whom I tend to have little love anyway), but they are the ones who made the decision to take on the risk in the first place (albeit under duress due to the not-so-veiled threat of government penalty).  If the bankers had any backbone or ethics (both very often distinctly lacking in the first place) they could have told the government to mind it’s own business and back off.  Or, they could very strongly be pointing this out today and attempting to hold the irresponsible government officials responsible.  However, it’s abundantly clear to me that politics, payoffs, and cloak room deal-making is ruling the day as the responsible tax payers get taken to the cleaners.

Instead, I see the proliferation of a notion that no one should ever be displaced, while responsible folks living within their means must subsidize (via an inefficient government machine) the slackers (who will continue occupying homes they still cannot afford).  Unfortunately, I don’t see very many people out there standing up for the truth and educating the obviously ignorant masses who just elected a socialist.  Nor have I seen a candidate for major public office who appears likely to do any better.

It’s very sad.

1 I am left wondering what it would look like to compare a county-by-county electoral map from Obama’s 2008 election with a map of foreclosures and negative movement in median home values. I’m willing to bet there is a very strong correlation between strength in Democrat voters and housing woes.


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