From Douglas McIntyre:
Stable home prices may be overrated. Every month that there is an artificial barrier that prevents real estate prices from falling faster is a month that the market does not reach rock bottom, and rock bottom prices are what eventually bring buyers into the market. Real estate prices are being destroyed by the current “hundred year storm” in the industry and buyers will find the bargains irresistable, even if mortgages rates are not at a historic low. The government can draw out that process unnecessarily instead of standing aside as it takes it natural course.
The taxpayer will write a check to Fannie Mae and Freddie Mac in the name of keeping real estate prices from falling. That taxpayer might buy a house with his check, but the government is keeping home prices too high.
Everyone (well, some people anyway, the ones who were paying attention, not including those who were playing the game) worried about the clearly-building bubble in the real estate market. Poof! Turns out it was real.
And now, those who should have taken action (Greenspan’s folksy alleged wisdom notwithstanding) are blowing as hard as they can, attempting to reflate the bubble. Marvelous.
In 2004, Stephen Roach was quoted: (Economist)
…the chief economist at Morgan Stanley, has long argued that the Fed is a “serial bubble blower”. Its cheap money is stimulating another round of irrational exuberance. America’s property market certainly looks pricey: the ratio of house prices to incomes is currently at a record high, and about a fifth above its 30-year average.
He was right then, and it’s still true today. Clearly, they’re at it again.
To avoid gloom and doom? Too late – that already occurred, and should have been left, in late 2008, to burn itself out by whatever means necessary. Stretching the pain of the adjustments over the next 30 years is not preferable to allowing the markets to have regained equilibrium on their own.
To assure affordable housing for everyone? As any economist, observer of recent history, or both should be able to point out, the fact that everyone with a pulse was allowed to purchase a home, even when many would clearly have been better served to rent or live with their parents, did nothing but goose the price of real estate to the point where it not only became unaffordable to all those this magical low price was supposed to help, it ALSO cratered the financial system.
Great work, Fed/Treasury (but I repeat myself). Give yourselves a pat on the back. And then get the hell out of the market. You’re killing us.
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