The Wall Street Journal printed a piece by Gerald P. 0’Driscoll Jr. on 7/31/09, entitled ‘Signs of Life in the Housing Market’. It’s a great piece and, I believe, a pretty good summary of where we are.
One of the issues he addresses echoes the point I was making a couple days ago when we talked about Ted Lieu’s Foreclosure Crisis Town Hall. The good and well-meaning Mr. Lieu is among a host of politicians nationwide who don’t really understand the true cyclicality of the housing market and view it as an opportunity for more ‘government intervention’. O’Donnell’s article takes this thinking to task as it applies to the national stage.
“We’re the Government and we’re here to help you” R. Reagan
“Unfortunately, many public policy proposals have been aimed at propping up home prices, or at least cushioning their fall,’ writes O’Driscoll. “Nothing could be more counterproductive“. He goes on to note that “Government programs to prop up home prices have been half-hearted and ineffective overall, and mercifully so. A successful program to prop up home prices would have aborted the recovery process.” Read the article – it’s a good read.
I worded it a little differently – “So we might be through the worst of it UNLESS, of course, some mis-guided legislation comes out that forces banks to pull back, seeks to inject additional government intervention at a state level or inadvertently extends the length of time this cycle lasts. And don’t tell me they’re not capable of screwing up a two car parade. To date – of the billions and billions of dollars spent on a variety of alphabet bail-outs, estimates range from 1.5 to about 3% of applicants actually successfully completing a loan mod through GOVERNMENT run programs like the much touted Making Home Affordable program. That’s abysmal!”
Anyway, as we wind down this latest greatest financial caper, let’s be wary of those who come late to the table with rescue plans. At this point we really don’t require further rescue, what’s happened to date has been piece-meal and ineffective and, as O’Driscoll comments, “For all the talk of the failure of the market, what is actually working IS markets. What failed were government policies of cheap credit and attempting to make housing affordable by stimulating demand.” He rightly credits land-use restrictions and ‘smart growth’ policies as being the culprits for a lack of affordable housing.
I’ve been talking about that for years. The real housing crisis has been that for the last decade 500,000 people have moved into California but we’ve only been allowed to build enough homes for 2/3 of them. This created an artificial demand fed by cheap credit which brought us here today. Aside from extending the $8,000 buyer credit program, the government needs to stay the hell out of the housing market for awhile and just let it work. We’re closer to the end than the beginning if we can just keep our Legislators focused elsewhere.