When Alice crawled down the rabbit-hole, she found that down was up, up was down, animals could talk, she could magically change size, and generally, that the laws of nature no longer applied. Despite falling for miles and miles, when the ground finally broke her fall, she was strangely uninjured. Only in Wonderland.
Similarly, the government thinks it can magically cushion the fall of the housing market by bailing out foreclosed upon homeowners without stopping to wonder if the drop of home values even constitutes a “crisis.” George Will analyzed this issue in his Washington Post column, “Alice in Housing Land”:
“One symptom of the ‘crisis’ is that housing prices have fallen. How far is unclear. Estimates range from 3 percent to 13 percent. Questions arise.
“Do young couples struggling to purchase their first homes concur with the sudden consensus that the decline in prices is a national misfortune? The Economist reports: ‘Monthly payments on a typical house with a 30-year mortgage and 20 percent downpayment were 18.5 percent of the median family’s income in February, down from almost 26 percent at the peak — and close to the historical average.’
“By this measure of housing affordability, the ‘crisis’ is welcome.”
Mr. Will went on to note that just a year ago, there was widespread consensus that the housing market was experiencing a “bubble,” and therefore once it burst, prices could only come down. And this is good for young, potential homebuyers, who with prices bottoming have a unique opportunity to own a house to raise a family in.
This is not the making of a crisis. Instead it is a boon for younger Americans who are just getting their feet on the ground.
Mr. Will also notes that one of the bases of justifying a foreclosure bailout – the false moniker of “predatory lending” – is very flimsy:
“Perhaps some lenders who were lied to were culpably indifferent to dishonesty because they planned to sell to others mortgages that the lenders knew were risky. But the victimization narrative that is turning turbulence in the housing market into a morality tale involves borrowers victimized by ‘predatory’ lenders. The narrative remains murky because there is scant information about the percentage of currently distressed borrowers who were untruthful about their incomes or net worth when talking to lenders.”
In other words, borrowers bear as much if not most of the responsibility for taking out loans that they could not necessarily afford. Were they really preyed upon? Where is the evidence of “predatory lending practices”? How many of them lied on their loan applications?
What of the government encouraging lenders to give loans out to lower income, perhaps less qualified, borrowers? Was that “predatory”? Or, was it just well-intentioned policy gone awry?
In a free market economy, there will always be winners and losers. But with the foreclosure bailout, government may wind up helping those who don’t deserve it, and harming those who had no part in causing the problem:
“So ‘stabilizing’ — i.e., putting an artificial floor under — housing prices … [will] injure some innocent people, such as those young couples waiting to become homeowners. And it will benefit others who have earned an injury, such as speculators and others who bet that the prices of houses would never decline.”
Maybe in Wonderland, the laws of economics do not apply, but in reality, what goes up must come down. The government does not need to worry about home values dropping from their inflated, overvalued prices of the past 10 years. As the cost of goods, commodities, and services rises in other sectors of the economy, a drop in the price of property is a welcome event for Americans feeling the pinch.
ALG Perspective: This is an area where government need not intervene. Lower home values may not be good for sellers, but it is good for buyers. If a homeowner wants to make a profit on their property, here’s a tip: don’t sell now. It’s a buyer’s market right now. If however, a homeowner is worried about how to make payments over the next year, and fears foreclosure, it might be a good time to sell even for a loss. Not every investment guarantees a return, and government is not the guarantor of profit.
