Wednesday, October 17, 2007

Housing Prices

I thought I would take a quick second to disagree with the following quote from the Newshour:

HENRY PAULSON, U.S. Treasury Secretary: The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth.

In recent years, housing prices have grown way out of sync with the economy at large and with workers' wages. A fall in housing prices is not bad news as it means that people after the correction won't have to struggle as hard to get into a house.

We don't need a bailout. Let banks with bad lending practices fail, and housing prices drop.

One thing I really dislike about our little politicized economic system is that it makes irrational decisions. As the housing prices were peaking in these last few years, there appears to have been a push to get low income folks into the market before they were financially ready for home ownership. There also seems to have been a push to encourage people into speculative real estate development (flip this house). It might be my imagination, but crashes are often preceded by hyped up efforts to bring unsophisticated buyers into the market.

The next big story on the Newshour was about a spike of in the price of oil caused by the increased tension between the US and Turkey (Thank you Tom Lantos). The Newshour reports that the price of heating oil is expected to surge this winter.

It seems to me that the primary reason for the surge the price of heating oil is that we have too friggin' many houses!!!! All of these massive half-filled houses cost a grundle to heat. Waste. Waste. Waste. Waste. I know of too many situation where a single person lives in a big house. It is ludicrous.

This game where we heat more house than we need contributes to global warming. It does so big time. It probably is worse than the problems with cars that are too big for the single passenger inside.

We would be better off if more people lived in our current stock of houses. We would consume less heating oil and release fewer greenhouse gasses into the cosmos.

Since our housing market is overbuilt, and since heating costs are rising and since we've gone several decades with housing costs increasing faster than wages, then I think a correction in the cost of housing prices and a slow down in this most environmentally damaging industry should be welcome.

The idea that we should bail out subprime lenders to keep housing prices artificially high is wrong headed.

BTW, I think I mentioned in an earlier post that I suspect a big reason for the fall in housing prices is that we are chasing our immigrants away. That probably has a bigger effect on prices than the subprime loans.

On a final note, I hope people spend a bit of time this Fall working on ways to decrease their heating bill. If your house is too big, then don't bother heating every room. If you plan to heat the entire house, why not throw some cash into insulation or new double paned windows so that your heating bill will be just a little less in the cold winter months to come. (Salt Lake Home Links).

With the promise of increase heating costs, now is a good time to invest in conservation.


Charles D said...

Wow! I actually agree with most of your points here!

Yes, banks and other financial institutions that make bad loans, or bad investments should not be bailed out by the taxpayers. It's funny they talk about the free market for the little guy while they look for a government bailout when they screw up.

We do have too friggin' many houses, and too many vehicles that are way bigger and more powerful than necessary. Certainly we would be better advised to promote and/or subsidize insulation for existing homes rather than construction of new ones.

My only quibble is that the I believe the "push to get low income folks into the market" was not so much a result of a politicized economic system as a result of rampant greed and the removal of regulatory safeguards on the financial industry. When no one is minding the store, greedy financiers will act to push unsophisticated buyers into the market. After the 1929 crash, the government acted to protect the economy and the consumer from such unbridled greed. Most of those laws have been repealed or weakened since 1981.

y-intercept said...

Your statement actually fits into my thesis that government regulations are inherently inept.

The regulations tend to be thrown in place during a bust, which increases the damage of the bust. Then they mysteriously disappear in a boom. It was Clinton the First who was pulling out the stops to make the peak of the dotcom boom bigger.

Clinton's famous balanced budget was premised on the pipe dream that the DOW would be at 34000 in 2007.

Putting everyone in more house than they need was a big progressive goal a decade back. What progressivism does is latch onto an idea, push the idea to extreme, then a new progressive movement starts in reaction to the first extreme.

The free market idea is that the market gives individuals more choices in organizing their lives, and leads to a more prosperous, resilient economy.

Henry Paulson's statement that the government must react to prevent housing prices from falling is precisely the direction that progressive thinking leads.

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Charles D said...

I would certainly not want to conflate any policy of a Clinton with progressive politics. Clinton's budget surpluses would probably not have survived the 2001 dot com crash, but he would not have run up the huge deficits that the so-called conservatives did.

The original push to put more Americans into their own homes was the GI bill after World War II. This was itself a compromise between progressives who wanted to strengthen the economic situation of working people and business interests who wanted to stimulate expansion through the housing industry. The plan worked to an extent, but like most plans, had unforeseen consequences, most of which were caused by the compromise with big business rather than the original progressive rationale. Had the government simply provided bonuses to returning troops as in previous conflicts, it might have stimulated entrepreneurial activity within the cities rather than flight to the suburbs.

Paulson's comments are indicators that he wants government to bail out the financial industry for their stupid loan and investment decisions. That may not be conservative in the strict sense, but it most certainly is not a progressive position. The progressive response would be to protect the prospective home owners from usurious lenders, or to provide support to allow homeowners to refinance at lower subsidized rates. Bailing out big business is not a progressive value.

y-intercept said...

BTW, your use of "so-called" in your reply was correct. The thing where liberals were calling the troop surge a "so-called troop surge" didn't make sense.

You are also correct that progressive would use propaganda about how they are helping the poor to sell the same bailout of rich banks.

There is something extremely wrong with our current means of discourse. Politicians simply spit out clouds of ink, they then use big government to enact policies that help their rich friends at the cost of the poor and working class.

Charles D said...

There are no progressives who are trying to bail out banks. There may be Democrats doing that, even people who are called liberal, but they are not truly progressive and progressive voters are not fooled by them.

You are right about politicians, and they are aided and abetted by a media that sees its role as merely reporting what each party says without examining the rhetoric of either party to determine whether it has any basis in fact.

Scott Hinrichs said...

I have a lifelong friend that runs a mortgage loan business. He has been flabbergasted over the past five years at the loan applications he has received when compared with those of the preceding decade. He said that a full third of the applications he has received recently are for interest only loans on fairly opulent homes, and that the average overall debt ratio of the average applicant has been steadily increasing.

My friend has repeatedly warned that this bubble was unsustainable. He has regularly warned applicants of the excessive risks they have have been seeking to take on.

The market correction should be welcomed. How do we expect lenders to learn to modify their behavior if they are freed from the consequences of their shoddy business practices?

Nor can we fully protect people that accepted high risks by taking on too much or the wrong kind of debt. It would be nice to indemnify them from the deceit of the lenders, but that could only happen on a case-by-case basis. It is hard to tell where the transition line is between victim and willing consumer. A blanket bail-out of these people would reinforce their bad choices in the marketplace rather than discouraging such behavior.

I'm not sure what measures could properly be applied to make the best of a bad situation, but we must be extra careful not to apply a balm that inoculates purveyors and/or consumers for the consequences of their consciously risky choices.

y-intercept said...

The growing number of human lemmings that are willing to throw themselves into financial insolvency is really troubling. I see this as another great failing of the school system.

The schools really don't teach critical thinking. They teach people how to be parts of mass movements and to criticize those who say the mass movement is nuts.