Despite HUD, Treasury December report, are rising home prices praiseworthy?
January 18, 2013 § Leave a comment
HUD and the Treasury released the monthly scorecard for December. The scorecard is a “a comprehensive report on the nation’s housing market.”
The subtitle reads: Housing Indicators Show Sustained Progress in Home Prices and Relief to Underwater Borrowers.
It is very short so I hope the reader checks it out first.
As the December housing scorecard indicates, our housing market is continuing to show important signs of recovery – with the FHFA and Case-Shiller housing price indices up 5.6 percent and 4.3 percent, respectively, from one year ago,” said HUD Senior Advisor on Housing Finance Michael Berman.
So rising home prices are signs of recovery and progress in their perspective.
Treasury Assistant Secretary for Financial Stability Tim Massad goes on to praise the administration for preventing foreclosures and adding changes to the mortgage industry “which have helped our country recover faster from an unprecedented housing crisis.”
I found it surprising no one questions why rising home prices are good in the first place. Or, more importantly, why a government would want home prices to rise.
The common reply to this is, “Homes lost their value, causing banks to lose money on their investments and loans. Cities are affected by a decrease in property taxes,” and so on. But this explanation leaves out an important question, why did homes lose their value? A similar question can be framed differently, that is, how did homes reach their “high” value in the first place? If we don’t understand this question, then we’ll be accepting any and all of the government’s actions.
As you have heard over and over again, there was a time starting under the Clinton presidency whereby politicians and bureaucrats thought, since home ownership was apart of the American Dream, all citizens should own a home. The citizens in turn believed they had a right to this also. After loosening the lending standards (especially for low income and minorities), the match was made in heaven for further merger of corporation and government with Fannie Mac/Freddie Mae taking the charge in the goal of affordable housing, and thus increased homeownership.
Banks were more than happy to lend since the Feds implicitly guaranteed their loans. Why not lend to a poor, Hispanic single mother if you are going to profit any way?(1)
The Feds aimed to stimulate this particular sector, (housing) causing this industry (houses, construction, wages etc.) to rise. The Feds actions, administrated by the banks and inflation(2), specifically caused home prices and related jobs’ wages to be above the market value. In short, consumers paid above the market price for homes.
A last point is the worry of falling home prices. Does the government, or the public for that matter, become disturbed when, say, car prices drop? Of course not. Why, then, is housing different?
Housing is different because banks “invested” money to lend and a lot of capital has been used since the ’90s. With falling home prices come falling value in mortgage backed securities (MBS). When one lends and invests, one expects a return in the future. Then, as we read the apologists explanation above, cities receive less property taxes than their projected outcomes.
Too many interests are affected by falling home prices–homeowners lose value on homes, default or become underwater borrowers, investment bankers lose from devalued MBS, cities lose of revenue, and so on. It is expected (and was predicted) for government to step in to prevent this, and afterwards to continue the propping up of home prices. Instead of the market forcing home prices to fall to their correct prices, the government has done everything imaginable to prevent this.
It is understandable for the public, which consists of homeowners, to accept this scheme; no one wants their home value to fall or become an underwater borrower. But to not even question why the government wants the public to continue buying expensive homes, and not expensive cars, TVs, etc., is bizarre.
I hope the reader understands the whole housing market, including the banking system, is held up by a thin string of deception. Homes are overpriced, homeowners can’t afford their homes, and banks will fight to profit from their investments, even if artificially propped up by the government.
Sadly Murray Rothbard, improving on David Ricardo and Ludwig vin Mises, wrote about this in the ’70’s. He wrote about he boom and bust periods, warned against the governments action to prevent the bust (preventing the painful yet corrective period) and the resulting prolonging of a depression.
Even more sadly it is 2013 and the government still hasn’t realized the problem is precisely their goal.
I invite you to join the conversation and subscribe to Minds Alike or e-mail me at BabAdetiba@gmail.com.
(1) Before my socialist readers point to this act as evil capitalism and greedy bankerism, remember guaranteed loans remove the moral hazard of decision making. Under capitalism, when businesses make risky decisions, as such, they have to deal with its result; this goes without saying such loans likely would have not occurred in the free-market. Furthermore, in a capitalist society, there is no central bank to back loans, control the money supply, fix interest rates, or any of its various functions especially related to the housing market.
(2) I think it’s important to note inflation is an increase in the money supply, which tends to result in higher prices. Inflation is not an increase in prices per se. In this example, the Federal Reserve engaged in money creating schemes to service banks who engaged in lending.