Housing Market 101

It's very simple.

Back in the 1990s, I think, the feds decided that people who couldn't afford houses should be able to buy them anyway. I mean, why should a lack of money prevent you from doing anything?  (They can't afford Cadillacs, either, so why isn't Government Motors being compelled to give every person a Caddie?)

Anyway, this proved to be extremely problematic, stupid, and destructive, so naturally it was picked up and promoted by everyone in Washington.

Those who claim to defend the poor thought it was great to give a house to people who couldn't afford it. Never mind the difficulties associated with expensive maintenance and property taxes.The whole idea just sent thrills up the legs of the teary-eyed liberals who count the poor among their most loyal constituents.

Then we had the Dot.Com bubble, a big hot-air balloon that kept the economy booming for more than a decade. As the century turned, investors were concluding, "We're not making anything off this stuff," and the economy started to sag.

The feds -- which would include Clinton and Bush and Greenspan at the Federal Reserve -- looked at the housing market as a nice place to inflate and -- BONUS POINTS! -- without spending any federal dollars. Just keep Fannie Mae and Freddie Mac writing blank checks, keep interest rates low.

So the housing market carried the economy along after a fashion, and even for a time after 9/11, when just about everything else was going kaput.

But the chickens come home to roost, right? Housing prices were inflated above any reasonable value, and without enough people with enough income to pay for them. These were was the glorious "Flip this House" year(s), when houses took on a resemblance to poker chips, used as a kind of toy investment and having little more value than that to growing numbers of wannabe speculators and get-rich-quickers. (Can you tear out a wall? You could be the next real estate millionaire!)

So the housing market collapsed.

You know what this is now? This is reality catching up with pie-in-the-sky.

The bankruptcies, foreclosures, and collapsing prices all represent what has been known euphemistically as a "rolling readjustment." That is, time to step back and re-evaluate what these houses are really worth on the market -- and a market of buyers who are increasingly jobless and non-creditworthy. ('Course, that didn't mean they couldn't get a mortage 10 years ago. Hopefully, the banks are wiser and telling the feds to burn in hell.)

When the price eventually falls in line with what buyers are willing to pay, the housing market will correct itself. So let it collapse so we can move on.

Pumping more money into the housing market to artificially keep prices high will only keep the market stagnant and depressed.

It's really, really simple. If you don't get this, you need to go back and take Capitalism 101.

Save the Republic