Despite repeat attempts to jump start the housing sector by government, the housing market fell another 27% in July. Could there be other reasons – beyond lack of money – why the housing crisis hasn’t been resolved yet?
By nature, I’m not a conspiracy person. I don’t know if there was a second gunman. The footage from the moon seems real enough to me. But it’s hard not to think there’s a game going on when it comes to rescuing the housing market. Especially when it’s right there in writing.
Recently I pondered whether whether the White House was dreaming another dream for the American home owner. Much of the Department of Housing and Urban Development’s (HUD) recent funding bills seemed to go toward supporting affordable renting, not owning. HUD Secretary Shaun Donovan recently told Congress that renting would become the “preferred option” for many Americans in the future.
Suddenly, after decades, home ownership doesn’t seem to be a desirable dream for political leaders any more.
For months we’ve been warned that the Federal Housing Authority was going to tighten standards and raise fees to borrowers. Those changes are coming on the heels of a drop of 27% in home sales. Seems like bad timing. Then there’s more news that the federal program to help underwater borrowers rewrite their mortgages – to avoid additional foreclosures – has been an unmitigated disaster. The Wall Street Journal reports that more people have been kicked out of the program than helped by it. The deadly mix of bureaucracy and bad economics has made HAMP less than a champ.
Throwing money at the market hasn’t worked either. Over $140 billion keeping Fannie and Freddie afloat hasn’t increased mortgage lending or released capital through refinance by credit-worthy home owners. Nearly $50 billion in tax credits for first-time and move-up buyers didn’t do it. It’s hard to subsidize a service sector – unlike a product like cars – when most of the product is already built. Nevertheless, more government programs, like interest-free loans for underwater borrowers, are on the way.
Tax credits are simply consumed, not invested. Bad economics, but you’d think someone at the Treasury or the Federal Reserve would know that.
Or perhaps they did. This week, the research department of the Philadelphia branch of the Federal Reserve, published a report titled “American Dream or American Obsession: The Economic Benefits and Costs of Home Ownership.” The report analyzes the economic cost-benefit numbers of owning (or mortgaging) a home, including its use as a primary savings vehicle for most Americans. Interestingly, the report opens with a quote:
The strength of the nation lies in the homes of its people. – Abraham Lincoln
Considerable attention is drawn in the report to the fact that the mortgage interest deduction “dis-proportionally benefits” upper income tax payers. And the relative merits of investment-grade housing is reviewed. Yet the report concludes with a sobering proposition:
“One thing that is certain is that homeownership is not for everyone, and thus, based on the economic benefits, the case for trying to achieve a nation of homeowners needs to be rethought.”
Such a statement, from a research department of a Federal Reserve branch seems far more political than economic. Perhaps it’s an attempt to tie the economic “cost-benefit” argument to a broader “question the importance” argument being made by HUD and other government officials. What really seems clear, however, is only that every government attempt to support home ownership has faltered. For some reason, almost a quarter of a trillion dollars spent (when you add up subsidies to Fannie and Freddie, the buyer tax-credits and recent FHA initiatives it could be more) trying to rescue the housing market has made things so bad, it’s time to reconsider the “American dream” entirely.
Which reminds me of another quote, one from a time when we questioned everything about the American Dream, and the homes it was built upon:
Funny what difference a generation of two makes. Makes you wonder if it’s because some someone in government think a housing crisis is a terrible thing to waste?