I wrote this a while back... Seems more relevant now.
One ignored topic in the housing market is how home ownership increased in the past years.
shows this, and I have seen estimates of 75% up from 50% before the bubble burst.
It can be argued that the economy was in fact hyped up, by the easy credit and home ownership which caused high employment in construction. By design or by accident the reason we did not have a major recession in the last 4 or 5 years of the last Admin was partly thanks to this bubble.
Significantly, this increase in home ownership does have long term ramifications.
We are talking about a huge economic sector, and an oversupply in a sector of long (est) term durable good. Saturated supply in the home construction market limits economic growth, never mind valuation. (To put it in a way that even Bush understands, if everybody owned two homes, you'll have 50% vacancy :-) There is also the issue of the rental market too. http://www.economagic.com/em-cgi/data.exe/cenHVS/table01c01 shows some statistics on the rental housing vacancy rates.
One can argue that this makes the spending on infrastructure as a stimulus plan more important (even though heavy construction is different, you don't have to get retrained). We need them one way or another, so we may as well have them now.
I am always told, good analysis now what's the solution. That's what the comment portion of the blog is for you. Nonetheless, lets be a bit solution oriented.
In a cynical way, ownership failures and banks reselling the property may in fact stimulate the sales portion of the housing market. NOT!!! The problem isn't just that it causes deflation in this sector (a bubble needs to get deflated). The cost of repos, credit destruction, lower economic confidence and... and... and... is too high. Both in human term and economic term.
Lets take a causal approach. Three groups caused this mess. The first group (as my beloved Republican friends like to point out), we have the people who bought houses they could not afford. Second people who gave subprime loans (see this weeks 60 minutes) and collected the commissions for bundling them for resell. And third the banks that bought those bundled over-valued mortgages.
It can be argued -- not in the Republican Texas (see WSJ article http://online.wsj.com/article/SB123491755140004565. html OK it is Florida so sue me) -- than the home owners are the victims. They were duped and manipulated -- some would argue. Weeeeeeeeell, may be they were part of a fraud; specifically " it will be somebody else's problem" type fraud. And I am not talking Bush... Ask anybody, I love Bush (or shaved). A balanced argument would also say that greed played a part too and ignorance is no excuse for the law.
Personally, I think President Obama has it right. If you were speculating on multiple houses, you were taking a risk. You have to burden a large part of the cost too.
Second the mortgage writers and those who bundled them were the defrauders. AND NO THEY HAVE NOT ALL DISAPPEARED. Moreover, claw back is the norm in financial systems. Their profits and assets should be clawed back. Again, see the 60 minutes this week, specifically on Word Savings. Not getting back would mean the tax payers are funding such fraud and it sets precedence.
Claw backs happen all the time, and if there is one group responsible to knowingly creating this situtation it would be the originator.
The third group is the banks that bought the bundled mortgages and are doing the foreclosures. Lets think about this. If the originators are at fault, so are this group. In a way, they bought stolen good. Yes, ignorance is no excuse for the law, specially here, and specially when you are a BANK. Banks are supposed to be conservative in their investing and asset allocations.
Split it three ways, I say... OK four ways... the tax payer for voting for idiots into white house -- twice. And the tax payers get punished twice too, because Fannie Mae and Freddie Mac bought most of those bad mortgages.
Esfandiar
