"Let the housing market crash"

There’s an interesting piece in The New York Times today, "Housing Woes Bring a New Cry: Let the Market Fall." Here’s a snippet:

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

You need to read the rest to understand the logic, and it is logical.

The trouble is, of course, that every plan for jump-starting or fixing or re-energizing the economy is logical. My experience — and I stress that this is my experience and not necessarily the opinion of VAR or anyone else here — is that when it comes to economics, people know squat.

Whether advocating an entirely laissez-faire approach, or preaching the idea of more and better spending, every idea seems logical; there’s always an historical precedent for why this idea is clearly the right one. (The 1920s and early 1940s are favorite examples.)

If we do this, then of course that will happen. Spend a lot even though it hurts — like WWII, it will boost the economy. No, cut spending and cut taxes — that will spur investment. Prop up the housing market until it recovers. No, let it fall to its natural level.

At some point we have to stop and admit that we have no bleeping idea what will work. Economics is just too complex and too full of unintended consequences. Apologies to all the folks out there who know what the solution is, but I have serious doubts.

So maybe the people who are advocating letting the market fall are right. Maybe that’s the bullet we need to bite. I doubt it, but who knows? (Answer: no one.)

About Andrew Kantor

Andrew is VAR's editor and information manager, and -- lessee now -- a former reporter for the Roanoke Times, former technology columnist for USA Today, and a former magazine editor for a bunch of places. He hails from New York with stops in Connecticut, New Jersey, Cincinnati, Columbus, and Roanoke.
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6 Responses to "Let the housing market crash"

  1. Michelle L. W. Robertson says:

    No matter “who” you think is correct, there will be pain somewhere…someone is going to feel struggles…Realtors need to do what we have always done in ANY economy, help people Buy and Sell real estate…If we focus on that everyday, we will be OK, If we don’t, we won’t….Respectfully, M

  2. Allowing the free market to work is always a good idea. It is working against the order of nature to try to direct the housing market.

  3. John Clark says:

    I think it’s clear that no matter what we can throw at this problem, it’s not righting itself. Unfortunately, taking this tack and ‘allowing the free market to work’ as Karin says, hurts homeowners (with responsible AND irresponsible loans) more than anyone else, and that’s really too bad. But unfortunately it seems there’s not too much else that can be done. I say keep up the foreclosure counseling services, keep up the loan modification program (hasn’t had a chance to help enough homeowners yet) and beyond that, let the chips fall where they may.

  4. Lenn Harley says:

    NEWS FLASH! The market has crached. Where do these folks live.

    Further, the government succeeded in doing precisely what they intended with TARP, HARP, etc. they redistributed enormous sums of tax payer money to their cronies on Wall Street.

    The crumbs they left on the ground for home owners in real distress were simple public relations.

    Wall Street created the mortgage mess and Wall Street profitted from it with hugh infusions of cash. Banks don’t even have to lend today to profit. They can profit on the spread between the cost of money to them and the interest they gain from it.

    Every one of the government “help” programs for distressed home owners excluded more than they helped with their rinky-dink guidelines.

    Home owners should form a union, then they’d get the same hand-outs the unions and banks got.

  5. Joe Vita says:

    My case for the “Let The Market Fall” theory.

    Common Assumption: Only the creation of increasing numbers of jobs and the resurgence of the real estate market will serve to get the economic engine running steadily again.

    Problem: The relationship between jobs & market activity is like that of the chicken & the egg. They depend to a great extent on each other. Which one comes first?

    Conditions: There are few non-investor buyers in the market to any significant extent due to: (1) lack of jobs, (2) bad credit, (3) increasing debt, (4) worry over the state of the economy,and (5) lack of interest in buying too high with the probability of values still declining despite lowest rates ever. Where are buyer going to come from?

    Solution: We can’t look to those possible buyers in categories #1, #2, #3, & #4 above for any activity as they are handcuffed. Only those in the 5th position above have a chance to start a market resurgence and only when and if they are convinced that values have hit bottom. How will they reach that point so they can be the means for things to turn around and help their fellow potential buyers get free from their shackles?

    Conclusion: Values must convincingly bottom out before the first buyers begin to make their move. If interest rates begin to rise at that time a further stimulus may be added to the recipe. With increased sales and decreased inventory come rising values and competition for product. With sales come increasing demand for housing related goods and services and the jobs which will result from that. Over many months, as new employees regain confidence in the market and have had a chance to repair their credit scores, they will consider buying homes in steadily increasing numbers which will, in turn, create a demand for more and more jobs. The chicken is laying again.

    In short, only after we’ve hit bottom will we be in a position to begin to recover the market and the economy. It will take many months and probably years to accomplish and can only be initiated by a demand created by real life situations and not artificial stimuli. We in the real estate profession need to recognize this and prepare to wait it out so we’ll be around to take advantage of the revised real estate profession.
    But then again, what do I know.

  6. Richard Varney says:

    let it fall. so we can get started on the recovery. Rv

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