Why is it that housing has won its place as America’s sacred cow?Even after burning the country so badly.
The Mises blog highlights how the The New York times tells us all that ‘nobody’ wants more U.S. foreclosures… exposing the kind of thinking that continues to permeate America.
New York Times via Mises: [NYT:] “Of course, cries of moral hazard will erupt if borrowers get large cuts in their principal balances. Rightly so. Why should those who took on too much debt to buy too much house get rescued when those who were prudent go unrewarded?
But doing nothing also has hazards, the most obvious being continuing foreclosures, which nobody wants, and further declines in real estate prices that will hurt homeowners as well as investors.”
Yet to believe that housing prices must be supported at all cost — even with massive government spending and future tax liabilities, is to misunderstand what ‘housing wealth’ really is:
Mises: I believe that there is a widespread perception that rising housing prices “create wealth”. This is of course a fallacy of composition: if the prices of a good that you own rise relative to other prices, then you benefit. But this rise in prices does not represent a magnitude of new wealth created, only a shift in the distribution of existing wealth. People who do not own the good and wish to purchase it are worse off.
Rising housing prices as a public policy — through mechanisms such as the GSEs and preferential tax treatment — only cause resources to be shifted to house construction. These resources must come from somewhere; as a result we have less of something else.
As with any other price, a lower price benefits buyers while a higher price benefits sellers. There are a few prudent folks out there who chose to rent rather than overpay for a home, and would like to have the chance to buy a home at a bargain price.
Exactly, why are responsible non-defaulting American renters being forced to make their future homes more expensive?
Falling housing prices are great news for the non-landed class of Americans, who are generally less wealthy. Thus which class of Americans does housing market support help exactly? Read the rest at Mises here.