We’ve Learned Nothing About Housing Bubbles
Apparently those who don’t learn from history really are destined to repeat it. Two different issues about the housing market caught my eye recently.
First, the Senate adopted a measure that would increase the maximum amount of a home that could be backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration to more than $700,000.
Then there was a proposal, also in the Senate, to offer residence visas to foreigners who buy $500,000 homes and agree to live in them at least six months per year.
These ideas have bipartisan support. Robert Menendez (D-NJ) submitted the amendment for the first issue. Senators Chuck Schumer (D-NY) and Mike Lee (R-UT) make up the brainpower for the second. (Side note: I was extremely disappointed to see Mike Lee’s name on that proposal. He’s supposed to be one of the good guys.)
Both of these moves are attempts to get the real estate market moving, but they’re both bad ideas. The problem is that they involve the government taking action in the housing market to incentivize home purchases.
Quotes from the senators have been posted around the internet, and they all say something about how housing got us into this mess and housing will get us out. That’s not true. Artificially inflating home values created the last bubble. Creating another bubble is not the solution to our problems.
This is a perfect opportunity for free market supporters to call for the federal government to stay out of the market. In the long run, propping up home values will do more damage than good.
For real recovery to take place, bad debt needs to be liquidated, and the home prices need to decline to their actual market value. The best way for the government to hurry that process is to stay out of the market and let the market correct itself.