Expert: liznarr - 8/1/2011

Question
Dear Sir,

May I ask this question about the role of the government in the housing market in the US.

Suppose there is this situation. For various reasons, the housing market in the US nearly collapse: house prices falling down, estate agents closing, etc.

In that scenario, does the US government need to help the market in any way or does it simply let the market adjust itself?

If the US government intervenes, is it accused of helping the greedy capitalists to maintain the high price of the houses?

Thank you.

Answer
Hi Kevin,
What an interesting question.  

While I am neither a political analyst nor an economist, my writing below is simply my personal opinion.

I believe we are in the mess we are in now BECAUSE OF our government.  There were numerous warnings, and I have copies of public memos regarding the housing industry BEFORE the collapse, warning what could happen if mortgage lenders continued to make bad loans that NEVER should have been made, period.  And I watched a number of documentary news programs where lenders were interviewed and admitted that they were encouraged to make these bad loans.

Our government, however, apparently and intentionally, ignored all the obvious red flags and allowed the greedy Wall Street brokers and mortgage lenders to make millions through the granting of these bad loans.  

The mortgage lenders made BAD loans (loans that buyers KNEW they could not afford), and then the government allowed these BAD loans to be bundled with the good ones and sold in the secondary market.  Then when all the buyers who never could have afforded the loans they were “given” began defaulting, the government-sponsored enterprises that insured these loans (Fannie Mae and Freddie Mac) had to pay up – and everyone suffered as a result.  The resulting housing collapse has affected not only the US markets, but also world-wide markets.

When markets are allowed to adjust naturally (as historically they always have), what is meant to happen always does happen.  The markets will eventually adjust on their own.   Financial markets have always gone both up and down.  When we are in a good market, people need to realize at a point it will go down, and vice versa.  When a government tries to artificially manipulate the market, we have all seen in the last few years what can happen.   

Now, to finally answer your question:  As I see it, too much government is already the problem.  More interference or so-called “help” by the government (again, my personal opinion), will only put our great Nation deeper in debt and further along on the path to Socialism.

So, yes, my opinion is that if the US government intervenes again in the housing market, it will AGAIN be accused of helping greedy capitalists and making political gains, and rightfully so-accused.

I don’t know about the housing market in London, but in many areas in the US (Florida, for example, and also my area), there is no such thing as maintaining a “high price of houses.”  Home values have fallen.  MANY Sellers in my area are taking a bath, very literally.  These are not Sellers who were “given” a loan and could not afford it; these are Sellers who paid a fair price (at the time and back to, say, 2006) and cannot now sell at anywhere close to what they paid for their properties because of current market conditions.  These Sellers are not defaulting and allowing the US Government to pay their obligations.  They are taking their bath and licking their wounds and moving on, because many of them are being transferred out of the area and they “have” to move.

For whatever my personal opinion is worth, now you have it.

Regards,
Elizabeth