Housing in America

The New American Dream: Renting in today's WSJ is today's "must read" for anyone interested in a concise summary of the growth of the U. S. housing market, along with international comparisons.

A companion news item of the day regarding British housing woes is found at: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6030193/Bradford-and-Bingley-suffers-160m-loss.html.

And back in the U. S., Mish reveals that the FDIC is out of money as of now at: http://globaleconomicanalysis.blogspot.com/2009/08/as-of-friday-august-14-2009-fdic-is.html.

He titles his piece that FDIC is "bankrupt". This may or may not be technically correct, as the FDIC has a specific Congressional backstop in place and beyond that is a full faith and credit agency of the Federal Government. Overwhelmingly, residential and commercial real estate are driving the losses at the banks.

Yesterday I reported (via CR) on a 20 year part-time student who is buying a house using a Federal tax credit.
Contrasting this with the history of housing in America in the WSJ article and with common sense leads me to continue to believe that matters are at a serious disequilibrium point. The Feds are borrowing vast amounts of money, and the Federal Reserve is putting on its balance sheet similarly vast amounts of securities, to prop up the housing market. The indebtedness of the U. S. Government is surging as a result.

There really is an argument for the government to encourage more renting, especially if the owners of the rental units do so via cash ownership and not via a highly leveraged situation. In our mobile society, having a ready supply of well-kept-up rental houses and apartments in most communities will enhance the ability of people to change jobs, have temporary second residences, retire without a final commitment to a community, etc. The system would run more smoothly in that all the costs involved in buying and selling homes would be minimized and be replaced by the far simpler process of a lease.

The tax deduction for mortgage interest should probably continue to be phased out, now that it has been revealed that the Feds have to borrow to sustain the housing market. Canada has no such tax law and has similar housing ownership rates as the U. S., so the tax deduction is certainly unnecessary to reach any particular ratio of home ownership.

At the current new home size of about 2600 square feet, America is overinvesting in housing relative to other goods and services, such as health and exports. Returning housing to its proper balance in the economy is a change that is both timely and overdue.

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