Friday, August 14, 2009

Is There Pent-Up Demand for Housing?

Former Fed governor Laurence Meyer is quoted in a article as saying something ridiculous:

Meyer expects GDP to jump by 3.6 percent in 2010 and 3.9 percent in 2011. Annual growth surpassed 3 percent only once so far this decade, in 2004, and has averaged just 2.2 percent.

“The big driver of that is home prices,” said Meyer, referring to his recovery forecast. “If home prices stabilize, that is a tremendous boost to housing that dominates every other variable in our equation. There is a lot of pent-up demand in that particular area.”

Here is an example of what's ridiculous in the above quote, from Calculated Risk's First-time Home Buyer Frenzy, itself quoting a Reuters article:

"I am willing to settle for something" to finish buying quickly, said 20-year old (Samantha) Kielar, who works at the Denver County Jail, and is a part-time student. The tax credit carrot "is speeding up the process," she said, adding that "$8,000 could help remodel the house, redo carpets and cabinets."

The Federal Government is wasting your tax money subsidizing home purchases by 20-year women who have not even finished school. This is hardly the pent-up demand that FDR meant when he referred to 1/3 of a nation being ill-housed.

Laurence Meyer is a better economist than yours truly, who has never been one, but anyone who can say with a straight face that there is pent-up demand for housing in the U. S. when every homebuilder around is shuttering communities despite the Fed purchasing unthinkable amounts of mortgage bonds to keep rates affordable is likely saying what he is saying because he is being paid a lot of money to say it.

In a more mature fashion, David Rosenberg points out that 1 in every 7 homes in the U. S. is . . . unoccupied.

Sounds just like the 1950s, when a growing population settled down to raising a lot of children in a country with a limited supply of small homes? Not quite . . .

There is no legitimate pent-up demand for housing. It was all satisfied, and then some, with the bull market of the past decade plus. There is lunacy and sadness. Like puppy dogs sitting forlornly by their dead masters waiting for them to come alive, "investors" always want to revisit the prior bubble land. Even now, a decade after the worst pump and dump stock bubble of which I am aware, the NASDAQ tech etc. bubble of the late 1990s, speculators want to play in NASDAQ stocks that will never pay a dividend until, as with Microsoft, they are so big that their growth prospects are gone.

Now, the Federal Government is very, very powerful. If it wills housing prices to rise for such reasons as to salvage the banks, then it can do so. What it has been doing is bailing out both banks and homeowners/homebuilders by subsidizing purchase of homes. The more it does so, the more it prevents prices and the ownership/rental choice from seeking a natural level, and the less it has to spend on other things such as health care reform, national defense, delivering the mail, and the infinite number of other arguably good causes that it could support.

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