Wednesday, June 23, 2010

Housing Sales Lousy Due to Government Failures

The Census Bureau has reported that 28,000 new homes were sold in May this year. It also lowered its previously-reported March and April sales numbers. After seasonal adjustment, the sales rate is the lowest since 1981. Adjustment for population (and further adjustment for age and family creation) were not performed.

The financial structure of the United States is bizarre. Treasury bond prices rose on the news of poor home sales, though this data reflects a worsening economy and therefore is consistent with worsening Federal finances.

The government is (supposed to be) us, and if we don't want to engage in growthy economic activities, we have every right to so do (or not do). The Krugmans of the world want us to be Stakhanovites compared not only to Greeks but also to Germans. If U. S. workers simply worked at a French or German pace, mathematically there would be very little un- or under-employment.

Rather than printing and borrowing more money to "stimulate", the government and the Fed may want to adopt the principle that less is more. Less government stimulation will allow the "patient" to recover naturally.

Eventually, should the population keep growing, the current pace of new home sales will prove to be amazingly low. This will happen even if government moves out of the mortgage business.
With sales so low, now would be a good time for it to do so, and continue the phase-out of the mortgage tax deduction begun by a Democratic Congress when Bush I was president. People do want to own their own home, but renting allows societal and work flexibility and so the U. S. could do well to emulate Canada and let the basic economics and preferences of owning vs. renting occur in the absence of tax subsidies for owning.

The same media that tell us that Social Security and Medicare are budget untouchables are now devoted to making us think that a VAT is inevitable to pay for an enlarged government. There actually are pro-freedom ways for government revenue to enlarge without instituting a whole new tax.

The real financial crisis began with Fannie and Freddie's collapse. Immediately after that, the stock market started falling at a rapid pace. The rotten financial structure surrounding housing has caused the worst boom-bust cycle imaginable. The failure of the authorities to even publicly address solutions is among their worst failings of the past few years.

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