Despite Bailouts, Housing Market Back in Dumpster
June 2nd, 2011
More For Sale Signs coming soon to a town near you!
Two years ago, President Obama signed a housing market bailout package into law to help shore up housing prices and restore confidence in people wanting to buy homes. The costs of the proposal was $275 billion, the bulk of which came in the form of financial assistance to Fannie Mae and Freddie Mac to buy mortgage-backed securities as well as tax credits for new homebuyers. Given the traditional Keynesian theory of spending to save the economy, this should of worked.
Unsurprisingly, it didn’t.
Last week, first quarter housing numbers came in, and many housing experts are now calling this a double-dip recession in housing prices. According to the S&P Case-Shiller Home Prices Index, prices fell 5% from a year ago, with 19 of the 20 cities evaluated experiencing price drops (only Washington, DC saw a rise in prices). The biggest dip came not from typical housing basketcases like Los Angeles or Las Vegas, but from Minneapolis, which saw a 10% drop from one year ago.
This was a crisis that should not have happened, yet it’s become clear that when the government pumps vast sums of money and inflates the deficit, it provides no results. Even more important is that the “Great Recession” was in a way started by a collapsing real-estate market, which was inflated by ridiculously low interest rates and sub-prime mortgages, insured by housing giants Fannie Mae and Freddie Mac. Now that housing prices have crashed again, what is to stop the economy from returning to a recession?
When the federal government thinks it can spend its way out of a recession, it usually leads to worse problems and a restriction of free market practices, and $275 billion goes down the drain. If we are to get out of this tailspin, the federal government must learn to step aside, and stop the ridiculous bailouts of businesses that got us into this mess in the first place.
