Wednesday, March 04, 2009

Megan McArdle on the owner/renter divide

Blogger and Washington, D.C. resident Megan McArdle writes about the owner/renter divide regarding the Obama foreclosure plan:
It occurs to me that while there is a big conservative/liberal split on the Obama foreclosure plan, there may be a bigger divide between renters and owners. I think that most of the people supporting the mortgage plan really do feel like falling home prices is an obvious catastrophe. I also think that most of them own homes. Because, of course, if prices stay high, where is the money coming from to support them? Well, from people like me, who do not currently have a home to sell, but would like to acquire one in the not-terribly distant future. Keeping people and banks from selling at a loss requires that I buy a house which is overpriced. With the exception of Detroit, all 10 cities broken out by the Case/Shiller house price index show that as of December, home prices were still at least 15% higher than they were in January 2000; their 20-city composite index was still up over 50%.

One of the things that I think is badly understood is that the government cannot do much to prevent house prices from falling. Foreclosures are not the cause of price declines; they are a symptom of them. The underlying event is too many houses, and too little demand for them. Propping up existing mortgages does absolutely nothing about the mismatch between supply and demand.

3 comments:

  1. patience. foreclosure moratoriums only delay the inevitable.

    did anyone else catch Jim Rogers telling that aussie interviewer he should become a farmer or setup a farming group? seriously, folks pay big bucks for organic free range eggs at Whole(paycheck)Foods.

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  2. "Foreclosures are not the cause of price declines; they are a symptom of them."

    That makes no sense.

    At the end of the day, renters and owners might end up in the same position. The latter will take a credit hit, but they'll both be without jobs if something isn't done to slow down the rate of foreclosures.

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  3. "Foreclosures are not the cause of price declines; they are a symptom of them."

    "That makes no sense."

    actually, it makes perfect sense.

    see how i did that, Allen? i took the opposite position of your statement (similar to what you did to the post) and didn't back it up with anything (similar to what you did).

    here's a clip for you on arguing vs contradiction:
    http://www.youtube.com/watch?v=teMlv3ripSM

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