At the risk of overdoing the Peter Schiff thing today, I thought he summed up the problems of the housing market so succinctly in today’s Asia times that I had to post it:
[W]hile it is true that home prices have stopped falling, this represents failure, not victory. True success would be a drop in home prices to a level that potential homebuyers could actually afford. Instead, we have maintained artificially high prices with tax credits, subsidized mortgage rates, low down payments, and foreclosure relief.
With 96% of new mortgages now insured by federal agencies, market forces have been completely removed from the housing equation. With so many government programs specifically designed to maintain artificially high home prices, devastating long-term consequences for our economy are inevitable.
Success and victory are inevitable. The question is, at what cost?
With 96% of new mortgages now insured by federal agencies, market forces have been completely removed from the housing equation.–Peter Schiff
For Peter Schiff, who is typically so careful in his analysis, this is an unusual blunder.
There are no “non-market” prices. As long as real estate is being bought and sold, successful bids will indicate the market for real estate.
This is not to say that housing prices are not being inflated by artificially low interest rates and generous subsidies, but this is a temporary phenomenon. These market-distorting financial inducements will spur additional production of housing, which will place downward pressure on prices.
Given the dearth of domestic savings, the housing loan market is largely dependent on foreign capital. When they finally refuse to assume additional US dollar-denominated debt because the enormous federal deficit promises to unleash an inflationary inferno, housing prices will freeze, as they did during the stagflationary Carter years.
Ironically, in their efforts to inflate the housing market, the feds will have placed a ceiling on housing prices.