The Wall Street Journal begins a news article on existing home sales: "Existing-home sales plunged to their lowest level in 15 years in July as inventories soared, painting a grim picture for the housing market absent government support in a stubbornly sluggish economy."
A reader-participant-community member-watchdog-content co-creator e-mails: "What about the possibility that so much government support for everything is the problem?"
Remember, there's an awful lot of government support for the housing market already — foreclosure relief, the home mortgage deduction, Fannie and Freddie, the FHA, the super-low interest rates set by the Federal Reserve.
The great Arnold Kling makes a similar point in response to a blog post by Felix Salmon, who writes for Reuters. Mr. Salmon, who, at least, unlike the Journal reporters, is supposed to be opinionizing, wrote:
the main message from the big conference on Fannie and Freddie is that there's a broad-based consensus, Rick Santelli rants notwithstanding, that large-scale government participation in the housing market is necessary to prevent further house-price declines
Mr. Kling responds:
Old consensus: we need Freddie and Fannie in order to make housing "affordable."
New consensus: we need them in order to "prevent further house price delicnes," in other words, to make housing less affordable.
I have to question this consensus. It reminds me of the consensus that "We should someday deregulate oil prices, but not now" that prevailed in the late 1970's. President Reagan rejected that consensus, ripped off the Band-aid of oil price controls as soon as he took office, and the consensus now is that he was right to do so. I have been arguing since early in this crisis that we need a similar approach in housing.
Markets achieve a spontaneous order. The opposite of order is disorder. Price controls in the oil market created disorder, to the point where fights broke out in lines at gas stations.
Government interference in housing markets, which helped produce the disorder known as the financial crisis, is still producing disorder. When houses are "owned" only because the government is supplying lenient, subsidized credit, that is disorder. Given this disorder, rational people do not wish to buy. The rational person wants to buy low, sell high, not buy when the market is rigged to try to keep prices higher than they should be.
Thanks to reader-participant-community member-content co-creator watchdog JCS for sending the link to the piece by Mr. Kling.