I was flipping through the channels over the weekend, when I became momentarily fixated on one show that advertised the sale of cheap homes in the suburbs of Washington.
It was an auction of foreclosed homes. And boy, were the prices good.
And it got me thinking. It may be a bad time to sell, but it is really a great time to buy. And that is the nature of the free-market system. Prices go up and they go down. It is bad to buy high (which of course is what I did), but it is really bad to sell low (which is what many people are being forced to do because they can’t afford the homes they live in now).
The market finds its equilibrium eventually, and a government that blunders into the marketplace does so at the peril of the taxpayers.
This comes to mind as President Obama comes up with a plan to prop up the sagging real-estate market. He does so because his political advisers (and some of his economic advisers) believe that it is important to help people who made bad choices with their personal finances. That might be good politics, but it is bad economics.
I understand the theory behind a foreclosure moratorium. Many first-time homeowners frankly didn’t understand what they were getting into, didn’t understand the nature of their risky mortgages, couldn’t predict that market would take such a turn for the worse.
And much of the blame should be placed on shady mortgage brokers who pushed product without doing any due diligence, who willfully tested and often exceeded the law, all to pad their own bottom line.
But I also believe that artificially propping up the real-estate market hurts new first-time homeowners, and retards the ability of the market to find its true equilibrium.
In many parts of the country, bargain-hunters are keeping real-estate agents very busy. Just like the old days, in some parts of the suburbs, people are getting up to 10 offers on their properties. That is a good sign, and it should be encouraged.
I am no economics expert, but I do understand how politicians think. They think they can curry favors with the voters by messing with the free-market system when it comes to our housing crisis. But I think that will make the situation worse, by making it hard for the market to find its true value.
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