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Obama, Bernanke and Congress losing war against supply and demand in housing market
Howard Richman, 4/26/2011
The just-released Case-Shiller data for Feb. 2011 shows that despite the expensive efforts by Obama, Bernanke and Congress to control prices, house prices are again in free fall:
My father, son I predicted this in the April 14 American Thinker (House Prices in Free Fall). We wrote:
In June 2006, house prices peaked as supply increased faster than demand and the housing price bubble stopped expanding. Starting early in 2009, the Federal Reserve, Congress, and the Obama Administration spent hundreds of billions of dollars trying to keep house prices from falling. They subsidized first time home buyers, bought mortgage-backed securities, subsidized mortgage buyers, and took other measures. Apparently, these subsidies only slowed the fall in house prices.
If current trends continue, real house prices (house prices after subtracting inflation) will likely lose about a quarter of their real value over the next 4 years. If inflation continues at about 2%, this would produce a four year fall in actual house prices of about 4% per year.
It may soon become clear that the Federal Reserve and the federal government wasted hundreds of billions of dollars simply to delay an inevitable fall in housing prices. Economic historians may compare their policies to the pervasive price subsidies that eventually bankrupted the Soviet government.
Meanwhile, the Republicans in Congress have been foiled by lobbyists from their attempt to end the bleeding. AP reports:
WASHINGTON – Shutting down Fannie Mae and Freddie Mac should fit seamlessly into the Republican drive to shrink government. After all, keeping the ailing mortgage giants afloat has cost taxpayers $150 billion and many in both parties want private lenders to finance a bigger share of the nation's $11.3 trillion residential mortgage market.
But House and Senate Republicans pushing bills to phase out both federally run companies are learning how fear, politics and old-fashioned lobbying can trump ideology.
Even in the GOP-run House, leading proponents of doing away with Fannie and Freddie aren't predicting victory....
Feeding lawmakers' concerns are realtors, mortgage bankers and home builders, powerful constituencies and campaign contributors. The bankers and builders brought throngs of members to the Capitol last month to visit legislators, and the realtors are coming in May.
With house prices in free fall. Fannie and Freddie will resume hemorrhaging taxpayer money. The losses will mount at a time when the U.S. credit rating is already at risk. Meanwhile, Bernanke fails to give good advice, being stuck with $934 billion in Fannie, Freddie and Ginnie mortgage-backed securities on the Federal Reserve's April 21 balance sheet that will lose value as house prices fall.
In a statement that sounds like it came from the script of Atlas Shrugged, Vince Malta, a spokesman for the National Association of Realtors, blamed conservative tea party supporters for attempting to stop the bleeding of taxpayer money to Fannie and Freddie:
Vince Malta, a vice president of the realtors, said Republicans trying to end the federal role in mortgages are listening too much to their conservative tea party supporters.
"The move here is political and not based on the reality of what is best for the housing finance system," Malta said.
How much more will Congress, the Obama administration and the Federal Reserve throw away in this foolish war against supply and demand?