Part-Time Pundit: The Left's War on Home Ownership

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August 27, 2005

The Left's War on Home Ownership

One of the top articles on Drudge is a link to an article that said Greenspan warned the US is heading for a housing price crash. The problem is this is somewhat of a wild mischaracterization of what Greenspan said. You can read the text of Greenspan’s speech here. Here is the appropriate quote from Greenspan:

The developing protectionism regarding trade and our reluctance to place fiscal policy on a more sustainable path are threatening what may well be our most valued policy asset: the increased flexibility of our economy, which has fostered our extraordinary resilience to shocks. If we can maintain an adequate degree of flexibility, some of America's economic imbalances, most notably the large current account deficit and the housing boom, can be rectified by adjustments in prices, interest rates, and exchange rates rather than through more- wrenching changes in output, incomes, and employment.

Here is what the Times Online characterized this as:

WALL STREET shuddered yesterday after Alan Greenspan, the United States’ central banker, warned American homebuyers that they risk a crash if they continue to drive property prices higher. He said that the US house-price spiral had become an economic imbalance, threatening stability like the country’s trade gap or its budget deficit.
In a pre-retirement speech to fellow central bankers at Jackson Hole, Wyoming, Mr. Greenspan said that people were investing in houses as if they were a one-way bet, not allowing for the risk of price falls. He said “history had not dealt kindly” with investors who kept ignoring risks.

Those on the left are quite literally hoping for a housing crash so that they can gloat. They are wishing misery on their fellow man. And we have a British media outlet toeing the party line. There are those waging a war against middle class people owning homes. Is it because they cannot succeed when people become affluent? You make the call.

The quote about ignoring risks was in a section of his talk having nothing to do with housing. This very liberal interpretation of his talk is nothing but scare-mongering intended to talk down the economy.

However, no where in his speech does he mention a housing price crash. Adjustments sure. Markets go up and down. What the impression that those on the Left are trying to generate is to make people afraid that if they buy a house at $100,000, it’ll be worth $15,000 after a crash. Isn’t going to happen. Housing is too essential of a resource where it can become worthless. The market will fluctuate, houses may become more difficult to sell but there isn’t a housing crash coming. Even if housing prices take an extremely unlike 20% hit, what does that mean? People will continue to pay on their mortgages and the market will go up again giving them their value back.

It pays to remember that the much celebrated dot-com bust happened just a few years ago and the market is about at where it was before that crash. If you invested in a Dow Jones Index fund in 1928 before the Great Depression and stayed in the market 30 years, you still beat inflation. The sky is not falling, people just need to be reasonable about their debt loads which is something to take greater concern in.

Posted by John Bambenek at August 27, 2005 3:26 PM

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Comments

"Those on the left are quite literally hoping for a housing crash so that they can gloat."

So a t-shirt for sale now proves that the left in general wants housing prices to crash? Maybe I can dig up a link for socks that prove the moon landings were a hoax.

"Even if housing prices take an extremely unlike 20% hit, what does that mean? People will continue to pay on their mortgages and the market will go up again giving them their value back."

This is true for the owner-occupant not needing to move in the short term, not having bought his home with an adjustable rate mortgage, and not treating any expected appreciation on his home as a piggy bank.

However, the rest may suffer quite a bit with some combination of negative equity, increased mortgage payments, and the fact that rent has not kept pace with housing prices.

I don't think this is much of a political issue at all. Basic economics should tell you that home prices can't keep increasing by 15% a year while interest rates are also increasing - quite simply fewer and fewer people will be able to afford to buy more and more expensive houses. Those who are relying on home prices to keep increasing at those unsustainable rates will be the ones to suffer.

Posted by: moonsocks at August 28, 2005 2:23 PM

Let's face this straight, Mr. Greenspan is known for phrasing things in a way that can lead to anyone being able to discern anything in his words. On Wall Street there is a game of comparing different news reports on his comments to see how many contradict each other.

He did say "adjustments in prices", in Greenspan-speak that could mean a crash, or perhaps not. It is not really possible to tell, and yes, you do have to parse what he said down to the word. There is no context.

Posted by: dcpi at August 29, 2005 7:51 PM