- - Thursday, October 9, 2014

ANALYSIS/OPINION:

Michael Taube’s clever column highlights the still-troubled housing industry’s stagnation (“When Ben Bernanke can’t refinance,” Web, Oct. 7), but his policy prescriptions are both puzzling and insufficient.

On the puzzling front, Mr. Taube calls for tax incentives for first-time homebuyers and across-the-board tax cuts, yet concludes by calling for the private sector to determine “housing prices, mortgage rates and overall costs.” Any government incentive distorts the market.

Second, Mr. Taube calls for abolition of Freddie Mac and Fannie Mae without acknowledging their role in creating the secondary mortgage market that created more mortgage finance and more homeownership. It seems Mr. Taube would just switch one government subsidy for another without any proof of either’s efficacy or sufficiency.

Many factors impede the housing recovery. We have a smaller generation of would-be first-time home buyers who can’t afford to buy because their income and income expectations are low. We have a mismatch between where these buyers want to live (cities) and where the housing stock is (“exurbs”). We have a swath of homeowners trapped by underwater mortgages, and their inability to move up hurts the market. Providing relief to those mortgage holders should be on the table.

I do agree with Mr. Taube that the market should set prices. Sadly, what that means is that housing prices are going to have to fall to correct these imbalances.

Buying an overpriced asset with scant chance of appreciation is something many families have decided not to do. Either middle-class incomes will have to rise substantially or housing prices will have to fall to meet the new, lower standard of living emerging for the middle class. Mr. Taube, like many others, continues to see the housing market as a closed loop that can be managed with incentives and fails to acknowledge the limits of those incentives. The decline of the expectation of upward mobility and its practical and psychological effects on families’ housing plans must also be addressed.

SUSAN KUHN

Arlington

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