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The Myth of a Housing-Driven Recovery   September 19th, 2012
Our problems can't be solved by repeating our mistakes       


More observations...

The media yesterday was in virtual celebration over the supposed housing recovery.

The U.S. housing industry -- crucial to any jobs recovery -- showed more signs of strength, according to two reports issued Wednesday....

If sales continue to gain steam, that could help the nation break out of its economic doldrums. Home building provides many good-paying jobs, about three hires for every home built in a year, according to the National Association of Home Builders.

A rebound would create other jobs too: factory jobs at carpet and furniture makers, for example. Truckers get work transporting all those goods.

I'm sorry to disappoint Obama and Democrats--and those that are honestly hoping this will lift them out of Obama's recession--but housing is not going to "recover" anytime soon, and it won't be "crucial" to an eventual jobs recovery that ends the Obama malaise.

As I wrote over a year ago, "if we're expecting the housing market to pull us out of this recession, we're going to be disappointed. The recovery will come from hard work, innovation, and increases in productivity. Not from accounting gimmicks and bailouts with printed money from the government in fruitless attempts to defy the laws of supply and demand in the housing market."

I visited Las Vegas last weekend and I was astonished--and worried--to see how many new houses were being built. Las Vegas saw some of the most ridiculous over-construction during the housing bubble and has seen some of the worst collapse as the housing bubble popped. Apparently, in Las Vegas, cash buyers are purchasing new homes without appraisals which is driving up prices--and presumably leading to renewed interest in building homes.

But how many people are really able to pay cash for homes? How long until those cash buyers have bought all the homes they need? And how long until the 75,000 homeowners in Nevada that are not making good on their mortgages lose their homes and flood the market with inventory?

We've already built too many homes in the United States, and too many people still in their homes can't afford to keep them. When it comes to our housing market, we're still sitting on an economic time bomb even if we don't keep building houses. Building more houses now is only going to accelerate the detonation and increase its destructive force.

Every time I see a report about "new home construction" showing signs of improvement, I'm not excited. I'm frightened. We have an oversupply of homes and we're building more. This can't end well.

Simultaneously, the media is starting to exert pressure on banks to ease up on lending standards.

With mortgage rates at the lowest levels in a half century, and falling, the housing market is crawling out of the worst recession since the Great Depression...

But while low rates may encourage home buyers to go shopping, cheap money has had little impact on choosy lenders who are demanding much better credit to approve a mortgage application...

The Fed said the data does not include enough information "to determine the extent to which these differences reflect illegal discrimination."

So we have home builders building too many new houses in a market that already has too many homes. We have the Federal Reserve trying to push down interest rates to encourage people to borrow more money to buy homes. Pressure is building for banks to lower their lending standards. And there's an insinuation that banks may be engaging in "illegal discrimination" (racism) in terms of denying loans.

Our current situation looks virtually identical to the conditions that led to the housing bubble that popped just a few years ago and triggered our current crisis.

Have we learned nothing over the last decade and a half? Do we really think we can solve our problems by repeating our mistakes?

Regardless of whether or not housing has been an important factor in past recoveries, it won't be an important factor in the one we continue to hope for.

The coming recovery will come from hard work, innovation, and increases in productivity. It will come from the certainty of the elimination of the uncertainty that Obama has created. It will come from the release of the forces of the free market that have been suppressed by this administration. And it will come from entrepreneurs that find new confidence in a government that gets out of the way and lets them succeed, and celebrates their success rather than condemning and punishing it.

We can't cling to some fantasy that, like past recessions, all we need to do is build some more houses and the economy will reactivate like magic. We need to face the reality that there's a lot of hard work to do. One of the hardest things to do--a lot harder than building houses--is to admit we've made mistakes.

And one of our most important opportunities to admit a mistake--and correct it--will come on November 6th.

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