I wrote the following advice to President Obama in late August:
“Instead of trying to prop up the overbuilt housing market, the President should propose measures to allow the economy to work off its excess inventories of housing and to find a bottom in housing prices. Only after the bottom is reached will construction resume.”
In a campaign appearance, Mitt Romney came to the same conclusion, saying that we must let the housing market clear and then we can have a recovery. Romney was widely ridiculed and has said little since then. In the meantime, Obama has tried one scheme after another to keep housing prices up and foreclosures down.
Today’s Journal’s Rise in Phoenix Housing Prices Shows Path for Other Cities shows the wisdom and courage of Romney’s words. Phoenix’s housing prices fell fifty five percent and its foreclosure rate rose to number three in the nation, but Phoenix housing prices are turning around. Whereas, housing prices continue to fall nationwide, Phoenix’s are rising as low prices have brought new buyers into the market. Buyers from Canada are flooding the market and investors are bidding for blocs of homes, which they put on the rental market. Owners of underwater homes are being offered purchase contracts which allow them to stay in their houses as renters.
As one expert notes: “Phoenix has hit bottom.” This means that Phoenix will be among the first cities to experience a revival in homebuilding and the jobs that go along with it.
I remember well the housing bust of Houston as oil prices plummeted in the 1980s. No one propped up mortgages. Underwater homes went on the market. The inventory disappeared, and housing construction revived.
This is simple economics of supply and demand.
What appears to liberals as mean spirited capitalism actually shortens the period of pain and accelerates the recovery. I guess they will never learn this elementary lesson.