Wednesday, July 21, 2010
Housing skips a beat
So now that the $8K tax credit to buy a home ended in April, it seems that housing prices are still facing a deflationary environment. All the tax credit did was put off the inevitable to a later date. Housing inventory continues to climb and housing starts are falling again. This is clearly bad news but not surprising for those of us that advocate the Austrian economic perspective. Attempting to prop up housing prices with short-term government aggregate demand is a losing battle. My opinion is that housing has a long way to go before it hits bottom; it may take years before it all washes out and prices stabilize. The federal government has tried everything to prop up prices--tax credits, mortgage refinance programs, and even having Fannie Mae soaking up billions of underwater loans to no avail. Unfortunately, it seems that we are going to learn the hard way that artificially propping up prices solves nothing in the long run.