The president of the National Association of Realtors, Ron Phipps, has sent the following letter to members, in which he says:
In the days ahead, NAR will be reaching out to Congress and the White House to emphasize the clear connection between housing, jobs and the economy. Rather than limit support for housing, and the availability of credit, NAR is calling on Congress and the White House to advance policies that will move the housing market back to a healthy 5.5 million sales, where it SHOULD be.
We will be asking lawmakers to:
* Preserve the mortgage interest deduction at current levels.
* Move the credit pendulum to equilibrium, defined by a median credit score of 720.
* Maintain government backing in the mortgage market as part of GSE Reform.
These three steps would help bring the housing market back to a normal level, possibly generating an additional 1 million home sales and 500,000 jobs.
As the voice for real estate, we hope that Congress and White House gets the message: real estate is all about jobs.
Here is my reply as posted on his blog.
I suggest that your three points sort of want to hope to move us back to the 1990s, instead of moving forward. We’re not going backwards. The problem now with housing is artificially high prices, which seems to be related to foreclosed loans being held by the Government (whether the Fed, Fannie Mae or Freddie Mac) instead of being auctioned in the private sector. This causes a looming disaster if the percent of loans owned and managed by the US Government increases instead of decreases.
There is nothing wrong with the government being the underwriter of last resort, IF AND ONLY IF the loans provided are at market risk. If they are not, as has been the case with mandated policies of loaning to minorities, then there is what we call “Moral Hazard” in such underwriting. That means that eventually, the bill will become due as those moral hazards create market failures.
Further I suggest examination of the issue of inflation. In the past, serious inflation is accompanied by low unemployment. You suggest policies which would improve housing, and lower unemployment, and therefore, your suggestions would directly create inflation.
Inflation at this time would be the natural result of the some $5 Trillion dollars printed, but it’s being artificially staved off by repressing several market sectors. Of these, housing is the key. The result of your suggestions would likely create something quite worse than the inflation we saw in the Carter years, when home loans surpassed 15%. You can’t have your cake and eat it too.
You see, not only must that $5T be absorbed into the money supply with a consequent weakening of the US dollar, but that deficit spending will possibly continue even with the recent changes in Congress. Right now you can see their policies, as housing is stagnant and yet energy and food prices are rising. This is purposeful, and is due to the fact that government controlled entities can and will affect housing prices, demand curves and the effective interrest rates for those business sections.