“WHY RENT WHEN YOU CAN OWN?”

At least one economist has shown the good sense and sobriety to avoid the gormless and groundless “Be Optimistic!” mindset that seems to permeate not only his profession but the entire public discussion. David Blitzer, chairman of the Index Committee at S&P, was quoted in today’s (i.e., Wednesday, 3/30/11’s) Wall Street Journal on the housing market:

“January brings us weakening home prices with no real hope in sight for the near future. The housing market recession is not yet over, and none of the statistics are (sic) indicating any form of sustained recovery…At worst, the feared double-dip recession may be materializing.”

Other than the words “at worst” and “may,” I like the way Mr. Blitzer thinks.

Housing will not be back for a long, long time. Yes, incomes may come back, but the problem with housing was that its price grew to levels that completely severed the traditional ties between income and home prices. These traditional, staid, stodgy ratios were not only broken, but became the object of hearty derision by the cognoscenti who did so much to get us into the soup from which we are currently supposedly emerging, because the nation’s (the world’s, really) financial industry engaged in lending that can only be described as insane, confident that they could calibrate the risk and pass it on to “investors” equally confident in their ability to assess risks they had no capability to understand. Unless we are willing, as a matter of public policy, to encourage such irresponsible lending and, by extension, force the taxpayers, or the money fabricators at the Fed, to once again bail out those who engage in such imbecility, housing will not be back for a long time.

What we have to ask ourselves is whether a housing market that takes years and years to return to its former levels is such a bad thing. The deep thinkers, of course, have answered that question; it is, to them, an unequivocally bad thing. We must get housing back, we are told, in order to restore construction jobs and to provide “homeowners” with a piggy-bank that they can use as a mechanism to drive themselves to financial ruin. Overinvestment in housing for reasons having little to do with economics is a good thing, you see.

It looks like the advocates of “affordable housing” may have their way. Our Congress is currently considering methods by which to restore some sanity to housing finance by requiring banks to retain 5% of the risk for loans they bundle and sell. Banks could escape this requirement if they require, among other things, (horrors!) 20% down payments on loans they bundle and sell. Such loans, commonplace when museum pieces like yours truly were buying their homes, are referred to as “gold-standard residential mortgages,” in accordance, one supposes, with the diluting and dumbing down of everything else in our society.

One would not think that a 20% down payment is all that onerous, but one would be incorrect. Already, such notables as Jerry Howard, president of the completely unconflicted National Association of Home Builders, complains that asking people to actually put some money into their homes is the equivalent of “creating a nation of haves and have-nots when it comes to housing.” Equally insightful Senator Kay Hagen (D., NC) wails that “A rigid 20% down payment requirement is going to unnecessarily prevent the middle class, first-time home buyers from getting affordable mortgages.”

One has to admit that both Mr. Howard and Ms. Hagen are right. Requiring a “rigid” (one of those adjectives that has now assumed a connotation similar to that previously reserved for terms like “street walking” or “cross dressing”) 20% down payment will result in a system where those who have the money will be able to buy homes while those who don’t have the money will not be able to buy homes. And such an onerous burden will indeed prevent middle class, first time home buyers who cannot afford homes from buying homes. We are supposed to, of course, consider this a bad thing. Wouldn’t want to be rigid, would we?