Law professor Todd Zywicki of George Mason University was featured in Forbes on Friday in an article by Peter Robinson. He makes a case for letting the housing market clear:
"Assistance for the relatively small number of people who are facing really tragic circumstances makes sense," Zywicki says, "but if the administration tries to push overall housing prices back up, it will only be asking for trouble."Zywicki says regions like ours aren't King-Learish:
"The second type of market, which appears in New York, Boston, San Francisco and Washington, D.C., demonstrates a long history of price volatility. 'The housing stock in these markets is constrained,' Zywicki says, 'either by geography--San Francisco is surrounded on three sides by water, for example--or land use controls.' When demand in such a market increases, prices soar. And when demand weakens, prices plummet.Just aggravation on all sides.
'But the people who live in these markets expect big price swings,' Zywicki says. 'They've learned to live with them. They're holding onto their homes because they're confident prices will eventually recover. Again, there hasn't been any tragedy.'"
7 comments:
Foreclosure Sales Stalled by Red Tape
Do we really 'expect' wild price swings? I don't. Or didn't. Or something, but I don't have the length of life to look back on this with that kind of an eye.
And if they're including places like San Francisco, that means that price swings as high as triple the usual price-to-income ratio are amongst those "normal market fluctuations".
I may agree with his conclusion, do nothing, let the knife-catchers and cash-flow investors set the support level and save the banks from themselves, but I disagree with his reasoning. The reason we should let these things unwind without interference is because (a) new owners are buying the stock and opening new loans (b) banks need to learn from their mistakes, they need to feel the pain of losses to learn not to give out loans to everyone with a pulse, not to assume zero losses in an infinitely appreciating environment, not to offer risky loan products to unsophisticated customers.
Xpovos,
I absolutely agree. That was weird.
He's a lawyer, probably not much of an empiricist.
I also don't know where he got the idea that we expect "wild swings."
Real estate is cyclical, but usually it consists of "booms" followed by small nominal declines and stagnation.
oops, substitute "big price swings" for "wild swings."
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