Congressional Foolishness – Cart Before the Horse (and I need to vent)


Apologies to my readers – I have been trying to be less vitriolic in my writings though my original intention for this site was simply to air my thoughts and feelings real time and unfiltered – which many times has happened!

I have certainly had some readers (many of whom are clients) tell me that I am very vociferous in my writings on occasion – and yes I am – but sometimes I do get angry and thankfully this site is a good vent. Sometimes I get angry, then think about what I wrote and reflect, and sometimes change my thinking – so this site is helpful to me in many ways. And I just hope you get enjoyment out of my multiple personalities!

Nonetheless, the point for my need of venting:

From Calculated Risk:

Apparently the NAHB (National Association of Home Builders) got some Congressmen to propose legislation (HR 5409) to have the US Treasury guarantee construction loans (See NAHB press release here). The problem cited in the PR is that banks will not lend to builders because bank regulators want banks to reduce the amount of risky loans on their balance sheets to prevent financial distress.

So one federal agency wants banks not to lend (for good reason) and another will guarantee the loans with our tax dollars so they do lend (if the borrower defaults, tax dollars pay back the bank – more bailouts!). What we have here (is failure to communicate) is the famous problem of putting the cart before the horse. We have a weak real estate market due to lack of demand – lack of demand is caused by many problems:

1. Underwater homeowners can’t sell, and can’t “move up”

2. First time home buyers don’t have the down payment (unless they use the ridiculous USDA program or such)

3. Many don’t have the credit score to obtain a loan

4. Houses are too expensive when compared to average income (yes they are now more ‘affordable’ than they were two years ago but still not truly affordable). If housing costs are more than 30% of your household budget, you are in a danger zone in my opinion, especially with people having NO EMERGENCY FUNDS which means losing a job for 6-12 months = foreclosure.

Anyway, back to the story. There is WEAK DEMAND for housing and that’s why we should not be building. Builders made tons of money, just like stockbrokers did in 1999, and it’s time for them to go do something else for a while (just like stockbrokers in 2001-2002).  The answer is not to build houses that the market can not handle.

But this is the underlying problem – silly Congressmen see a problem in a vacuum: no new housing construction. And foolishly thinking that this is a way to “jump-start” the housing market, as I have discussed before is more of a lagging indicator in my opinion, want to “solve” the problem by throwing money at it. The real problem and cause of a weak housing market is unemployment, which if decreased, may increase home buying. However, we built so much in the 2000’s that we need time to go through the inventory. Unfortunately, I don’t think these Congressmen understand that – they see an “isolated” problem, and want to “fix” it. As Calculated Risk says at the end of his article:

“There is still a large overhang of existing housing units (at the current price). The last thing we need is more production – and then sticking the U.S. taxpayers with more bad loans.”