Opinion

The Edgy Optimist

A recovery without a home

Zachary Karabell
Sep 13, 2013 15:07 UTC

Five years after the collapse of Lehman Brothers and the onset of the 2008-2009 financial crisis, the U.S. housing market is at last starting to thrive. It has, in fact, been steadily improving over the past years, and that trend has only accelerated of late. Housing is widely perceived as a key ingredient to a healthy economy, and so the revival in the housing market has been heralded as a positive step for an American system that has been sluggish at best. Similar trends in the United Kingdom and parts of the EU are greeted as positives as well.

But is it? Housing is a key aspect of economic activity in most countries, but that doesn’t mean that we should welcome a return to housing as a perceived pillar of national strength. And we should be very wary of any return to an ethos that sees either home ownership or housing prices as a barometer of individual and collective success. Those attitudes very nearly imploded the modern financial system, and they could imperil it again.

Homes are places where you live. They are not — and should never have been — investment vehicles. Yes, homes may gain in value and augment one’s net worth, but the reason to own a home is that it can be a cost-effective way to obtain a place to live. The minute they are seen as investments, that reality gets perverted, with dangerous consequences.

There’s no doubt that the economics of the housing market have been steadily improving. Foreclosures have dropped in half since their peak, from over 1 million in 2010, to a predicted 490,000 this year. Housing starts are up nationally, from a low of less than 500,000 in 2009 to close to 900,000 this year, and prices are up more than 10 percent over the past 12 months.

These national trends are neither evenly distributed nor certain to continue. The Northeast, for instance, has been weaker of late than the rest of the country. The recent spike in interest rates, triggered by the imminent Federal Reserve decision to curtail some of their aggressive bond buying, may dent the momentum as well.

Fannie, Freddie and our flawed ‘Ownership Society’

Zachary Karabell
Aug 9, 2013 19:09 UTC

More than four years ago, President Obama assumed office promising dramatic reform to the housing market. After all, it was the housing market that triggered the financial crisis, and the vast proliferation of low-quality loans that had fueled the housing bubble. But politics delayed those reforms, and now the president is reopening the issue with a call to wind down the two main federal mortgage agencies, Fannie Mae and Freddie Mac. “For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag,” the president said this week. “It was ‘heads we win, tails you lose.’”

Well, not entirely. The U.S. government and taxpayers did rescue these agencies in 2009 (to the tune of nearly $200 billion), and, after injecting them with capital and essentially nationalizing them, these companies started to turn a profit as the housing market slowly recovered. This month, they contributed more than $15 billion to the U.S. Treasury, and have been one factor in sharply reducing government deficits.

Even more, Obama’s targeting of Fannie and Freddie is part of a larger narrative — on both the left and the right — that banks and government colluded to produce the financial crisis and the continuing drag on the United States. To be fair, Obama in the same speech this week acknowledged that much of the housing crisis was the product of “banks and the government…[making] everyone feel like they had to own a home, even if they weren’t ready and didn’t have the payment.” But that chord is a decidedly minor one in a general atmosphere of blame.

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