Diary

Another Government Failure – but Not Really Unexpected

US home sales dropped dramatically in May. They are down 2.2% from April, a fact which seems to have surprised the White House and the press, but which shouldn’t surprise anyone with even a slight understanding of market forces. How much grey matter does it really take to figure out that when there’s an $8000 (or $6500) incentive to buy before the end of April, people who are planning to buy houses soon will make sure they buy before April. That also means that most people who were likely to buy a home in the near future would have moved their purchase up to make sure they got the credit. This then would lead to a drop in the following months.

But apparently this concept was a bit much for those who report on the housing market to understand. For some reason this drop was a surprise to them. Could this really have been unexpected?

Obama’s HUD administration chose a poor time to release this gem. It’s a report bragging about how effective his housing stimulus program was. Unfortunately, the data is a bit out of date and doesn’t include the drop in May. Nor does it include the continued drops we can expect for the next couple of months as after effects of the credit expiring.

It is very rare for good to come from the government meddling in markets.