Diary

Housing Recession Could End Quickly If...

If you watch television, you know that there are two staples on cable: Poker tournaments and ‘house-flipper’ shows. The former we could discuss at another time, and the ‘flipper’ shows are an outgrowth of the housing boom that unfortunately has since gone bust. For those living in a cave, ‘house flippers’ are people who buy shabby properties – usually one at a time – and rehabilitate and re-sell them – ‘flip’ them – hopefully at a profit.

 

The shows often build tension by featuring people who look like they are doomed, spending beyond their budgets and going way over their schedules, but who make out OK in the end. The truth is, however, that thousands of small-time, one-house flippers have gotten hammered in the housing collapse and have lost everything.

 

Flipping is a good capitalist idea. It takes something with less value and adds more value to it. But there is a sadly amusing side to the shows in that they started appearing just as flipping was losing steam. Because by the time the phenomenon had been noticed and the shows were dreamed up and put on TV – a period of several years – the market had reversed itself.

 

Now we have the specter of millions of derelict homes across the nation sitting empty. Swimming pools in California have become green monsters full of algae and insects. Whole city and suburban blocks are full of ‘ghost houses’. Prices have collapsed. Oh, if only the ‘flippers’ were around now…

 

But let’s look at the big picture of how this collapse occurred.  In fact this whole housing problem was caused by one thing and one thing only: Over the last 50 years, the media and the universities and the liberals have made the word “conservative” out to be evil.

 

When banks historically demanded 10% or 20% down to make a home loan, along with documentation of employment, it was “conservative” thinking. Banks loaned money after determining that the borrower could pay it back.

 

But the Democrats believed that this was racist, sexist and all the rest. The Community Reinvestment Act of 1977 forced banks to abandon conservative policy and to loan money to anybody in any neighborhood who wanted it. Groups like ACORN pressured banks to make such loans. Fannie Mae, a government-sponsored agency established by Democrats during the depression of the 1930s, was buying the loans, taking the risk off the lender’s hand and transferring it to the taxpayer. And in 1999, after major efforts by the Clinton administration, Fannie started buying NINJA loans – no-income, no-job loans made to unemployed people without a prayer of paying the money back.

 

In addition, the banking and financial systems have been infiltrated by hundreds of thousands of university and business-school graduates with a leftist point of view. And thus you have a system run with a political goal, not a financial one.

 

So Democrat thinking evolved this way: If you loaned money to a million poor people, and 900,000 of them defaulted on the loans, you call it a success because 100,000 poor people got houses.

 

Seriously! This is how liberals think. And never mind that the taxpayer and the general public gets stuck with the bill.

 

Now the stock market has dropped, the housing market has drowned and there appears to be no help in sight. But this is false. The current crisis needs one thing only to correct itself – TIME!

 

And with TIME, the housing market will turn itself around. And then it may even boom again. Here is how:

 

Once any sense of optimism comes into the air, and with easier credit, banks will start lending again. Then the small-time, local ‘house flipper’ phenomenon will kick back in. For instance, the couple working out of their kitchen will see a property that they can buy cheaply, fix up and make a profit on.

 

Or the unemployed carpenter will use a small stake from his savings account to purchase a derelict property and will put himself to work fixing it. In fact, if two million smart, motivated, financially-savvy people decide to flip one house or three, the market could get cleared up quickly.

 

What is this phenomenon? It is the so-called “invisible hand” of free markets propounded by the Scottish economist Adam Smith who said that there need not be any directing person or agency to fulfill an economic need, but that an existing need will be filled by the “invisible hand” of the marketplace.

 

This “hand” does not force people to act, but will induce them to act of their own free will and in their own interest to provide a product. And since the need for housing always is increasing, the ‘flippers’ could end both filling a need and also revitalizing the market.

 

Already there are individuals and companies buying up derelict properties left and right. In other words, ‘flipping’ is already in the pipeline, waiting for the credit markets to signal the right time. So companies and individuals working in tandem could combine as a powerful economic force to right the market.

 

If Obama keeps his greedy hands off, that is, and doesn’t take the incentive out by taxing every transaction in sight.

 

But Obama will not keep his hands off and the housing recession will end only when we get more sensible conservative policies.

 

In contrast, just imagine that the government sets up some agency to do the same thing. In the end, nothing would get done and trillions more would be squandered. Corrupt politics would consume it, and every Democrat in the nation would be on the take.

 

We should not be overly pollyannish about this. There certainly are places that won’t recover much. But after the ‘flipping’ phenomenon established itself over the last 7 years, house ‘flippers’ could easily return and have a significant impact.

 

The best thing to do at this time is to have patience, let the credit markets ease, and allow individuals working in a free market to clear up the hosing crisis. Keep government out! Government caused the crisis in the first place.

 

It will be the hard-working American people at the grass roots who do it all, one by one by one, house by house by house. As usual.

 

Please visit my website at www.nikitas3.com for more. You can print out for free my book, Right Is Right, which explains why only conservatism can maintain our freedom and prosperity.