Sept. 20, 2008: This endless election season may give the real estate market time to self-correct before new legislation can make things worse
Looking for a silver lining amidst the black clouds of financial news? Here's one: The fact that we're in the middle of an election campaign gives us at least a fighting chance of solving our own problems without more government interference in the real estate market.
Everything that's happened so far has been a triumph for the government approach to what should be free markets. Since the 1930s, the Federal government has been guaranteeing home loans. That made it easier for Americans to buy homes, but it dulled that flinty due diligence we expect in bankers.
Our tax laws favor homeownership with deductions, credits, capital gains exclusions and favorable loan terms. It's nice to save on taxes, but these incentives induce us to own homes where we might otherwise do something else with our money.
In the recent past, the Federal government decided everyone should own a home, no matter what. After 9/11, the Federal Reserve Bank reduced the cost of money to almost nothing. Hundreds of different arms of government at all levels gave away financial incentives to homeownership. And the U.S. Treasury seemed to hint that American mortgage-backed securities were as safe as houses.
This has turned out to have unhappy consequences. That old-style flinty banker could never conceive of houses losing even 20% of their value, where the Phoenix market has given back twice that much since the market peaked.
Even so, the sky has not fallen. Wealth is not dollars, wealth is the productive power of the American economy. The majority of Americans still have significant equity in their homes, with many of them being owned outright.
What's happened is that lenders and their financiers and, unfortunately, the American taxpayer, have taken a hit to the wallet. If the Federal government can restrain itself from overreacting, we'll dig ourselves out in due course. And that's why we're blessed by this election: It will be at a least a year before the Feds can marshall any significant new legislation, and, by then, we could be well on our way to solving our own problems.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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