Much of what was discussed in this series of posts deserved a lot more depth. Discussion of housing, the Fed, the GSE, taxes…all of them…could and will continue to be written about and discussed by many of the smartest in DC, Wall Street and beyond. I recognize I barely scratched the surface.
As I have said to those who ask, I am not sure what pricing for housing should be right now as the inputs to the market (supply, demand and interest rates) are all being unduly influenced by governmental policy. Fair Market Values are set by a willing buyer and willing seller, neither of which is under undue stress to make a deal. Knowing that monetary policy has kept rates artificially low and the money supply high while simultaneously restricting the ability for builders to build speculatively, tells me that the market is not a normal one. Current policies are impacting both supply and demand…so does that mean home prices are real right now? Which way will they move as DC gets out of the way (or will they?) Likewise, besides the role of the Fed, if you see Fannie and Freddie either a) relaxing their underwriting guidelines or b) being dissolved by congress, then you can see either change would move prices in opposite directions.
What will happen? Your guess is as good as mine.
I do believe that the policies currently originating from inside the beltway in DC are far more extreme than at any time in recent memory and thus, probably will not be here in short order. When the housing market regains its fundamental footing (which it somewhat has), then (hopefully) DC will get out of the way and let the real market forces be that which drives home values for the foreseeable future and not extreme monetary policy.
Ok, it sounds as if I am anti-government intervention, which is mostly true. In reality, I am far more frustrated by the sweeping intervention of the past several years than the necessary periodic tweaks. And while I largely believe that the market adjustment which hit Richmond in 2008 (and lasted well into 2012) should have been far milder if not for flawed policies…that is not the central point in this article.
The true takeaway is this – understanding our government’s ability to both encourage and discourage behavior through the use of monetary policy (and thus lending practices) and tweaking (or changing) the tax code is paramount in understanding market values. Additionally, monetary policy itself cannot isolate a singular industry (like housing) and sometimes the interrelatedness of the marketplace may mean a policy designed to fix one aspect breaks something else.
Despite the fact that we all want to believe that we can dramatically impact our individual home’s value with paint colors, furniture placement or a kitchen renovation, the ultimate reality is that a seemingly benign policy change at Fannie Mae can have a massive impact on our collective home’s values. 2008 – 2012 showed this to be true more so than ever. Hopefully, DC has learned from their mistakes and will leave the market alone and allow it to reset itself with no more interference. The rules and regulations introduced in the past several years created are likely to have no other real effect other than making obtaining a loan a more expensive, tedious and laborious process with no real risk eliminated. When the interference ends and the market knows which set of rules to play by, it will heal. When a market constantly lives under the cloud of potential sweeping change, stability is impossible.