In his Twitter town hall yesterday, Barack Obama made a couple of surprising responses to questions about his regrets over the last couple of years. First, Obama said the extent of the housing-market slide surprised him, and then said that his administration hadn’t done enough to stop it:
President Obama made a rare admission of a policy misstep Wednesday, acknowledging that his administration failed to provide enough support to struggling homeowners and recognize the scope of the nation’s housing crisis.
Despite predictions by Obama’s advisers that the housing market would rebound by now,real estate prices are falling once again. And the administration’s efforts to push banks to modify the mortgages of families who missed their monthly payments have been widely criticized as lacking. …
“The continuing decline in the housing market is something that hasn’t bottomed out as quickly as we expected,” Obama responded.
Really? How difficult is it to determine that a bubble has to deflate before one reaches bottom? Once again, here’s the S&P/Case-Shiller data showing the housing bubble and the extent of deflation:
Quite obviously, we have not yet wrung out the irrational valuations created by the mortgage-market interventions by the federal government. On average, prices are still disconnected from inflation, and until they get re-linked, we’re going to continue to see declines.
One could argue that Obama meant that he expected the valuations to drop more quickly and to have gotten past the inevitable correction after the bubble popped. However, Obama and Democrats did everything they could do to interfere with that process in the first 18 months of his term. They shifted the same kind of intervention conducted between 1998-2007 from Fannie and Freddie to the FHA. They then passed a series of homebuyer tax credits that essentially subsidized sales that would have been made anyway, mainly to buyers who would have qualified anyway, and stole demand from later quarters. On top of that, Obama sunk tens of billions into programs to prevent foreclosures that ended up only delaying them, as the homeowners in question couldn’t solve their underlying financial issues of income versus debt.
And according to Obama, we may see another round of interference in the correction:
Later, he added, that his administration’s efforts to help struggling homeowners were “not enough.”
“And so we’re going back to the drawing board,” he said.
We need to get the federal government away from the drawing board. If anything, the past two years demonstrated just how badly these interventions foul up the needed corrections that will restore the housing markets to health. If Obama wants to do something positive for housing markets, he needs to reduce the regulatory growth that has choked job creation in order to create qualified homebuyers in the long run, as well as rescue current homeowners on the foreclosure bubble.