Shiller: Austerity Negative for Housing
On Tuesday, we reported that the unadjusted broader Case/Shiller index fell 4.5% on a year-over-year basis. Month –to-month numbers were positive in most markets, however, due to the usual buoyancy of the Spring and Summer selling season. (Property values were flat on a seasonally-adjusted basis).
Economist Robert Shiller spoke with Carol Massar and Matt Miller on Bloomberg Television’s "Street Smart" on Tuesday. Shiller sees the likely austerity that the US will see as a result of the debt ceiling debate as negative for housing demand and expects this to impact prices.
Note, Shiller flags the degree to which Fannie Mae, Freddie Mac and the FHA are propping up the housing and mortgage markets. This is significant when you ask How much did Fannie and Freddie cause the financial crisis? as Tyler Cowen did recently.
I told you in 2008 when Fannie and Freddie were nationalised, I felt that they would be used for the nationalization of America’s mortgage problem – a back door bailout for the banks. See last May’s post Banks Making Shed Loads But Fannie And Freddie May Be "Losing Money as a Matter of Policy”. And indeed, as I reiterated in January of last year, the government is still manipulating mortgages.
So, you can’t look at Fannie and Freddie’s losses as any evidence that they caused the crisis. More it is a recognition that they were major contributors to the crisis (or as Cowen says “the mortgage agencies made the crisis much, much worse”). What’s more, they are being used to conduct a stealth bailout at taxpayer expense. These agencies should never have been private companies and should now be shut down. Set up a different agency if you want the government to perform any guarantee function.
P.S. – when I say shut down, I mean wound down over time. Yes, this would be negative for the economy. But, if you want to aid the economy, promote jobs or do a job guarantee. Don’t prop up asset prices artificially.