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Why Suffering the Pain In The Housing Market Now Is Important

October 27th, 2007 • Related • Filed Under

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One of my biggest fears is that politicians are going to try to soften the blows to the housing market over the next election year. I have preached about the law of unintended consequences and I truly believe that almost any action out of Washington will create more heartache rather than less.

Writer John Baden is able to put it into terms much more eloquently than I can, but the general thoughts are still there. Essentially, stupid people made stupid loans to stupid people. Undoing this mess is going to be painful, but like pulling a bandage off, faster is usually better. A long drawn out affair softened by government intervention will just extend and compound the pain the housing market will feel.

A society’s economic success is increased if it has sure and quick ways to accomplish this separation, however painful to those who suffer losses. While there will be political pressures to buffer folks from the consequences of economic folly or bad luck, it is socially dangerous to do so. Reality checks should have force, so that those who fail to prudently manage resources will not keep control over them.

My banker friend and FREE board member Leon Royer recently wrote: “Too many people (borrowers, bankers, investors and investment bankers) have done too many dumb things for this situation to be resolved without substantial pain disbursed over many folks. No optimistic happy talk will change the curing time; it’s likely measured in years.”

Economist Peter Linneman nailed it more harshly in “Making Sense of the Current Capital Markets Disarray.” He observed: “As for the idiots who lent (often without down payments or documents) to the idiots who bought speculative homes, they deserve to lose. People must understand this simple fact.”

Our pressing danger is not that many folks will go broke, but rather that opportunistic politicians will bail them out and insulate them from past and future folly. We need to find and support those who instead recognize the ecological question: “If correction is not swift, then what will follow?” The longer we wait for a correction, the more massive and painful their suffering — and ours — ultimately must be. That’s the way the world works. via TCS Daily

There Are 9 Responses So Far. »

Comment by Jeffrey on 27 October 2007:

Many interesting points. Investment involves risk and people who have made dumb moves are going to experience losses, theres no way around it. Not everyone can be making money all the time in the market, there have to be losers and dumb mistakes and decisions will have their consequences. Check out this commercial market news blog
Comment by William L. Exeter on 27 October 2007:

I could not AGREE with your more. The faster we address the pain and get it behind us the faster we can move forward in our businesses.
Pingback by The Feed Bag - Crickets Chirping on 27 October 2007:

[…] Royce explains Why Suffering the Pain In The Housing Market Now Is Important. Agree. Required […]
Pingback by The Feed Bag - Refried and Served Again on 28 October 2007:

[…] Royce explains Why Suffering the Pain In The Housing Market Now Is Important. […]
Comment by Tim O'Keefe on the Bubble on 28 October 2007:

“As for the idiots who lent (often without down payments or documents) to the idiots who bought speculative homes, they deserve to lose. People must understand this simple fact.”
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That is a bit harsh. They deserved to lose? Is deserve the word to use?
Comment by Tom on 29 October 2007:

Tim

From a customer service point of view, yes it is harsh.

From a business to business point of view, yes it is harsh.

In the harsh world of economics it is pretty accurate. When money is spent inefficiently it creates disturbances in the economy and need to be corrected. Obviously things got out of hand and people who should never have been lent to were. The pain of these decisions will occur, either quickly or over the long term.
Comment by Houses for Rent in Los Angeles on 29 October 2007:

Being in the rental market, I see that people are desperate to purchase the home of their dreams without realistically equating in their finances, and lenders are desperate to make new home loans and begin lending to higher risk borrowers, spiraling into this web of insufficient funds available to pay back the banks lending the money, creating problems for everyone. Lucky for us, banks have become a little more strict recently, but this pain in the housing market is inevable.
Pingback by Finding the Silver Lining in the Foreclosure Statistics — The Real Estate Bloggers on 2 November 2007:

[…] curve and seeing the silver lining in the real estate market. The suffering of those that either made bad borrowing decisions (both lenders and buyers) in the past have created an opportunity for those that have shown some […]
Comment by Sundream Estate on 4 November 2007:

Houses for Rent in Los Angeles – said;
Being in the rental market, I see that people are desperate to purchase the home of their dreams without realistically equating in their finances, and lenders are desperate to make new home loans……..
Its correct to try get house owner to rent out there houses instead for trying to sell. We do now days many rental with option to buy. The seller gets in some money – and the rental people maybe like the apartment/villa so much so the want to buy it after a while.