Tinkerer's dam: New home sales tumble, and Bernanke blocks consequences...for now

: Feb 27

The U.S. Commerce Department reported this morning that new home sales fell another 2.8 percent in January to their lowest rate in 13 years. Not surprisingly, sales prices slipped also, although the overall housing inventory shrank a little. The report came as Federal Reserve Chairman and Wall Street's most loyal promoter, Ben Bernanke, continued to fiddle before the U.S. House Financial Services Committee, promising that the Fed will do what it takes to prop up the beleaguered housing and credit industries. One wonders just how many more steroid injections the economy can take.
Meanwhile, a savvy piece on the housing market in the op-ed pages of the Wall Street Journal today offers

How many more steroid injections can the economy take?

an articulate overview of how we got into this housing mess and a sober way to address it. In "Let Houses Find a Bottom," author Holman Jenkins, Jr., who edits the political diary subscription web site (PoliticalDiary.com), believes the encouragement of both the Clinton and Bush administrations to spread home ownership to poorer households through ridiculously low interest rates had the unintended consequences of causing rampant speculation by others, many of whom are now simply walking away from their stupid decisions.
    Yet instead of helping poorer households, lower interest rates actually disadvantaged them.
   "For most low-income households," Mr. Jenkins wrote, "homeownership proved a bad bet, even in a rising market...Their capital gains were subpar or nonexistent even if they managed to hold onto their houses for a decade." Mortgage costs ate up their gains, the author reasons, and worse, tied them to subpar neighborhoods with bad schools and bad job prospects.
   As for bailing out the hundreds of thousands of homeowners facing foreclosure, those who should have known better and those who didn't, Mr. Jenkins has a thoughtful if radical notion for the government on how to use our tax money.
   "...buy up houses at foreclosure auctions and demolish them," he writes, "especially in neighborhoods likely never to recover." Doing so, according to Mr. Jenkins, would "nip in the bud the blighted, suburban slums of the future." That would be a harsh diet indeed, but at least it is one without artificial ingredients.