Blinded by the light: NAR economist pumps artificial sunshine into dark situation

    There is nothing like a major crisis to up the chutzpah quotient.  Three executives of money-burning car companies fly to Washington in their separate gas guzzling private jets with their hands out and their briefcases empty of anything resembling a plan.  That is a textbook definition of chutzpah.  Banks begging for survival money and then spending it on executive payouts and shareowner dividends -- the execs are big shareowners, lest we forget, and the dividends are about all that is left of their investments -- are well out there on the chutzpah scale too.
    We should have figured that it would not be long before factions within the real estate industry would extend their own hands, and they have not let us down.  According to an article in yesterday's Wall Street Journal, under the headline "Builders Make Plea for Federal Aid," the residential builders lobby is pitching a $250 billion stimulus package that it calls "Fix Housing First." They want to encourage more people to buy houses by having the government provide up to a $22,000 tax credit to new home buyers and mortgage subsidies that will bring loan rates down to 3% next year (4% during the second half of 2009).  Those loan subsidies, the Journal figures, could cost the government as much as $16,000 for each $200,000 loan.
    Now, we should not fault the homebuilders too much for the housing crisis; they were feeding demand, not creating it.  But pushing right behind them for a handout now is the more culpable Lawrence Yun, chief mouthpiece cum economist at the National Association of Realtors (NAR), who pumped enough sunshine into the housing market even after the solar eclipse began that unsuspecting realtors and investors nationwide were burnt (literally) in the glare.
    For a housing market economist, Mr. Yun does not seem to know very much about his own market's basics.  In trying to run his jive by the government, Yun has calculated that every 1% drop in interest rates will spur between 500,000 and 800,000 home sales.  What market is he talking about?  Who, exactly, is going to buy all those homes?   Not the 8% of Americans soon to be without jobs, or the 10% or more if the car companies are forced to restructure, which appears inevitable.  And what about all those homes many of these unemployed workers will be forced to sell?
    You don't need to take a real estate course or Econ 101 to understand that the housing market is driven by supply and demand.  Sorry for the basics, but when demand is up and supply down, prices rise.  And when supply is way up, as it is now in spades, and demand way down, then prices drop precipitously.  
    You can manipulate supply in some ways, including by stopping the building of homes and by dropping prices radically on the vast supply of homes on the market.  Foreclosure pricing accomplishes some of that, although there are prices below which even banks are reluctant to go.  But on the demand side, you cannot force people to buy a home no matter how many incentives you build in, financial or otherwise.  Despite the sub-prime mess, most people do know that, at the end of the day, they have to pay back their loans, and those who don't know it are about to find out when they are forced out of their homes.   
    In short, no matter how many incentives you throw at them, those who fear for their jobs and income are not going to buy a home now.  They've read the stories about Detroit and Lehman Brothers and Fidelity and Boeing and so many other companies that are cutting staff.  Those who are calling to work on the supply side first, by keeping people in homes that otherwise might make it to the market via foreclosure, have it right.  Lawrence "Pollyanna" Yun isn't one of them.