As a renter who has long had no real hope of affording any house or condo in my D.C. neighborhood, I have some sympathy for Joel Stein’s point here about the housing bailout.
A lot of optimistic people bought houses near the historic height of the market, say November 2005, for absurdly high prices, say $1.12 million, in places like the eastern Hollywood Hills section of Los Angeles. These people are very, very sad. Trust me on this. But the sudden drop in housing prices hasn’t made it any harder for these people to pay their loans. That’s because your home’s value is utterly irrelevant until you want to sell it — the same as your baseball cards, Hummel figurines or casual encounters.
The only people affected by plummeting real estate prices are the ones who bought a house that cost more than they could afford, hoping for a spike in value so they could sell at a profit or take out a new loan based on an increased value. Their home wasn’t just a place to live; it was an investment they thought they could liquefy at will. . . . Much as it pains me, housing prices need to come down a lot more for the sake of the country. It’s not that the housing market has suddenly gotten sick and needs medicine. It was sick, and it’s getting better. Just like $4 gas, Pets.com and Jim Carrey’s career, we are undergoing a needed correction.
The trick is, of course, that the losers in the housing bust are not just optimistic house investors who bought stuff they cannot afford and need to sell, but the idiotic banks and securitization firms that lent these people money they could not pay back. And as the housing market continues to collapse–have no illusions, the collapse is not done yet–those stupid banks have to deal with all their newly worthless paper by recapitalizing, pulling money out of the economy, which means that I too, a pessimistic renter, am caught up in my neighbors’ bad decisions.
UPDATE: Several commenters make the valid point that Stein is overstating when he says, “The only people affected by plummeting real estate prices are the ones who bought a house that cost more than they could afford.” He leaves out those who bought houses they could afford for the long term, but then found themselves laid off because of the tanking economy. This group is doubly effected, because as the banks pull back to recapitalize, there is less money in the economy to provide new jobs, and with housing prices tanking, they cannot just sell and move.