Washington's Blog: The real Reason Housing Prices Have Skyrocketed.
How another Housing Bubble was Blown, and why. Housing Prices: Up Or Down? Recovery, Or Artificial Housing Bubble Which is About to Pop? We showed that mortgage applications are down, and it is really institutional investors, driving the housing boom. Part 2 explains why. Housing prices have boomed because: (1) Lenders are artificially keeping vacant houses off the market and (2), The Obama administration has thrown all sorts of artificial incentives at institutional investors to pump up prices. Artificially Suppressed Housing Inventory: Naked Capitalism reported last August: To trends are apparent. One is that banks are delaying foreclosures, or not foreclosing at all, despite long term delinquencies. The other is that private equity firms flush with cash, thanks to Tim Geithners religious devotion to trickle down economics, and the resulting cascade of corporate welfare, have been bidding up and holding foreclosed houses off the marked. These two factors have artificially limited supply and, combined with cheap mortgages rates, driven up prices. While we can debate whether these strategies represent the best public policy, these policies are obviously not long term sustainable. Lenders argue the drop in foreclosures is caused by delays in the court system. However, Judge Jennifer D. Bailey, lead foreclosure judge in Miami-Dade County, epicenter of the foreclosure crisis, solidly rebuts that argument. Here in Miami Dade Countys Eleventh Circuit, there has been no delay in foreclosure case hearings for nearly two years, Judge Bailey said in an August 19, 2012 interview with the Miami Herald, If you want to see a judge to hear your trial or summary judgment, you get a prompt court date. This coincides with my own observations in foreclosure court, when judges rail at bank lawyers for repeatedly delaying their cases, even when borrowers are in now way contesting their foreclosures. Holding back inventory means that the houses that are put on offer, sell faster and at higher prices. That creates an incentive to delay foreclosures or not to foreclose at all, even when a home is delinquent. Indeed, in the real world, 12.6 million houses are vacant, 1.5 million more homes are than underwater. In other words, without artificial scarcity created by banks, there would be more available houses than there are underwater homeowners having problems paying their mortgage. There would in a word be a glut. Government is Secretly Helping Financial Companies to Snap Up Housing. There are realistic ways to help the economy. For example: Force the big banks to write down bad debt, Crack down on fraud, Break up the giant banks, Force Wall Street to reduce leverage. Stop encouraging business to send jobs and dollars abroad.