We Need a Pitcher, Not a Belly Itcher

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Housing market needs leadership, not low interest rates.

Low interest rates, tax credits and cheap housing prices haven’t made a dent toward a recovery in the housing market. People don’t need to be coaxed into buying a house. They need to believe they are taking a smart step toward their long-term happiness. Unfortunately, nowadays people believe that buying a house is a risk that puts their financial future in danger.

The federal government and the banks have been the loudest proponents of technical fixes for the housing market. Their wishes have been fulfilled as mortgage rates are now at historic lows. This is, of course, largely courtesy of the Federal Reserve’s $2 trillion buying binge of mortgage-backed securities, conducted over the last two years. And Fed chairman Ben Bernanke has made explicit promises of keeping rates low over the next 24 months.

What effect has this had? Other than protecting the banks, facilitating short sales and allowing some individuals to improve their balance sheets — as well as giving mortgage brokers a prayer to cling to — the housing market has remained relatively stagnant.

This is because the housing market relies on … wait for it … people buying houses. When people are scared about their future, they don’t spend money. They certainly don’t buy big-ticket items. It has become increasingly apparent that consumers no longer believe in their house as a valuable or “safe” asset.

Unfortunately, that has significant ramifications for the U.S. economy. Every sustained economic recovery over the last 100 years has included a recovery in the housing market. The only recovery that didn’t see a rebound in housing in 1981; it was followed by a recession in 1982.

The relationship is neither casual nor insignificant as it reflects the level of consumer confidence in the recovery. Ergo, when confidence is lacking, housing suffers. With a depressed housing market, the economy drags regardless of how well businesses are doing.

Look at the 1990s or the beginning of the 21st Century. People paid mortgage rates nearly double today’s rates — and were willing to enter into complex adjustable rate or balloon contracts that guaranteed rising interest rates in the future. They didn’t care how much risk they took on.

They believed in the future and wanted to claim their stake in it, with housing a seeming and worthwhile asset. Confidence was so strong that property could be collateralized purely on the belief of future demand. Sadly, that is no longer the case.

Today, the banks received all they’ve asked for, and listing prices are around 30 percent lower than before the bubble burst, yet people still aren’t buying. In fact, the housing market is now 8 percent down from the start of the recovery. Instead of viewing this as a buying opportunity, people are sitting on the sidelines, afraid.

The bottom line: The housing market is suffering from a lack of leadership in the economy.

Being the season of Sukkot, I’m reminded of how the Jews wandered in the desert for 40 years with nothing but temporary shelters and clouds protecting them. Why temporary? Because they knew they were going somewhere.

Today’s housing market needs that injection of forethought. People will endure houses built on leveraged balance sheets and the promise of something better if they believe that the promise can be realized and they are going somewhere. Thus, the secret to the recovery for the housing market is economic leadership. We have to believe we are going somewhere.

Unfortunately, what we’re currently presented with is muddling from one crisis to the next. Each crisis (housing, employment, debt) seems to catch our leadership off guard and brings with it a round of negotiations, the gains from which seem short-term — moving one political campaign or another forward — but not moving us closer to a better economic future.

The American public can take setbacks and hiccups on the road to a promised land. Give us a vision, give us a plan, and we’re happy to trudge through the mud to get there. But without leadership pursuing a vision for a better tomorrow, we feel as exposed and scared as wandering in the desert — alone.

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