House prices

February housing prices are slightly up (here's an example, here is another).

The media seems mystified, as Glenn Reynolds says on Instapundit. I suppose they expect all trends to continue along the same chartlines forever-- unless it is good economic news, of course, which is always represented as short term news about to take a turn for the worse.

But as Instareaders point out, at some point the falling price of ANYTHING will bring along a few interested buyers. That is how the free market works.

And I have long wondered why this drop in housing prices is such bad news, given we are always publicly pulling for the little guy achieving his American dream. Doesn't a lower price mean more people can afford it?

We know, as we have finally heard some Republicans say, that speculation is the major problem with housing prices, not the economy per se. Borrowers would buy homes they could not reasonably afford, planning to sell them in two years for 40% more and take away a profit. Lenders, too, speculated, considering their really BAD mortgage loans safe on the grounds that they would repossess a property worth, yes, 40% more in two years. A no-lose deal for the banks, so they thought.

World wide, investors of all classes bought into the wobbly securities based on these rough loans with their higher interest rates, and when it headed south, lots of card-houses tumbled. This, in turn, affected home prices, as many a buyer found himself in trouble on the income side, through investment failures or more difficulty finding or keeping a job. Likewise many an owner found himself in need of a fast sale to correct financial imbalances of his own. The market was flooded and the prices plummeted. New homes stood partly finished and builders declared bankruptcy. Banks tightened requirements and new mortgages were harder to get, further drying up the pool of buyers. How did this all happen?

Reynolds lets his readers point out all the 'real estate' shows on networks like HGTV, which encourage young people to buy and remodel homes and then sell them for big profits. I would add to this the absolutely VIRAL spread of weekend radio shows on the same topic; real estate clinics, how to make money in real estate, become wealthy without working, yada yada.

I'm a radio guy. I even produced a couple of these shows as part of my staff work. From the beginning, I was a cynic; why aren't these people simply out DOING it, rather than taking money from people to give lessons? Surely there's more money to be made in that market than in giving classes, right? It's a ticket to MILLIONS!

But no.

It is of course because they knew all market trends come to an end. The line on the real estate chart was becoming more and more vertical-- a sure sign that it was all going to rebalance itself shortly.

Market forces at work have made a lot of money for a lot of people, and that money is spent or invested. It's been a boon. The new lower housing prices will also be a boon to many. But those who tried to get the richest the quickest have found out the perennial market truth-- with great reward comes great risk. Caveat emptor. Nothing in this world maintains an annual increase in value of 20%, not for long. For financial guys to make that money, they have to buy and sell things constantly; nothing in the investment world is a long term 20% annual gainer.

Risk-takers are what makes America the economic engine it is. I salute them, and I try to take a few risks myself from time to time. I've lost more than I've gained that way, though, and I have less of a stomach for it than I used to.

But of this I'm certain; taxpayers do not owe risk-takers the financial backing to save them from their own decisions.

If so, then listen, I've lost money investing-- who will give it back to me? Anyone? Anyone?

(crickets chirping)