Housing Bust

This week, I spent some time reading The Housing Boom and Bust, by Thomas Sowell.

The ideas in the first three chapters book cover ground that ought to be familiar. Sowell traces the history of three decades of interactions between local governments, house builders, the federal government, Government-Sponsored Enterprises, regulatory agencies, and home-buyers.

Along the way, he details the wide swaths of America in which housing was affordable, and the communities in which it was not. He also points out that expensive housing almost always correlates with local government interventions in the real estate market.

Several forces are outlined which led to the explosion of new forms of mortgages, especially variable-rates mortgages.

Sowell also details how the analysts who work in Wall Street had no experience measuring the default rates of non-standard mortgages, and used the wrong tools to measure the future worth of securities based on mortgages which were not 30-year-fixed-rate mortgages.

However, the book gets really interesting in the middle, when Sowell turns to the myths and mis-characterizations that surround the housing market.
Since the late 19th Century, a certain class of intellectual has noticed a correlation between quality of housing and quality of life. However, as Sowell notes, there is little data showing that one of the two is cause and the other is effect.

However, there is a good collection of data supporting the fact that the habits of people who live in the neighborhoods is a better indicator of their quality of life than the quality of the housing that they live in.

An explanation of this fallacy is given as follows:

Americans families that travel to Monaco are probably better off in many ways than families that never leave the United States. But that does not mean that the federal government should subsidize trips to Monaco or expect social benefits if they do.

Sowell manages to use elementary comparisons like this to examine and undercut the image and ideas behind affordable housing.

One small note: this book doesn't footnote every factual claim, but it does have a detailed set of sources for every factual claim. The sources are described in short sentences in the back of the book, where I would expect to find footnotes. That makes the reading a little strange.

However, my experience with Sowell's other writing leads me to believe that everything he notes is based on well-researched facts.

Posted by: karrde at 19:39 | No Comments | Add Comment
Post contains 400 words, total size 3 kb.