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Denver Home Prices Rise – There is No Bubble…Look Over There!

by | 6:40 pm, January 28, 2010 | Comments Off

housing-bubbleThe Denver post printed an article written by Adrian Sainz of the Associated Press that Denver was “among four metropolitan areas in a 20-city survey…that saw home prices increase in November compared with the same period a year ago.”

Mr. Sainz quotes economist Jeff Thredgold of Vectra Bank Colorado, “In Denver, it’s no boom, no bust, at least as far as home prices.” I’m not sure what economic background Mr. Thredgold has but it certainly didn’t cover the effects of the Federal Reserve’s inflationary monetary policies which has brought artificially low interest rates or how certain government policies encourage malinvestment into the real estate market. What Mr. Thredgold and many others fail to see is that the same forces that brought on the housing bubble are still at work. Interest rates for home mortgages are still at all time lows and the FHA is pumping out loans like never before. In addition, the tax credit for first time home buyers is artificially raising the prices of homes. The housing bubble still exists because government hasn’t allowed the market to adjust prices to their natural equilibrium.

Adrian Sainz then proceeds to tell us that, “Rising prices are important to the economic recovery because they make homeowners feel wealthier and lead them to spend more money.” Mr. Sainz has fallen under the evil spell of Keynesian economics and suggests that the best way to a recovery is to go down the same path that led us to the housing bubble in the first place. To suggest that economic recovery is only possible by rising prices and “feeling” wealthy is not only economically ignorant, but downright dangerous to many people’s financial well being. This idea of “feeling wealthy” is what got nearly one-third of homeowners under water (owing more than the market price.)  “Feeling wealthy” is why we have record foreclosure rates. What Coloradans need is not to “feel wealthy” and “spend more money” but actually become wealthy by paying off debt and saving.

The next time you read an article telling you that the boom is over and the good times are back, pause, question, and remember how we got this housing bubble in the first place. Another point to consider is there is nothing wrong with lower prices. You rarely see economists complain when computer prices fall; why should they complain when houses do the same. God forbid that home prices adjust downward enabling more people to afford a home.

Articles like these remind me of Lew Rockwell’s famous rule: Do exactly the opposite of what government says to do (paraphrasing) or in this case, you should do exactly the opposite of what mainstream economists and mainstream media say to do.

(hat tip to Aaron Gomez for the article link)

Category: PPC, Syndicated
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