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Ed Pinto of the American Enterprise Institute and Collingwood Group partner Tim Rood discuss the state of the housing market.
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Now.
Home sales new home sales of the bid and December from November and the case Shiller home prices index seeing its biggest year over year gains and almost six years but report coauthor Robert Shiller.
Still cautious.
The housing market is has more momentum -- the stock market so I expected to continue to go up in the short run.
The longer run is -- is unclear this -- -- speculative market.
And I don't you know I'm not it's -- joining the crowd do it but who is saying that this is a major turning point we don't know that yet.
Ever cautious and joining us now got Ed Pinto AEI resident fellow and Tim -- Collingwood group partner and ethics for both -- join us in.
And you say whatever size recovery we are seeing shouldn't be confused with the real rebound why is that.
Well you've got situation where there's very light inventory of homes for sale which.
And demand is being pushed up by very low interest rates -- than a hundred years.
C get an imbalance it drives up prices.
The government is still.
Supporting this market in in major ways half of all the buyers put down down payments that -- -- zero.
You've got 90% of the credit guaranteed by the federal government.
And the Fed is buying roughly half of all the mortgage debt they're now the largest investor in the world.
You know what can we just heard -- say that half of all.
New homebuyers right now are putting down basically zero.
Now the government makes that possible doesn't that disturb you.
Now it doesn't history but it needs to be a complete picture so I think we -- -- recognize that the housing indicators are clearly all heading up and that's a good thing.
The disturbing part about that is they're heading up despite the fact we've got high unemployment rates and we've got near recession levels confidence levels so.
Those are going to be disturbing things that we need to watch the fact that 50% of the buyers are.
Government factor putting zero down quite frankly sister reaction to the reality of the times and -- -- I don't know what new normal looks like -- frankly.
Right Ed I don't if it is that the good news is that the federal government is in there helping stoke those home purchases -- is -- the bad news if it's bad when should it stop.
I think it is bad news FHA who's the main participant -- zero or low down payment lending.
Has been a nightmare for sixty years.
I've calculated they've had over three million foreclosures -- last 37 years they've 141000.
In the month of December.
These are outrageous numbers their average.
Foreclosure rate over the last 37 years is about 13%.
That's one -- seven loans that's not of the basis for building a long term sustainable.
Recovery FHA has got to stop financing failure and has to stop hurting working class families in neighborhoods which has been doing for decade.
-- can return server yet no thank you Dennis so I think we need to make the distinction between what's bad economic policy and what's bad.
FHA policies -- FHA -- eighty years of evidence that it can successfully.
Underwrite and support low to moderate income.
Homebuyers I think that we have to recognize as a country that's good public policy because quite frankly it's the last legitimate wealth creation opportunity.
For these low to moderate income borrowers but benefits -- Good public policy it's also the public policy that led to the entire melt down if we don't want government to start pulling back on the fraud throttle now -- When they should it ever I've never.
As they say timing is everything right there's a couple of reasons why you shouldn't do it now.
To again we already recognize that the wealth creation for the the wealth gap between the haves and the have nots is unprecedented we need to do something to arrest that -- we also recognize the fact that.
You know Fannie Mae has got a a 140 billion dollar bill to the Treasury Department so we'd like to preserve every opportunity.
From a revenue perspective that we can for a period of time look at an FHA same thing we all recognize that there's going to be.
Losses and the GS he's -- -- FHA those are baked in the cake.
Now this -- a matter of who's gonna underwrite them as target borrowers are the ever -- they're just not getting -- are they edit it will when should government started to pull back on this.
Actually -- getting it FHA.
Has been practicing wealth destruction over the last number of years it needs to turn to wealth creation and you do that.
By putting people in loans they can actually afford and don't leave -- out on a tight rope we're just takes up broken water heater to us -- them into -- that's what FHA is doing to death -- Or how much just -- guys if you don't have the down payment how about you don't buy a house and you -- like I do humiliating and it as it is thanks very much for being with -- said -- -- And -- -- thank you.
Thank -- you can see the entire interview with Robert Shiller -- the next -- markets now Melissa and -- we'll have that for you at 1 PM eastern.
