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Friday, June 11, 2010

The number of customersapplying for a mortgage to purchase a property fell to the lowest level in 13 years last week, a sign the housing market is struggling without government incentives.

This quote shows the fundamental danger of using federal dollars to prop up the housing market--when you remove the prop, the housing market needs to come down. It was a bubble and it needs to deflate. Houses cost too much--they cost more than people can afford to pay. The median national house price should be about 2.5 times the median national income. It is nowhere close. People are still buying houses that are out of their price range, and paying too large a percent of their monthly income. Faced with a financial shock (illness, loss of job, car crash), default is almost inevitable.

The housing market is struggling because it needs to struggle, to return to some sort of economic discipline, instead of the speculative carnival Wall-Street financiers created. Pumping more public money into the housing market only keeps housing prices high, rewarding speculators.

There is nothing wrong with renting. No matter what your real estate agent says, buying a house doesn't automatically build equity.