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Exchanging Places in the Housing Market
by Jacob G. Hornberger

The New York Times is reporting that there has been a surge in the sales of foreclosed homes in Sacramento. The article was accompanied by a photograph of Chris and Rebecca Whitman, a young couple who just purchased a foreclosed home for $224,500. Such sales reflect, once again, the idiocy of bailouts, mortgage-moratorium laws, and other interventionist measures intended to prevent people from losing their homes.

The fact is that life is insecure, including financially and economically. No one is guaranteed that his investments will prosper or that his business will succeed. Sometimes circumstances go for you and sometimes they go against you.

Now, it’s true that government policy induces people to make decisions that they otherwise wouldn’t make. That’s wrong. Government has no more business intervening in economic affairs than it does in religious or educational affairs. But we all know that it does and we have to factor that into our decision-making, notwithstanding the fact that government interventions might ultimately cause us severe losses.

It would be difficult to find a better example of this phenomenon than the housing market. With its mortgage-interest deductions, low interest rates, creation of Fannie Mae and Freddie Mac, subprime lending requirements, and other interventions, the U.S. government’s aim has been to encourage home ownership. The interventions succeeded in sucking lots of people into the housing market, including people who had no business doing so, especially from a financial standpoint.

When the bubble burst, many of those people got caught holding the bag. While interventionism was at the root of the problem, the fact is that those who got caught holding the bag bore responsibility for their actions. No one forced them to go out and buy a house and sign a promissory note.

When the bubble burst and people couldn’t make their note payments, the mortgage holder had the right to collect its money by foreclosing its lien on the property. Interventionists cried that it was unfair to evict people from their homes. Ironically, however, none of the interventionists offered to use their own money to pay off people’s notes. They simply wanted the government to use tax money to guarantee or pay off the mortgages or use force to prevent the mortgage owner from enforcing its rights.

Standing on the sidelines were people who were living in apartments, waiting to purchase a home at a low price. How come the interventionists didn’t cry about how unfair it was that those people were living in apartments instead of houses?

The surge in sales of foreclosed homes in Sacramento reflects that current homeowners who can’t make the high mortgage payments that they agreed to pay are moving into apartments, which are being vacated by people who are buying the foreclosed homes at reduced prices. People are simply exchanging places. What’s unfair about that? I seriously doubt that Chris and Rebecca Whitman think it’s unfair. Judging from the picture of them in the Times, they seem pretty happy with the new foreclosed home they just purchased.

Jacob Hornberger is founder and president of The Future of Freedom Foundation, publisher of Your Money or Your Life: Why We Must Abolish the Income Tax by Sheldon Richman. Send him email.