The Boston Globe’s front page article (Refinancing boom, but little lift for economy) reports on something about which I’ve heard from our real estate attorneys: that refinancings are going strong but home sales are not. The headline puts a negative spin on the refinancing phenomenon, but it might as accurately have noted that despite a large number of refinancings, we are not reinflating the real estate bubble. The only way refinancing can lead to a “lift” for the economy, is if people borrow off of their homes and spend the money on things that, generally speaking, they don’t need. Since most people don’t have much, if any, equity in their homes these days, any recovery led by refinancing would almost by definition require reinflating the bubble that got us where we are at present. Thankfully, at least for the moment, banks have become reluctant to lend money based purely on the expectation that home prices will increase at a rate exceeding both the increase in rents and the increase (if any) in median income.
Home prices nationwide still have a way to go down before they start going up, and as Dean Baker pointed out in the linked article, we have no reason to believe that consumers can spend us out of this depression, either with their own money or with money borrowed off of their homes. We need spending by the government in massive amounts. We need to get money into the hands of people that will spend it. We will, of course, not do that, because we have one party too spineless to try to act, and another that sees non-action as a way to political success. We also have a “serious” pundit class that, against all the evidence, sees deficits as the major problem facing the country. It is, of course, easier to think that way if you personally have a job paying you many hundreds of thousands of dollars a year.
The odd thing is that the real estate bubble was a sort of twisted form of deficit spending, cheered on by the very pundit class that is now afraid of deficits that would cause far less harm. It was that real estate fueled deficit spending that gave us the illusion of prosperity. It was an illusion because the borrowed money was never going to be repaid, something that should have been, and probably was, obvious to the bankers and Wall Street hucksters that ran the scam. Collapse was inevitable.
In any case, there’s no reason to bemoan the fact that mortgage refinancing is not leading us toward a recovery, because any such recovery would merely lead us into yet another, and probably bigger, bust.
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