Posted by Todd Zywicki:
Even If He Can Stop the Sea Levels from Rising Can He Stop Home Prices from
Falling?
http://volokh.com/archives/archive_2008_11_02-2008_11_08.shtml#1225985712
One of the underreported stories of the election is the direct effect
of the popping of the housing bubble. As [1]Greg Mankiw noted last
week:
Obama leads in 18 out of the 19 states with the largest recent
declines in home prices, whereas McCain leads in 13 out of the 14
states with the largest recent increases in home prices.
The data is [2]here. Both Nevada and Florida flipped to Obama--home
prices dropped 14% and 12% respectively in those states. Note also
Arizona, where McCain was surprisingly weak. Similarly, I suspect the
movement of the Virginia suburbs and exurbs to Obama reflects at least
in part the dramatic house-price declines in those areas. I have
friends and family members who live in Loudon County who supported
Obama because they "hope" that he is going to reverse double-digit
declines in house prices, not because he is going to heal the planet
or whatever else. And many of the people around here are government
employees, so when they say they are concerned about "the economy" I
think that what they have in mind is "house prices."
What can President Obama do to help these home-price middle-class
voters? Now I know that he is going to stop the sea levels from
rising, but that may be easy compared to the bigger challenge of
stopping house prices from falling. Economic markets are governed by
natural laws of supply and demand, just as the sea levels are governed
by natural laws. And it seems like there aren't too many very good
options available here. Either can allow markets to continue to
readjust and allow house prices to fall back to their equilibrium
level, in which case he risks the wrath middle-class voters in
Florida, Nevada, and Virginia. If he tries to maintain home prices at
an artificially high level, then of course he simply prolongs the
market re-equilibration process. Thee are some very difficult
political and economic decisions to make here. I don't have any good
advice, but one possibility for Obama would be to just let prices
bottom out as quickly as possible, take the lumps that will be coming
in the 2010 midterm elections and then try to get the housing market
back on track by 2012 (sort of like Reagan did with squeezing out
inflation in the 1981-82 period).
As an aside, one other thing I've discovered in talking to people
around here is that many people who were inclined to vote for McCain
were quite concerned about what they understood as McCain's proposal
to tax employer-provided health benefits. Many people around here have
quite generous and inexpensive employer-provided health benefits that
they are very happy with. McCain's proposal seemed to threaten those
generous health benefits with no obvious offsetting benefits. And they
sure as heck don't want to have their own benefits threatened just to
try to extend insurance to the uninsured (sort of like why
middle-class voters are often quite hostile to school choice
proposals). Obama seemed to frame this issue and McCain did nothing to
alleviate it I think because he either didn't understand or didn't
believe in his own program. As my dad (who is a Republican who
absolutely despises George Bush) said to me, "If McCain can't even
explain his own policy why should I trust him?"
References
1. http://gregmankiw.blogspot.com/2008/11/election-fact-of-day.html
2.
http://blogs.wsj.com/economics/2008/11/01/state-by-state-polls-compared-to-economic-indicators/
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