David Leonhardt’s Don’t Fear the Bubble That Bursts [NYT]  attempts to pop the housing bubble myth. Apparently, we need to chill out a little. He says:
Many people are unaware of a housing crash if they aren’t trying to sell their home, so why are we so uptight about it?
The high value of your home makes you feel good but its not liquid.
Potential victims of a sharp price decline are only about 10% of homeowners.
30% of the country rents and they are not significantly affected.
I love David Leonhardt’s articles on housing issues but this one seems to be a little too simplistic (or I am too simplistic).
He argues that removal of the mortgage interest tax deduction would be prudent since we don’t need to be motivated to buy into the American dream. However, this is not really fair since the Federal government has had this tax structure in place for years, GSE’s like Fannie Mae have pushed homeownership and this deduction is a core basis of value. I could imagine a 10% correction overnight in the housing market if this were enacted which would place many people in financial difficulty who are already highly leveraged. Plus the housing market generates jobs and income which I would speculate a loss in significant numbers, at least in the near term.
I also have issues with the stereotypes placed on brokers in this piece. The real estate brokers we have been speaking to for the past few years would feel a lot better about the real estate market if prices would level off or drop back down a bit. Concerns about affordibility losing traction with values mean less future income unless there is a correction in pricing. The reduction in the number of sales already appears to be happening.