Facing the Housing Mess

It's a good thing there's a contrary opinion on this subject. Economist Brian Wesbury takes an opposite viewpoint. He points out that the housing industry has fallen victim to the Fed's 17 consecutive rate hikes (before the recent period of stability, which the Fed said Wednesday would continue).

Wesbury contends that "absurdly low interest rates" in 2002 to 2004 pushed housing activity beyond fundamental levels and created incentives for buyers to make purchase decisions that seem irrational now. Today, he says, rates have moved "closer to normal," causing a housing crunch.

But Wesbury says that since rates are not excessively high today, there should be little impact on other sectors of the economy. While acknowledging the pain of the housing slump, Wesbury says that overall low unemployment and strong manufacturing indices demonstrate an accelerating economy, despite continued woes in housing. Says Wesbury: "After the shock of rate hike works its way through the system, the ample liquidity of an easy monetary policy will reassert itself," resulting in renewed growth.

The stock market seems to agree with Wesbury. Shilling predicts "an American recession to commence later this year, and to extend globally in 2008." Time will tell.

In the meantime, under the heading of "mortgage news you can use:" Washington Mutual (WM) has just announced a new mortgage product that will provide the flexibility of an adjustable rate mortgage with the ability to lock in a fixed rate at any time with no cost the first time you make a change. In fact, you can relock your fixed rate again if rates drop, or return to an adjustable rate -- all without a new closing as is typical with refinancing. This process is allowed up to two times per year and costs only $250 after the first free change is made.

Unfortunately, this won't help subprime borrowers who are currently struggling. You must have at least 10% equity in your home and a good credit score to get this new mortgage.

Tough times always bring out American ingenuity. And that's The Savage Truth.

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