Chicken Little Economics

I have learned a simple lesson in handling MSM news; don’t trust them. So I wondered a bit about the whole subprime mortgage mess and all the recession talk (by the way, I seem to recall recession being suggested by the media every election cycle since Clinton left office. Interesting coincidence, that). So I looked up the basic facts:

There were 2.2 million foreclosures in 2007, compared to 1.2 million in 2006, and 0.85 million in 2005.

So there has been a rise in foreclosures for some time now. But what does it mean on the strategic level? Not as much as you might think. 67.8% of American households owned their own home at the end of 2007, compared to 68.9% at the end of 2006. While news reporters get hysterical in front of the camera, the actual ratio of homes foreclosed is about 1 in 50. That is, 49 out of 50 homeowners, or more, will make their payments and pay off their mortgage.

Not to ignore the problems that some homeowners are facing, but it means that the housing crunch we are seeing just now is actually not much more than a correction, as overpriced homes drop in value and people who cannot afford their hoems lose them. I would say that whose fault it is, that a particular home is foreclosed upon, is a case-by-case matter, as has always been the case.

My point is that while foreclosures are up, as well as delinquencies in paying for them, it’s not as if the home mortgage industry is about to collapse or we are headed for a genuine crisis as a nation. That is, as long as we do not overreact. Some moves may be defended on the basis that they are meant to restore consumer confidence, which actually creates most recessions when it falls significantly, but to some degree it becomes circular logic, and in any case someone has to pay for the bailout. Guess who that would be?