By Robert Freedman, Senior Editor, REALTOR® Magazine

The Wall Street Journal in its editorial this week (The Housing Illusion, June 2, 2011) makes a sensible call for an economic recovery built on capital investment in plant and equipment so the United States can grow in a healthy way by creating jobs. But instead of taking the next step in its argument by asking why our businesses and financial institutions aren’t deploying their resources to that end, the Journal points its finger at the housing market and says our country’s historic support for home ownership is holding the recovery back.

It’s reasonable to wonder how home ownership gets connected to the investment decisions of businesses and to the lending decisions of financial services companies. The Journal does it by tracing the connection back to the Federal Reserve’s accommodative interest rate policy in 2001, in the wake of the bursting technology bubble and the Sept. 11 attacks. That easy-money policy, the Journal says, prevented the economy from collapsing after those destabilizing events, but it did it by inflating another asset bubble, this one for housing. “Fueled by subsidies and easy credit, with mortgages guaranteed by taxpayers, we built McMansions and vacation condos,” the Journal says.

Hence, the housing boom. Then, after the boom went bust, the government tried to re-inflate housing prices by encouraging banks to modify bad loans, raising FHA and the conventional secondary mortgage market loan limits, and funding a temporary home buyer tax credit, among other things. Continue reading »