Book Review: “Housing Boom and Bust” by Thomas Sowell

The housing boom and bust of the last decade was something that I wanted to put behind me. The craziness of the housing boom at the time was unbelievable; anyone could walk in and bid up the house price and walked away with a brand-new mansion without a down payment or employment record. I changed house during that time and was both a victim and beneficiary of that cycle (I sold my old home and bought a home and an overpriced rental property). When this book was introduced to me, I didn’t want to read it or listen to the audiobook until I ran out of audiobooks to listen to. But I thought it would be good to know the diagnosed root causes of the previous housing boom and bust as it appears another housing boom cycle has started in Northern California due to the recent hot high-tech job market in our area.

I did learn something from the book:

I always thought the housing boom was a result of bad banking practice, bad credit rating of the then popular CDS (credit default swap) – a financial derivative. Little did I know that the politicians, in the name of affordable housing “urged” by the Fannie Mae/Freddie Mae lobbyists, contributed to the housing boom and the subsequent bust by forcing banks to loan to high-risk and often minority house buyers. Banks would have survived the crisis by making sound loans without government’s coercive measure to loan to the high-risk house buyers who ended up default on their sub-prime mortgages.

In the name of “slow” development, the communities tend to create a real estate market of increasingly expensive housings. In comparison, cities like Houston, TX, doesn’t have the same issue thanks to the lack of housing restrictions. So it appears the controlled development leads to higher housing prices.

In the last chapter, the author touched on the historical perspectives: it may not be the New Deal that got U.S. out of the depression, rather it’s the World War II that drafted many people out of job market. More mangling by the government may have contributed to more economic shocks. A good example is Canada, which didn’t interfere in the market and escaped from the financial disaster that the U.S. experienced. The author didn’t paint a good picture that history would not repeat itself in the U.S.

This is a good book if you wanted to know about the housing boom and bust cycles and the root causes of the financial melt down of the last decade but be aware of the author’s “right” bias against government regulations and “legal” corruptions.