For the past couple of years I have turned into a broken record on the governments intervention in the housing market. The incessant need to fix the market by the government has extended the agony for home owners and the housing industry.
Ravi Nagarajan, writing in at Seeking Alpha, has a powerful article expressing these same themes and adding in another component that I have typically overlooked.
The stalling of the housing market has hurt the ability for American’s to move to where there is employment. This Nagarajan says is one of the great strengths of the American people. Labor flexibility.
Yet with a moribund housing market and millions of homeowners underwater, people are getting stuck in bad employment regions due to housing constraints and are unable to move where the jobs are.
We need to start trusting the American people again instead of relying on the federal government to fix our problems.
Then we can return to a healthy real estate market and a healthy economy.
Too many Americans purchased housing using aggressive low down payment mortgages with teaser rates that even two income households struggled to afford during the boom years. The predictable disasters have now been well documented, but apparently the government still clings to the illusion that home ownership is worth pursuing for the marginal borrower. Freddie Mac is continuing to advertise down payment assistance for “responsible borrowers” who nevertheless lack funds for conventional down payments and closing costs. Through a bewilderingly array of grants, second mortgages, tax credits, and other programs, Freddie Mac is encouraging marginal borrowers to purchase homes that they cannot clearly afford.
At a time when home prices could very well decline further, it seems irresponsible for a government controlled agency to promote home ownership for anyone who cannot come up with a traditional down payment. However, now that the $8,000 tax credit for first time homebuyers has expired, it appears that government is doing what it can to continue propping up activity in the sector rather than allowing market prices to fall to a natural equilibrium level. This will only prolong the pain in housing in general and expose more Americans who probably should be renting to the loss of employment mobility and potential for losses that low down payment mortgages create. via Seeking Alpha
No related posts.
{ 3 comments… read them below or add one }
The bulk of the American people don't want to learn, educate or think for themselves, it seems.
There really are two Americas – those of us interested and involved and disgusted with "our" government and those who don't care and want the government to think for them.
Unfortunately the latter seems to be the vast majority.
Not to mention how bad all of these poor folks credit is becoming. Hopefully something will change soon.
Too many Americans purchased housing using aggressive low down payment mortgages with teaser rates that even two income households struggled to afford during the boom years. The predictable disasters have now been well documented, but apparently the government still clings to the illusion that home ownership is worth pursuing for the marginal borrower. Freddie Mac is continuing to advertise down payment assistance for “responsible borrowers” who nevertheless lack funds for conventional down payments and closing costs. Through a bewilderingly array of grants, second mortgages, tax credits, and other programs, Freddie Mac is encouraging marginal borrowers to purchase homes that they cannot clearly afford.
At a time when home prices could very well decline further, it seems irresponsible for a government controlled agency to promote home ownership for anyone who cannot come up with a traditional down payment. However, now that the $8,000 tax credit for first time homebuyers has expired, it appears that government is doing what it can to continue propping up activity in the sector rather than allowing market prices to fall to a natural equilibrium level. This will only prolong the pain in housing in general and expose more Americans who probably should be renting to the loss of employment mobility and potential for losses that low down payment mortgages create.