Monday, August 17, 2009

Whence came unstable housing finance?

Over the weekend, Thomas Sugrue, a highly regarded history professor at Penn, wrote a piece in the Wall Street Journal that implied that we over-subsidize homeownership, and that government programs have produced instability in the housing market. I am not sure either is true.

With respect to homeownership, for those at the margin of owning, net subsidies may flow more to rental than owner housing. Section 8 vouchers support renting, not owning, and the mortgage interest deduction provides no benefit to those who don't itemize--i.e., low income households. It is well established that Fannie and Freddie do no better, and perhaps worse, than the private when it comes to providing first time homebuyer with mortgages. The government does encourage overconsumption of housing for high income households, but that is a different matter.

As for stability, well, as Professor Sugrue correctly points out, it was the housing market of the 1920s, which was financed in the absence of any public sector support, that helped produce the Great Depression. And the preponderance of unstable mortgages originated in this decade were originated by purely private players.


Expacts said...

due to current recession Investing on real estate is not so good, I said my opinion.

Investment Property said...

I have to disagree with you 'Expacts'.

Historically, there have always been real estate markets that have held up and/or appreciated in hard economic times. Even in the worst recessions. This is because real estate is local. There is no such thing as a “national” real estate market. And therefore, there are always markets to invest in.

Marco Santarelli
Norada Real Estate Investments

Anonymous said...

"The government does encourage overconsumption of housing for high income households."

Over consumption of high cost housing was a primary cause of high defaults. High cost CA has an extraordinarily high default rate. BTW, over consumption of moderate cost housing was encouraged by the central bank, by virtue of too low interest rates.

sarah said...

Here is a great chance to drive a large number of visitors to your blogs and websites for free.

Submit your websites, blogs, videos to and get 1000s of targeted visitors everyday for free. It also helps your websites/blogs gain valuable backlinks.

Let the other bloggers cast their votes to push your posts up for a greater visibility. Enjoy a free, huge traffic to your sites.



Term Papers said...

Thanks for this info, this issue has been bugging me like crazy for the last couple of days.

College Term Papers