25 April 2013

No More Housing Bubbles

You can read an interesting piece from the NYT DealBook here about the battle over how best to prevent another bubble in residential real estate. The simplest answer is to require a greater down payment. With larger down payments comes a lessened risk of default, and with higher quality loans would come, so the Fed hopes, private mortgage investors. And with privately surporrted lending could come the winddown of the outsized place of the Federal Housing Administration in the mortgage lending business. 

However, and not to my surprise, this common sense and easy-to-administer solution is getting pushback. First to line up against it are home builders and their realtor lapdogs. Apparently it's not enough that the federal government already subsidizes home building, buying, and selling with the home mortgage interest deduction. Anything that might bring market discipline to bear on consumer real estate transactions is anathema to big business. (And make no mistake: The construction and real estate lobbies are very big and very powerful. You might read my earlier post on American state capitalism here.)

From the "left," consumer rights organizations are also joining the fray on the ground that requiring larger down payments would price many poor people out of the market. Hard to argue with that but subsidizing housing purchases and then watching the owners slide into default and foreclosure presents an ugly spectacle. At least the consumer folks have suggested an alternative key to the door to home ownership among low income folks: eliminate subprime lending. But what's subprime lending? The devil's in the details and I am quite confident that assigning the task of answering this question to a federal administrative agency would get us nowhere. Better to leave the solution to a chastened and less subsidized market.

No comments:

Post a Comment