Massive Government Intervention Propping Up Housing Market

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At least for the next two years, and possibly longer, it is not possible that the government would say: ‘The U.S. mortgage market no longer needs our support.’  Were they to say that, the mortgage market and the housing market would almost surely crash.

Dwight Jaffee, Economist, UC Berkeley, Haas School of Business

Over 29 years in business, we’ve always thought of ourselves as being in the free enterprise system.   Today I think of myself as a government contractor.  My business strategy is to get more of my employees to embrace that idea.  Plan B would be to sell pencils on the corner.

Peter Lansing, President, Universal Lending

The low interest rates and the tax credit were the two primary factors that motivated us to buy this year.

Jonathan Swinton, who, with his wife Annie, plans to close on a $226,000 home in a suburb of Salt Lake City in coming weeks

Quotes from “No Easy Exit For Government As Housing Market’s Savior”, The Wall Street Journal, September 15, 2009, A1

An insightful front page WSJ piece from Tuesday lays out the case that the government is essentially propping up the housing market with all its programs and stimulus.  More than 80% of new residential mortgage loans made this year benefitted from some form of government support, according to Inside Mortgage Finance.

Here are some key governments interventions in the housing market:

  • Nationalization of Fannie Mae and Freddie Mac
  • Fed program to purchase $1.5 trillion on Fannie and Freddie debt and guaranteed mortgage backed securities
  • Fed Fund rates at 0%
  • $8,000 1st time homebuyers tax credit

Also interesting, and important, is that it seems to be working – at least in the short term.  Prices for entry level homes seem to be stabilizing and volumes are increasing.  Free market enthusiasts shouldn’t be blind to this fact.



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