Housing Insanity
5th August 2010
Megan McArdle is on the case.
If you want to know why us libertarian types are skeptical of the government’s ability to prevent housing market bubbles, well, I give you Exhibit 9,824: the government’s new $1000 down housing program.
I guess the government wasn’t satisfied with one housing bubble to destroy the economy; they are determined to have another.
It’s true that this particular program is small–I don’t think the economy is going to be brought to its knees by several hundred houses. The important thing, however, is that this is how the government thinks about housing. The private bankers have at least reacted to their little scare by getting somewhat more conservative about the loans they offer–probably not conservative enough, but still, more conservative. The FHA, on the other hand, is still out there offering 3.5% mortgages to anyone who can meet some fairly basic guidelines; those mortgages now account for almost 20% of all home purchases. Yet so far, the FHA’s has cracked down in only one area: it now requires a 10% downpayment from buyers with very bad credit. On the other hand, it’s also expanded into pricier homes, so I’m not sure you can say the loan criteria have tightened overall.