I didn't reduce the housing bubble merely into fed policy.
Well you certainly don't seem interested in acknowledging the more important factors.
I said it played a significant factor, which it did.
But you're doing the same kind of thing Brackite loves to do with correlations. You can't just throw up a chart and say, "look, there is correlation, therefore causation." Low interest rates certainly didn't help matters, but it wasn't the driving factor behind the explosion in home purchases.
The reason the housing bubble starts in that graph where it does is in large part due to a collapse in the cost of lending driving by a low prime rate that was used as a stimulative response to the 2001 recession. One of the major mistakes Alan Greenspan admits to making in material you have referred to before was keeping the fed rate too low for too long. This helped make debt for mortgages artificially cheap, which led to more risky decisions.
Analytics responded to this already, but I wanted to touch on this with a couple of references. Mian and Sufi argued that it is only a possibility that low interest rates contributed to this. More and more economists are beginning to doubt its significance for the same reasons explained by Analytics:
There is a possibility that historically low risk free rates from 2001 to 2005 are responsible for the subprime mortgage credit expansion; however, there is no such explanation when risk free rates drop sharply from 1990 to 1994, and there is no corresponding shift in non-mortgage consumer credit from 2001 to 2005. (Atif Mian and Amir Sufi, "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," Quarterly Journal of Economics, 124 (November 2009):1449-96)
Arnold King is another economist who questions the significance of low rates:
Today, some people continue to blame the run up in home prices on Federal Reserve policy and low interest rates. However, I have changed my position on that, and I now believe the bubble was speculative.
A major contributing factor to the speculative bubble was the explosion in lending for home purchases with little or no money down. When the down payment is small, the buyer's equity consists almost entirely of price appreciation. When prices are rising, anyone can buy a home with a low down payment, and any mortgage loan is safe... Once prices stop rising, the low-down payment loans tend to go sour rather quickly.
So it isn't like we're pulling this stuff out of our butt here. There are legitimate reasons to doubt the hyped significance of low interest rates. When Johhny comes in the house soaking wet, you explain it by saying, "It is raining outside." I explain it by saying "he didn't take an umbrella. Both of us are correct, but my response is more precise. And the fact is, most people don't get wet whenever it rains just like low interest rates don't always cause bubbles.
As has been pointed out, there's nothing inherently superior about home ownership and it's unclear why encouraging it with coercive measures should be a legitimate function of the government.
So says the man who owns, not rents. Seriously now, if renting were cheaper than owning then homeowners wouldn't be able to make profits by purchasing homes and renting them out. The market will determined rental rates. But obviously, the rent has to be greater than the mortgage + property taxes + up-keeping, etc. So long as were talking about helping Americans get on a path to financial freedom, home ownership is far superior than renting and it always will be. Renting is just a trap and people feel stuck and enslaved even more to their job while renting. Why? Because if you lose your job while renting, chances are you're homeless within a month. However, if you lose your job while owning, the banks usually work with you and that process can go on for many, many months without payment. And this is assuming you don't completely own your home, in which case you'd be left with paying just the property taxes, which is far more manageable and usually due at the end of the year anyway.
Mortgages, home maintenance, and property taxes are more expensive than renting.
You can make this argument only by making apples/oranges comparisons. Is it cheaper to rent an 800 sq ft two bedroom apartment than it is to purchase a 3,000 sq ft home? Yes, probably so. Then again, location matters. But the general rule with apples/apples comparisons is that owning is cheaper than renting.
If you were to take the money that you'd save by not paying for a home as a renter
And just how much money do you believe renters are able to save?
Equity in your home is nice, but so is a fat portfolio of stocks.
Which requires more knowledge and experience than the typical apartment renter has. And don't forget, the stock market is hardly immune from fluctuation or crashes, and you can't just "cash out" whenever you want without paying penalties. But I'm not talking about the quickest way to become a millionaire, I am talking about the best first step a low income American can take towards a path of financial freedom. No amount of savings these folks make (generally speaking) can gain them the kind of financial freedom you're alluding to.
You're portraying home ownership as the end-all-be-all of lower income American's capacity to invest, which is false and bad financial advice.
That isn't what I said, but I would highly recommend it over your suggestion of dumping all their savings into the stock market, where they're likely to be taken advantage of by some broker. You're living in la la land, and remind me a lot of my step father. He refused to go into an investment with his brother back in 1987 when we first moved to Atlanta. His brother wanted to buy a condo in Panama City Beach, right on the ocean. At the time it was a $250,000 investment and he asked my Dad to go in with him 50/50. Of course, being the conservative, stock market lover that he was, he also saw real estate investment as too much of a risk, and declined the proposal. Since then, my step-dad's 401k was eaten alive during the crash of 2008-2009, while his brother's beach front property was recently appraised at $2.1 million, and he makes a healthy profit renting it out. Also, my biological father and his wife have been investing in properties for more than a decade and despite the housing crisis, seem to be doing fairly well.
Again, if what you are really saying is that you don't believe low income Americans can be trusted to save money unless you prod them into home ownership with sweetened deals, so they need that for their own good, then I disagree with and would challenge your paternalistic conception of government.
It isn't about "trusting" them, it is about dealing with the reality of their typical situations. I disagree and challenge your "out to lunch" conception of those low income folks who are forced to rent! You obviously don't know or understand too many of these people. I do, and they struggle to make ends meet, living paycheck to paycheck. This is a fact. It is the reality of Americans who live at the bottom. It is why the "no down payment" led to a massive boom in home purchases. Because most of these folks don't have enough "saving" for a down payment on a home. These are the folks who stimulate the economy because they spend whatever money they have just to survive. That you think they're the people who save enough money to somehow obtain financial freedom, is borderline lunacy. The best step they can make is to turn their already set in stone, monthly financial commitment towards rent, into equity. I mean think about it, if they lose their job, wouldn't it be better to already own a home? I thought you put a high value on freedom. So why not financial freedom?
Cinepro,
There were many factors in the housing bubble (and collapse), but your "no fault of their own" comment is silly. Each home buyer that made a bad investment was just as participatory in the bubble as every other player.
You're not listening. You're just repeating the same myth that the housing crisis was caused by irresponsible borrowers, usually minorities. The people who can benefit from these government programs to help them on the road to home ownership, are not, I repeat,
NOT, those who are to blame for the crisis. Study after study has demonstrated the primary culprits were the lenders, and the borrowers who
were to blame were mostly the wealthier speculators, not the minorities or the poorer folks who were trying to buy their first home. The fact is millions of people were scammed by predatory lenders. Contracts were changed after signing, lending fraud ran rampant, and people's credit scores suffered for years because of it. These are the people these government programs are designed to help. And as to your previous remark: "No, right now we have a 90% socialized mortgage system. "
Well, the fact is, contrary to your rhetoric, Fannie-Freddi's share of the market dropped dramatically during the housing crisis:
So if you really care about analyzing correlation to the point of causation, then you should encourage more Fannie-Freddie involvement.
The fact is you have not answered the questions I have asked. Nowhere does your link say anything about giving out "bad loans." That's been the typical Right Wing pitch since 2008, but it is a myth. I doubt it is just a coincidence that your post corresponds to an
outpouring of Right Wing Media ignorance on this issue. Your attempt to lay blame on Fannie-Freddie has been
well refuted by virtually every study on the subject. But I understand how it fits so well with the Right Wing meme about the evil government causing every problem there is.
