Us Housing Bubble

Home ownership is granted an advantage over all other forms of ownership in the form of an enormous deduction on the interest payments most individuals incur in financing their homes.

Why would it be necessary for the government to give it this kind of preferential treatment?

After 2000, the national push toward home ownership intensified in three dimensions, leading to a doubling of housing prices in just five years' time:

❖ First, the Federal Reserve Board's interest-rate policy drove down the cost of borrowing money to unprecedented lows.

❖ Second, a common conviction arose that home ownership should be available even to those who, under prevailing conditions, could not afford it.

❖ Finally, private agencies charged with determining the risk and value of securities were exceptionally generous in their assessment of the financial products known as "derivatives" whose collateral resided in the value of thousands of mortgages bundled together. The rating agencies understated the risks from these bundled mortgages by assuming that home prices were simply going to rise forever.

❖ The damage to the financial system pushed the global economy into the worst contraction since the Great Depression

❖ $15 trillion in wealth has been lost by American households alone while, more than 6 million job losses have boosted the unemployment rate to 9.4 percent—

❖ Much of the blame has been placed on unregulated financial markets.

❖ But the housing bubble only burst after government subsidies pushed house prices up so fast that marginal buyers could no longer afford to chase prices even higher.

❖ A bubble created by rigged financial markets and a government-sponsored obsession with home ownership is not a result of market failure, but rather, a result of bad public policy.

❖ Subsidies for home ownership in the form of: full deductibility of mortgage interest, lower mortgage borrowing rates derived from government guarantees for...