Housing and Debt and Savings and Interest Rates

lions and tigers and bears oh my

Everyone wants housing to be affordable, debt to be manageable, savings to be robust, mortgage rates to be low, and passbook savings rates to be high.

Yet here we are: the Home Ownership Affordablility Monitor Index is way down.

The latest reading from that index, which has plunged 36 percent since President Joe Biden took office, is the lowest in its history and indicates record unaffordability…

[The] index assumes a buyer has a 10 percent down payment, but most people can only comfortably afford a 3 percent down payment.

You can see why. The Fed has switched from fighting recession to fighting inflation and mortgage interest rates are up from 3 percent a couple years ago to 7.5 to 8 percent today.

How did that happen? And how do we get things back on track?

On the other hand Jeffrey A. Tucker is glad that the Fed has abandoned its zero interest rate policy and restored interest rates to their proper place.

Zero interest rates are an illusion. It’s trickery. It’s a denial of natural law, an attempt to eradicate reality and replace it with fantasy, like the Joker tossing free money into crowds. It led people to believe that they could undertake a 30-year mortgage at zero cost, build a business without any sacrifice, and generally live off free money forever without ever forgoing consumption.

Well. We had zero interest rate policy after the crash of 2008 in order to refloat the economy, and it didn’t really work. Then we had massive money creation in 2020-21 to keep the economy afloat while we shut it down for COVID. And it didn’t really work.

Then we have had 30-year fixed rate mortgages and low down payments on real estate ever since the creation of Fannie Mae in the late 1930s. Although really low down payments didn’t become a thing until the 2000s when we were trying to help blacks afford home ownership.

Low down payments are really dumb because the borrowers and lenders can’t afford a dip in housing prices without the loan going under water and therefore putting the investment of the lender and the entire home equity of the borrower at risk and thereby the whole economy at risk and…

Naturally blacks and Hispanics were hardest hit in the 2008 crash. If you want to know what happened, here is the debt of Fannie and Freddie in percent GDP since WWII from our friends as usgovernmentspending.com. Agency debt is what the experts call it.

Pretty cool: taking federally financed mortgage debt from nothing to 50 percent of GDP in half a century and then making it stop. What could go wrong except unaffordable housing costs.

Then there are wars. When the government stages a war it issues lots of debt and the Fed prints money to help out and we get inflation and then, at some point the Fed starts fighting inflation and we get a recession and a real-estate crash and…

Well you get the point. Right now the government is staging a war on climate and putting hundreds of billions into wind and solar power generation. Which will probably lead to some sort of financial crash at some point and then the Fed will have to fight recession and print lots of more money to bail out the green energy sector. And then there will be inflation and the Fed will have to switch horses and started fighting inflation and…

Here’s a question. How do we get back to an economy on an even keel, with sensible interest rates and sensible housing prices and steady economic growth?

It’s really pretty easy. Stop the wars; stop the spending; stop the government borrowing; stop the subsidies; stop the government guarantees; stop the freebies; stop the hand-outs.

In your dreams.