Issues: Housing Prices

Let’s all be house poor together

Episode 4: House Poor

Alexis wants to buy a home. Is Gov going to help? You couldn’t stop him if you tried.

New to the series? You might want to check out our pilot episode here.

Housing prices vs rents: Building the next bubble

Sources:

1. JParsons, The Housing Bubble
2. Latest quarterly, median, existing, single-family home price provided by the National Association of Realtors.
3. Trailing house price index data provided by Standard and Poor's (1987-Present), the Federal Housing Finance Agency (1975-1986), and Freddie Mac (1970-1974).
4. Inflation data provided by the Federal Reserve Bank of Cleveland (1978-Present) and the Bureau of Labor Statistics (1970-1977).

How is government affecting housing prices? Well, it’s:

• Using zoning restrictions to say how many and where houses can be built, reducing supply and thus increasing costs.
• Mandating that some housing be sold below-market, which increases the cost of all other housing.
• Helping people get loans, even for houses they can’t afford. This sounds like a good thing, but this extra demand bids up prices, compounding the price problem and saddles borrowers with loan payments they can’t afford, which is why we saw so many more foreclosures after the real-estate boom.

The government wants to help people buy homes. It also wants house prices to go up since many people consider their home an investment. These obviously aren’t complementary goals. Government has tried to square that circle by making it easier for people to get housing loans — even if they can’t really afford them. This led to the bursting of the housing bubble in 2007 — which took down much of the economy with it. Now policies are back to making housing prices go up, but maybe you can find some good deals if you wait for the next economic collapse.

Check out these links to learn more:

• Promoting Affordable Housing
• Housing America: Building Out of a Crisis, edited by Randall G. Holcombe and Benjamin W. Powell