April 16, 2005

Increasing Ownership

James Pinkerton is horrified at the possibility of . He thinks that Republicans are behaving badly, contrary to the interests of their party. They may very well be but reform is absolutely in the interests of the country and should go forward. The huge mortgage industry in this country will survive the end of Fanny/Freddie's government guarantee. In fact, both institutions will likely remain in business, if at a more modest scale.

What will be gone will be the systemic risk of institutions that have grown too big being able to take down the entire market by their past, present, or future bad behavior. New competitors will enter the market. They will take market share to a certain extent and by doing so increase the probability that home ownership can be sustainably expanded in future. This is important because the positive effects of homeownership are effects that are felt over the long term. It makes no sense to goose the market for 15 years and suffer a crash, creating a crisis of confidence in the entire system. The Freddie/Fannie nexus threatens to do exactly that.

There is no "right" numeric percentage of homeowners to renters. All things being equal, homeownership is better than rental. But when home prices spiral out of sight while rental prices barely budge, the cure is to cease enticing people into expensive homes with below market rates and let the market balance itself out. It is the balance that must be preserved to maintain market sustainability.

Posted by TMLutas at April 16, 2005 01:51 PM