Consider everything the government does to support the housing market – and this has all been going on for quite a while:
- Tax deductibility of mortgage interest
- Federal Housing Administration (FHA)
- Government National Mortgage Association (Ginne Mae – GNMA)
- US Department of Housing and Urban Development (HUD)
- Federal National Mortgage Association (Fannie Mae – FNMA)
- Federal Home Loan Mortgage Corporation (Freddie Mac)
I have no idea what the real cost of all these agencies and subsidies is but you can bet it’s a lot of money. Just to give you some idea, the mortgage interest deduction alone costs the government about $100 B per year. FHA is likely to lose $50 B in the coming years. And you know all those mortgage bailouts? The government got back all their money from the banks but what they aren’t going to get back is the money used to bail out Fannie and Freddie. Fannie Mae and Freddie Mac have cost taxpayers $150 B. Then there is the operational cost associated with all this.
The sad thing is that the longer these programs stick around the more dependent the housing market becomes upon them. FHA is said to represent 1/3 of all new mortgages and FNMA and GNMA represent 90% of all new mortgages. OK…how is that possible? But that’s what those articles say. Is there overlap? Suffice it to say that between all those programs it’s a huge percentage.
I realize that this is not the best time for the government to pull the rug out from under the housing market but at some point this over-the-top government support for a single industry just has to end. And you know what? If home prices fall as a result wouldn’t that achieve another government objective – i.e. housing affordability?
Fortunately, in those articles linked to above it sounds like the pendulum is finally starting to swing in the other direction with various politicians calling for dismantling all this nonsense. But already the realtor and homebuilder lobbies are lined up and down the halls of congress trying to maintain their preferential treatment. And you thought the oil lobbyists were bad.
Yes, it is time for government to get out of the housing market, but good luck getting politicians to ignore the very powerful NAR lobby. Not too mention the Mortgage Bankers Association. Along with all the fair housing groups.
I don’t think getting rid of the MID would be that big of a deal in terms of affecting the market. It only really affects the higher earners and hardly anyone really uses it as a major factor in their buy decision.
We could get rid of HUD. 90% of the regulations that affect the residential market could be revamped and streamlined. Fannie & Freddie could be replaced by the private market although the overally market would have to get used to ARMs and shorter term loans as the 30 year fixed would probably go the way of the do-do bird or it would be very expensive.
In general, I think the country would need a change of attitude when it comes to homeownership and accept that not everyone is capable of owning a home. Given what we just went through, I don’t think that change will be that difficult to accept.
I was hoping you would weigh in on this. I can tell you that the interest deduction does weigh into my decision and I would definitely buy a cheaper home without it. But I still don’t think I’m entitled to it. Actually, I think if they could just limit the deduction to like $500K that would be more politically acceptable.