Wednesday, January 05, 2011

On the recent US housing bubble

The recent housing bubble burst in the US was mainly caused or created by the US government itself, not by the private enterprises. Why?

The US government -- through the Federal Housing Administration (FHA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac) -- forced home ownership even to those who have no income, no job or asset (NINJA), the so-called "NINJA loans".

Dr. Tom Palmer of the Atlas Economic Research Foundation showed how the crisis built up, in his 23-slides powerpoint presentation at the University of Santo Tomas (UST) here in Manila last July 2010, Liberty, Limited Government, and the Rule of Law in the Wake of the Global Financial Crisis:





The Economist magazine produced this chart. See the figures for the US -- ratio of house price to rental from late 2008 to 2010 was below 100. Implication: why rent when it is cheaper to get a new house.

And we still hear many people blaming capitalism for the recent financial turmoil in the US, when it was a US government-induced crisis in the first place.

Government cannot just force NINJA loans and expect that it can get away with it. Government cannot just meddle with private pricing of private goods and services and expect that no crisis will happen in the future.

2 comments:

philippines real estate said...

In real estate industry housing bubble do exist. Long term averages provide a good indication of where housing prices will eventually end up during periods rapid appreciation followed by stagnant or falling prices. The same is true for periods of below average price appreciation.

obama loan modification california said...

Obama's mortgage modification plan is mainly going to help homeowners sitting on the brink of foreclosure.

obama loan modification california