Thursday, September 11, 2008

Our socialist housing system, by request

My friend Johnny complained to me (half jokingly) this morning about how the housing market has gotten so "socialist" as a result of the Fannie and Freddie takeovers, and teased that I should blog about it. Tease, and you shall receive!

Really, the current events haven't really changed the larger picture for how the government is involved with our housing market. IIRC, the current 30-year mortgage really came into existence when the FHA was created in 1934 and when Fannie Mae was created in 1938. Prior to these institutions, the typical mortgage was a 3 to 5 year balloon mortgage. This is why there were so many foreclosures during the Great Depression.

My limited understanding of European real estate is that, historically, most of Europe did not have the same sort of mortgage system we did. It was much harder to buy a home, and more people rented. It wasn't until recently that Europe saw the same sort of mortgage products we have had for quite a while here. Our system has been different for quite a while, and the government has had a big role in our mortgage markets for decades. Complaints about the "socialized" system that the US has are really about 70 years too late.

So what is the big deal with owning a home? Why do Americans almost feel entitled to home ownership, and why do our politicians talk about an "ownership society" as a necessarily positive thing? Sure, there are some financial benefits to owning, but contrary to what your agent will tell you, I don't think they are great enough to make it a the best thing since sliced bread. When it leads us to the credit messes we are in, surely we've taken this concept too far.


  1. Unless of course that real estate agent is Johnny G. And than it's buy! buy! buy!
    And sell! sell! sell!
    Hee Hee.

  2. The big thing about an "ownership society" is the potential for intergenerational wealth transfer. You can scrimp and save your entire life and pay off the house so your kids can have it, meaning they don't have to scrimp and save like you did; they can just take over that house or sell it and take the money to do their own thing. It's a step up for your offspring, owning a home.

    Of course, people are living longer now, but I'd say there's something to it. If you get a house from your parents, that's money you can spend on something else.


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