The U.S. government is moving to cease its deep intervention in the housing markets. The Treasury Department already has stopped buying up mortgage-related securities and the Federal Reserve will taper off its purchases gradually, ending them by March 31. Then in June, the homebuyer tax credit program ends.
As with “cash for clunkers,” the federal efforts to artificially stimulate consumer spending, which has been roughly two-thirds of gross domestic product (GDP), is winding down.
In the absence of record-low interest rates, subprime loans, tax credits, Option ARM’s and 0% down payments consumers probably will not buy houses in large quantity. But is that a bad thing?
If individuals and families have to earn a good credit score, save ten to twenty percent of the purchase price of a house, and have a low debt-to-earnings ratio, future home buyers (and by extension banks, neighborhoods, and the U.S. Treasury) will be better off. It’s certain that mortgage loans issued under such conditions will be far more sustainable than those that collapsed in the current crisis.
Some people will be shut out of the mortgage market in the near and mid-term. Because we as a nation have equated home ownership as synonymous with the American Dream anything that causes some citizens to defer that dream smacks of unfairness at least, and outright discrimination at worst. However, if as a society we begin to again think of a house as a dwelling not an investment; if keeping people in the houses they purchase becomes more important than simply getting them into houses; and if building a habit of savings can exist side-by-side with a habit of consuming; then the United States is well on its way to a very different and more sustainable economic model.
Yes, under this scenario the mix of housing options in cities and towns is likely to change. But that does not mean that the fundamental relationships at the center of a community will diminish.