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the media has constantly been repeating that the housing market was key to recovery and that the government had to do things to help prop up house prices. It i

the media has constantly been repeating that the housing market was key to recovery and that the government had to do things to help prop up house prices. It is interesting how many people are misinformed about this. The government hasn't and can't do anything to "prop up" house prices. It only sets the prime interest rate, which affects the ability of people to borrow money (specifically does it affect ARM mortgages), essentially the ability of people to "afford" housing, or the rate at which they'll be able to convert the debt behind their mortgage into equity. Here is an interesting fact: My house whenever I can afford it, will _not_ be the most expensive thing I will have to buy in my life. My retirement savings are. Again, not true. As you get older, as you're converting larger and larger portions of that debt behind your mortgage into equity, it should be close to being paid off by the time you reach retirement (the theoretical pie in the sky for our generation). So the amount of "retirement savings" one needs depends on what kind of housing situation one is in at the beginning of retirement. The sub-prime lending crisis occurred because people who HAD worked their whole lives, had accumulated their retirement savings in their houses or whatnot were literally swindled out of that savings by real estate people selling them "refinance" lemon loans and banking on the commissions.

muzz 14y ago
> It only sets the prime interest rate, which affects the ability of people to borrow money (specifically does it affect ARM mortgages) It's even less than that. The Fed targets the Fed Funds Rate, which is the rate at which banks lend to each other overnight. ARMs are not based on overnight rates, but rather on rates of debt of duration of 1,5,7,10 yrs etc. (Granted the overnight rate may pull down the short end of the yield curve, but not necessarily.)
jpiasetz 14y ago
> The government hasn't and can't do anything to "prop up" house prices. It only sets the prime interest rate, which affects the ability of people to borrow money (specifically does it affect ARM mortgages), essentially the ability of people to "afford" housing, or the rate at which they'll be able to convert the debt behind their mortgage into equity. What about implicit and explicitly guaranteeing higher risk mortgage through Fannie Mae and bank bail outs? By taking on some of the risks the government lowers costs which increases the number of people in the housing market increase price. >Following their mission to meet federal Housing and Urban Development (HUD) housing goals, GSEs such as Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks) have striven to improve home ownership of low and middle income families, underserved areas, and generally through special affordable methods such as "the ability to obtain a 30-year fixed-rate mortgage with a low down payment http://en.wikipedia.org/wiki/Fannie_Mae http://en.wikipedia.org/wiki/Fannie_Mae
BenoitEssiambre 14y ago
Not quite. The prime rate isn't set by the government but by the federal reserve which should be mostly independent from the government. Propping up house prices was done through the bailout by helping banks with the mortgage backed securities, sometimes helping underwater mortgage holders and through fannie mae and freddy mac. Also the equity on my house will be just a small part of my retirement savings. This part should cover housing during my retirement. I also expect to need food and such.
guelo 14y ago
> The government hasn't and can't do anything to "prop up" house prices. What about the mortgage interest rate deduction?
- mrtron 14y ago
  Which is not common outside of the US.
deleted 14y ago
[deleted]
vacri 14y ago
The government ... can't do anything to "prop up" house prices http://en.wikipedia.org/wiki/Negative_gearing_%28Australia%29 http://en.wikipedia.org/wiki/Negative_gearing_%28Australia%2... Negative gearing is a preferential tax treatment that has caused the Australian housing market to become one of the most expensive in the world.

muzz 14y ago

> It only sets the prime interest rate, which affects the ability of people to borrow money (specifically does it affect ARM mortgages) It's even less than that. The Fed targets the Fed Funds Rate, which is the rate at which banks lend to each other overnight. ARMs are not based on overnight rates, but rather on rates of debt of duration of 1,5,7,10 yrs etc. (Granted the overnight rate may pull down the short end of the yield curve, but not necessarily.)

jpiasetz 14y ago

> The government hasn't and can't do anything to "prop up" house prices. It only sets the prime interest rate, which affects the ability of people to borrow money (specifically does it affect ARM mortgages), essentially the ability of people to "afford" housing, or the rate at which they'll be able to convert the debt behind their mortgage into equity. What about implicit and explicitly guaranteeing higher risk mortgage through Fannie Mae and bank bail outs? By taking on some of the risks the government lowers costs which increases the number of people in the housing market increase price. >Following their mission to meet federal Housing and Urban Development (HUD) housing goals, GSEs such as Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks) have striven to improve home ownership of low and middle income families, underserved areas, and generally through special affordable methods such as "the ability to obtain a 30-year fixed-rate mortgage with a low down payment http://en.wikipedia.org/wiki/Fannie_Mae http://en.wikipedia.org/wiki/Fannie_Mae

BenoitEssiambre 14y ago

Not quite. The prime rate isn't set by the government but by the federal reserve which should be mostly independent from the government. Propping up house prices was done through the bailout by helping banks with the mortgage backed securities, sometimes helping underwater mortgage holders and through fannie mae and freddy mac. Also the equity on my house will be just a small part of my retirement savings. This part should cover housing during my retirement. I also expect to need food and such.

guelo 14y ago

> The government hasn't and can't do anything to "prop up" house prices. What about the mortgage interest rate deduction?

mrtron 14y ago
Which is not common outside of the US.

deleted 14y ago

[deleted]

vacri 14y ago

The government ... can't do anything to "prop up" house prices http://en.wikipedia.org/wiki/Negative_gearing_%28Australia%29 http://en.wikipedia.org/wiki/Negative_gearing_%28Australia%2... Negative gearing is a preferential tax treatment that has caused the Australian housing market to become one of the most expensive in the world.