Arnold Kling  

A Subtitle to Ponder

Two Events... Me in The Economist...

A Home Without Equity Is Just a Rental With Debt.

It comes from an analysis written in 2001 (!) by Wall Street economist Josh Rosner. Read the whole thing, but keep in mind that many of us believe that the worst of the excesses took place in 2004-2006.

Pointer from Russ Roberts, who recommends an analysis by Rosner of the current situation. I am more troubled than Russ by the fact that Rosner insists that we need securitization. I think that the market is trying to tell us that we don't need it, and I think we should listen.

If we go back to the notion that buying a home means putting some equity into the home, then we won't need nearly as much mortgage credit, and what we need can be supplied by banks. I think that the high rate of activity by Freddie, Fannie, and FHA is the cause of the absence of banks from the mortgage credit market, not the result of same. Take away the government, and mortgage credit supply will not go to zero. Instead, it will meet demand, but at a higher interest rate and less generous terms.

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Jack writes:

I could be wrong, but it strikes me that people seldom talk about the implication of a high positive correlation between incomes (or expectation of holding a job, if you will) and house values.

Most people are at some risk of losing their job, and with mass layoffs come falling house values. Ideally you'd want your biggest liability to provide a hedge against unemployment, but in reality the opposite occurs.

Simply put, most people shouldn't try to own homes until they very have a high degree of job security--right?

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