I’m trying to get educated on the basics of the US economy but it’s hard. I read financial news online but I keep feeling completely baffled. Take this article in the NYTimes, for example:
The Obama administration is considering further actions to strengthen the housing market, but the bar is high: plans must help a broad swath of homeowners, stimulate the economy and cost next to nothing. One proposal would allow millions of homeowners with government-backedmortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.
Low mortgage interest rates are also referred to as “the Federal Reserve’s most important economic policy response.”
I’m just not getting this, people. It is obvious to everybody, I believe, that the housing prices in the US are ridiculously over-inflated. When I discovered how much an ugly, old little bungalow in a high-crime area of Connecticut cost, I almost choked. The only reason why these cardboard buildings are selling for these high prices (even after the crisis) is because people manufacture completely unsustainable, fictitious ways to pretend they can afford them.
If I haven’t misunderstood this article, it seems to be saying that the Federal Reserve is artificially keeping mortgage rates low. (If I’m mistaken on this, please correct me.) As a result, more people will take on debt they can’t realistically shoulder. Then, eventually, when the government discovers that it can’t sustain this financial burden any longer, it will release the mortgage rates. They will go up, and we’ll have yet another round of this crisis.
Now take the following part of the article:
Some officials fear that promoting mass refinancings today could spook investors and make borrowing more expensive, for both homeowners and the federal government, in the future.
The government has already encouraged some refinancing through the Federal Housing Administration and through Fannie and Freddie, but participation is limited. For example, the Home Affordable Refinance Program excludes homeowners who owe more than 125 percent of the value of their house. To spur more refinancing, the government may decide to encourage Fannie and Freddie to lift such restrictions.
Why is the government “spurring refinancing”? How is it a good thing to have people get further and further into debt? Isn’t it more reasonable to realize that home ownership has become a luxury in today’s economy? That it’s the same kind of a luxury as, say, buying a yacht? And that people who can’t afford to buy a house simply shouldn’t? (As one of such people, I really don’t see a problem with that. I’m also a person who will never take out a mortgage because I find the concept extremely daunting.)
I understand that owning a home has been part of the American dream for a while. But this part of the dream has become unsustainable. What’s the point in paying collectively through what is nothing but a pipe dream of many?
As I said, I’m only beginning to educate myself on this, so I’m very willing to accept other explanations. Unless, of course, they are of the “everybody deserves to own their home” variety.