A funny but factual look at how meddling government policy measures on mortgages can screw up housing:
1. They lowered interest rates to record levels.
• Affordability skyrockets and everybody buys a house.
• Prices rise faster than ever before.
• New generation will be shut out of housing.
• Speculation rises.
2. Introduce a 40 year amortization with no down payment mortgage.
• They realize it is a dumb idea.
• So they reintroduce the down payment requirement.
• They reduce the amortization to 35 years.
• They realize that’s not good enough so they reduce it to 30 years.
• Hey let’s now try 25 years!
Sorry but the horse is out of the barn.
3. House prices soar so they introduce the mortgage stress rules.
• Good quality homeowners are being left out (estimated at 20%).
• Secondary mortgage market gets bigger costing the troubled homeowners more money.
The government wants to slow things down? Be careful for what you wish for as these policies can hurt everybody and our policymakers will have less revenue.
Whatever happened to the natural market forces being left alone?