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What Four Artificial Stimulators Keep The U.S. Housing Market Afloat (For Now)?

1. Interest rates have been kept at a historically low level of 0%-0.25% for a very long time.
This also has the added benefit of keeping the TBTF banks afloat. They park their money in T-bills, and keep the float. This further discourages banks from lending, and continues to keep the economy from recovering.

2. Fannie Mae and Freddie Mac, the bankrupt behemoths of housing finance, have been bailed out with what amounts to a blank check from taxpayers. Without their outsized role in lending, credit would be nearly nonexistent.

3. The Federal Housing Agency (FHA) went on making mortgages with 3% down payments when nobody else was, thus very likely landing taxpayers with another bill for some large fraction of $1 trillion. With little skin in the game, new homeowners have little incentive to keep their homes on the next downturn.

4. Uncle Sam has been handing out cash subsidies for refinancing houses that were about to be repossessed and $8,000 subsidies for first time buyers – now $6,500 for all homebuyers. If these subsidies cover about 3% of the purchase price, then homebuyers have no skin in the game. They have no incentive to keep their homes, and every incentive to walk away when housing prices further plummet.

Hat Tip: Money Morning, Martin Hutchinson

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