patientrenter – I have read that homes became LESS affordable after FHA (HUD) came on the scenes in 1934 (Fannie and Freddie are just more of the same)
the intent of these programs is twofold:
1. to reduce risk to the lender in case of a buyer’s default
2. to help the potential buyer obtain affordable financing for a house
number 1 makes the lender more willing to lend on residential real estate
number 2 greatly increases the pool of potential house buyers
demand for houses increased significantly because more people were able to purchase them (prior to FHA, 50% down was required with balance paid over no more than 5 years)
the banks were happy to loan the money because FHA guaranteed 78% of the value of the loan – a buyer puts 20% down and FHA covers 78% of the 1st mortgage – that leaves the bank holding 2% of the risk which is protected by the buyer’s 20% down payment – not a bad position to be in when you can collect interest on these mortgages for 30 years
there are at least two ways to look at the effects of FHA:
1. this artificial stimulus (a govt guarantee to the banks) of the housing market caused free-market control mechanisms (which keep supply and demand in balance) to become irrelevant – the long-term effect was to cause housing to become less affordable rather than more [some people would argue that this is what happens EVERY time the govt gets involved in free markets but we won’t go there today]
2. starting the FHA was a humanitarian thing to do because so few people could afford decent housing – now almost 70% of the nation have become homeowners
back to your idea, patientrenter – the article I read indicated that house prices became less affordable as a result of the FHA guaranteeing home loans – I don’t remember any charts – I’ll post a link if I come across the article
When the FHA was created, the housing industry was flat on its back:
* Two million construction workers had lost their jobs.
* Terms were difficult to meet for homebuyers seeking mortgages.
* Mortgage loan terms were limited to 50 percent of the property’s market value, with a repayment schedule spread over three to five years and ending with a balloon payment.
* America was primarily a nation of renters. Only four in 10 households owned homes.
