Yesterday, Suzy Khimm of the Washington Post posted an article about the frustrating, yet logical paradox of today’s housing market:
“There’s a seeming paradox at the heart of the housing crisis: housing is more affordable than ever, but potential homebuyers remain skittish and banks have dramatically tightened their lending standards.”
Her article draws upon a recent paper by researchers from JP Morgan, Bank of America Merril Lynch, Chicago’s Booth School, and University of Wisconsin. Despite the depressed housing market – which is keeping home prices low (and more affordable) – people still aren’t buying. The paper points to increased oversight of the credit market, which I think is true; however, we should also remember that these regulations are a reaction to a decade of dubious industry practices.
Credit is issued on the expectation of future ability to repay, so if you don’t presently have a great financial situation, chances are you aren’t going to qualify for mortgage credit. Perhaps we’re entering a tough period of years for homeownership. As President Obama proposed several weeks ago, we may need to consider some alterative options, like converting owner housing to rental units. Whatever plan we create, I do not think it should involve any deregulation of the mortgage industry.