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Is Housing Too Important An Industry To Trust To The Free Market?
Two analysts I follow have diverging opinions about residential housing finance.
PIMCO's Scott Simon, who predicted the housing collapse back in 2006, thinks the government backstops in housing should operate more like a utility (a government-sanctioned monopoly).:
For most adults today, the government has been involved either explicitly or implicitly in the backing of home loans for as long as we can remember. In our opinion, the pre-financial crisis selling of nongovernment-guaranteed mortgages was essentially an experiment. It was this private-market experiment that we further believe did not work as intended, and at one point threatened the entire global financial system.
If we ended government support in all forms, mortgage rates could rise significantly, because home loan investors would need to be compensated for greater credit risk, and loan availability could decline. Higher rates and less mortgage availability would put downward pressure on home values, with potentially negative consequences for the market and also for the economy as a result of wealth destruction and consumer confidence declining. Simon adopts a collectivist approach, with the presumption that home ownership is a "public good", a right if you will.  His argument presumes that housing prices must be artifically inflated, in spite of ... more

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