U.S. housing won’t crash because it’s getting a bailout
The bailouts are coming! The bailouts are coming!
Yes, housing’s “no crash” crowd may be right about home pricing avoiding another steep tumble. Those gurus coudl be proven correct because of my can’t-miss prediction for the 2026 housing market.
The federal government will come to the “rescue” once again.
With affordability ridiculously low for house hunters, you’ll see numerous attempts this year to save housing from the usual free-market fix for a terribly overvalued market: falling prices.
Ponder the current price pain by looking back at monthly payments and how they soared in recent years. My trusty spreadsheet combined monthly median prices, as calculated by Attom, and mortgage rates from Freddie Mac – assuming a 20% down payment.
Nationally, the monthly payment in October was $2,251 for the $360,000 median-priced home. That’s up just 2% in a year.
However, this burden rose 99% over five years and amid pandemic-era economic contractions. It’s up 154% in a decade, when the recovery from Great Recession was in full swing. And it’s 198% higher since 2010.
Yes, payments have basically tripled since just after the last bubble burst. Who got a raise that size?
Statewide, the $4,597 payment for California’s median-priced home of $735,000 in October was flat over a year. But the burden rose 94% in five years, 145% in a decade and 267% since 2010.
The props
To avoid the current high risk of a market crash, housing will be propped up with various tricks.
New loans: We already saw the idea of a 50-year mortgage floated. While it would be just another tool for house hunters trying to make their finances meet pricing realities, the industry wanted more lucrative fixes.
Cheaper loans: Two federal mortgage-buying agencies are now nudging mortgage rates lower with a technical twist: Holding, not reselling, certain home loans they guarantee. This is the government taking on rate risks that mortgage investors would otherwise have to juggle.
Cash: Some form of financial inducements to buyers – especially first-time owners – is a common ploy when markets are sickly. It’s a great deal for the fortunate few who qualify. But it creates competition for other wannabe owners.
Tax breaks: Ponder homeowners who made gobs of money on their residence. The first $500,000 of profit is now tax-free for couples – $250,000 for singles – after a sale. Upping those tax gifts would supposedly create supply by enabling the sale of homes that older owners have outgrown.
Investment sweeteners: Last year’s tax law changes increased the appeal of housing for certain investors by accelerating depreciation on that acquisition. That’s good for investors, but it creates additional competition for individual house hunters.
Production promotions: Getting builders to build isn’t easy when investors, bankers and regulators don’t want them taking too many risks, given the plethora of unsold homes and unrented apartments. Expect novel enticements to try to jump-start a construction push.
The distortion
The possible short-run sales boosts of these bailouts will be cheered by the real estate transaction machine, homeowners and house hunters on the cusp of a purchase.
But increased government aid for housing will likely distort an already unbalanced market.
Home sales collapsed when the last fix – the Federal Reserve’s cheap money policies – had to end.
Ponder the transaction pace since mortgage rates bounced up off historic lows. Nationally, sales are off 26% from the previous three years. Statewide, they’re down 31%.
Yes, everyone talks about “affordability,” but elections aren’t won by doing what’s really needed: letting prices slide.
PS: If this market manipulation for ownership is fine for you, then why is government rent control a bad idea?
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com