Economist and political commentator Thomas Sowell provides a readable explanation of the US housing market bubble and its aftermath. His point of view is not in question – it is decidedly on the right, as one might anticipate from a Hoover Institution scholar, so read it with awareness that other experts just as firmly believe opposing views. Sowell lambastes politicians who, he feels, pushed a disastrous policy that made home ownership available to most Americans, including those least able to pay. His style is not always felicitous, but it is accessible, and that is more than you can say for many economists. getAbstract thinks that anyone who wants to understand the housing market that contributed to the 2008-2009 economic crisis will find this illuminating.
The housing bubble was not a well-coordinated performance. The main troupe of actors included the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal Reserve, the US Department of Housing and Urban Development (HUD), and Wall Street investment houses that turned mortgages into securities. The supporting cast members included those who promoted affordable housing and backed government action to eliminate alleged bank “redlining” (or investment exclusion) of minority neighborhoods. But the cast had no director, and the actors did not work from the same script. Each improvised, pursued its own objectives and responded to its own audience. The result was the housing boom, bust and ensuing economic crisis.
Equity in a home is the biggest investment most American homeowners will ever hold, usually 42% of “the household’s total net worth,” and mortgage borrowing accounts for four-fifths of their debt, according to the Federal Reserve. Housing is a big budget item for renters as well as for buyers. However, borrowers’ housing expenses vary with interest rates, which...
Thomas Sowell has taught economics at Cornell, UCLA, Amherst and other academic institutions. His Basic Economics text has been translated into six languages. He is currently a scholar in residence at the Hoover Institution, Stanford University.