Once again we have more government collusion to keep property values overinflated. Senator Schumer plans to introduce a proposal today to raise the cap of Fannie and Freddie from $417,000 to $625,000 in “high cost areas” for one year. “High cost areas” are not defined in the Wall Street Journal article*, but you can assume we’re talking at least California and his New York constituency.
What the Senator and everyone else connected to the real estate industry are really trying to do is stop property prices from declining. Sen. Schumer, like all other government officials, has no interest whatsoever in making housing affordable. The higher the cap on a conforming loan, the higher real estate prices go. Higher priced properties bring more money into government's coffers through real estate taxes and the “wealth effect” of consumer spending.
Market forces, however, have already begun to adjust. Every loan advertised in yesterday’s paper required 20% down. 20% of $625,000 is $125,000. If you’re missing one component of the recipe, it’s not going to taste good. Removing little or no money down to obtain a mortgage was also a big ingredient in the recipe for the entrée called successful speculation.
* You can read more about Schumer and the Democrats proposals in the WSJ article, “Schumer to Seek Mortgage Funding Boost”, in today’s paper.