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The New Housing Crisis

The New Housing Crisis


January 4, 2019
dark times for housing affordability
Photo: Unsplash/Frans Hulet

A decade after the last housing and financial crisis, a new housing crisis is brewing, fueled by a lack of affordability for buyers and builders. 

Moody’s Analytics chief economist Mark Zandi lays out the foundations of the coming crisis: sideways sales for new and existing homes, higher interest rates, tighter financing for borrowers, the Trump tax law, restrictive zoning laws, mounting costs for labor, land, materials; and a lack of affordable housing. In an op-ed for The Washington Post, Zandi asserts, "It took forceful action by policymakers to end the crisis a decade ago, and it will take a similar effort to end the current one."

In the near-term, Zandi says that Fannie Mae and Freddie Mac, government-backed lenders that account for roughly half of current mortgage loans issued currently, could lower mortgage rates. 

The mortgage rate on their loans is based on a fee they require for the risk they take. This fee is set by their regulator, the Federal Housing Finance Agency, based on the returns that private lenders would get if they made the same loans. Because of the recent large cut in the corporate tax rate, Fannie and Freddie could charge a lower fee but still get the same return. Indeed, private mortgage insurers, who take on similar risks, cut their fees in response to their lower taxes.

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