Former Bush aide: Refinance everybody at 5.25%
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Former White House economic advisor Glenn Hubbard -- that’s him pictured just to the left of the president -- is proposing a sweeping plan to boost housing prices by offering across-the-board, government-backed 5.25% refinancing to all American homeowners. Here’s what Hubbard and Chris Mayer wrote in the Wall Street Journal last week:
We propose that the Bush administration and Congress allow all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25% (matching the lowest mortgage rate in the past 30 years), and place those mortgages with Fannie Mae and Freddie Mac. Investors and speculators should not be allowed to qualify.
What’s the point? To drive up housing prices. Yes, to drive housing prices higher -- to put value back in mortgage-backed securities, to end the credit crisis. Seriously:
... the cost of buying a house is now 10% to 15% below the cost of renting across most of the country. Rising mortgage spreads and down-payment requirements are what’s still driving down housing prices. We need to stop this decline.
He’s saying housing is too cheap and we need to use the government to make it more expensive. I’m not making this up. This guy, Glenn Hubbard, was chairman of the Council of Economic Advisers under the current president.
Ideas like this one explain why I’m not certain housing prices will continue to decline back to historical levels in relation to income. In short, I’m not sure the government is willing to stand by while air rushes out of the housing bubble.
It’s true, housing prices in much of America are too high relative to income, which means they should continue to decline. But further declines in housing prices will cause more economic pain for many homeowners, and the government seems hellbent on bailing out current homeowners at the expense of future home buyers.
-- Peter Viles
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