Here, I have estimated the income levels of the family holding the median dollar of mortgage debt, the median net new dollar of mortgage debt, and the median homeowner.
As with earlier summaries I have done of the Survey of Consumer Finances, these measures also show that new mortgages were not going to lower income households during the boom. The income percentile of the average homeowner was roughly flat throughout the period, and mortgages went to families with slightly higher incomes in the 2000s compared to the late 1990s.
The two years where the median holders of net new mortgages are out of whack here are 1995 and 2010. That's because in 1995, high income families were reducing their mortgage debt while low incomes families were increasing it.
In 2013, families were reducing their mortgage debt, and this was especially pronounced in low income families (presumably because many lost their homes in the aftermath of the crisis). So, the low median income of the net mortgage loser has caused the median income of the remaining mortgage holders to rise.
This is not a picture, during the boom, of low income families being herded into large mortgages. This is the picture of a fairly normal real estate market.
The 1990s and 2000s follow reasonable patterns of real estate investment, across incomes, whether in terms of total cash payments as a proportion of income or as compared to alternative fixed income investments outside of real estate (see previous posts in this series). The picture of haves and have-nots comes in 2013, where only high income families can enter the mortgage market, and those that can enter, earn extremely high returns, in terms of (rent value / home price). These are classic excess returns due to exclusivity, which are increased even more, by the way, by friendly tax policies. (Although, one should not forget that most of these homeowners were dealt a large unrealized capital loss after 2006.)
This problem was mostly created by disastrous Fed monetary policy and by pro-cyclical bank regulations. It would be solved by less volatile monetary policy (NGDP level targeting is a good place to start), the elimination of pro-owner and pro-borrower tax policies (which, because of the substantial value of untaxed imputed rent, can probably only be fully eliminated by eliminating capital and corporate taxation), and less cyclical regulatory meddling.
Is there anyone pushing to solve this problem with more regulation who has even stated an understanding of the relationship between prices and rents, and how universal access, liquidity, and fairness would have to be associated with significantly higher home prices? Price = Income / Yield. We're not going to move these measures by changing rents. Rents are pretty stable. The only way to keep prices down is to keep yields up. The only way to keep yields up is to make an exclusive, non-arbitrageable market. That is our current policy.
If you're complaining the home prices are too high, you're not helping.
If you're complaining that we're not being punitive enough with the banks, you're not helping.
If you're complaining about speculators in the housing market, you're not helping.
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