In the mortgage business, the drumbeat for the government to support more leverage is a constant, occurring in both a buyer’s and a seller’s markets. But it is the latter that has potential for dangerous buildup of risk. The latest fad is raising the conforming loan limit, which, since 2006 has been set at $417,000 in most areas, but allows for a higher limit in certain high-cost counties.
Of course, one reason that there are high-cost counties is because there are higher loan limits. Remember that the general pattern of government policy is to stimulate demand and restrict supply. Where this combination of policies is most blatant, in cities like New York and San Francisco, you see prices soar. More mortgage credit, which is supposed to make housing “affordable,” has the opposite effect.
For high-cost counties, one idea might be for the Federal government to try to encourage cities to break the logjam by offering a subsidy for every new housing unit that is fully approved in terms of permits within the next six months. I am not saying that I have that concept fully worked out, and of course it is not a first-best libertarian idea.
In any case Keeping the loan limits fixed, and getting rid of the alternative for “high-cost counties,” would be steps in the right direction.
The Left likes to keep life as “high-cost” as possible because the high costs generate demand for the Left’s stock in trade – government “help.”
The loan limits were always below median in high cost areas so contributed little beyond liquidity, mostly in refinance, and not at all in the jumbo market.
Median of what- the mortgages themselves, or the sales prices of the housing?
Housing