Owning Versus Renting: It Matters If You Are In a Bubble

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Wednesday, 21 July 2010 07:33

This article discusses the Obama administration's housing policy, which seems to be moving away from an exclusive focus on homeownership. The article notes that many moderate-income people who bought homes in the last decade ended up losing them.

It would have been worth mentioning the housing bubble in this context. In many cases, it might have made sense for families, in principle, to become homeowners in the years 2002-2007, but not when it meant purchasing homes at bubble-inflated prices. The bubble could have been easily detected by a simple examination of price-to-rent ratios and other fundamentals. Unfortunately, the vast majority of housing professionals, including the people at HUD and Fannie Mae and Freddie Mac, were too lazy to do this sort of assessment. As a result, millions of moderate-income families bought homes that they were not able to keep.