American Enterprise Institute (AEI) resident fellow Edward J. Pinto is the codirector of AEI’s International Center on Housing Risk. He is currently researching policy options for rebuilding the US housing finance sector and specializes in the effect of government housing policies on mortgages, foreclosures, and on the availability of affordable housing for working-class families. Pinto writes AEI’s monthly Housing Risk Watch, which has replaced AEI’s FHA Watch. Along with AEI resident scholar Stephen Oliner, Pinto is the creator and developer of the AEI Pinto-Oliner Mortgage Risk, Collateral Risk, and Capital Adequacy Indexes.
The legislative outline released yesterday by Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) will not protect taxpayers from future bailouts. The proposed legislation will almost certainly include a new explicit government guarantee for a large swath of the home mortgage market.
Nationally, homes look overpriced, but there can be great variations on a regional or even neighborhood level. To gauge the sustainability of home prices within a metropolitan area generally, I suggest looking at measurements of market fundamentals such as unemployment, job growth, income, rental values, population levels, and mortgage rates.
Loan risk is at a higher level than is conducive to long-run market stability. Despite frequent assertions by the National Association of Realtors and other interest groups that the national credit box is too tight, the facts indicate it is loose by historical standards for prudent lending and is getting looser.