Free Fall: How Government Policies Brought Down the Housing Market
Peter J. Wallison, Edward J. Pinto
April 26, 2012

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"Despite all the government's "help," the United States has higher mortgage rates in relation to the risk-free rate than other developed countries and a homeownership rate that falls in the middle among these same countries. These policies have left the American housing market in a shambles, requiring many repairs and years of recovery." - Peter Wallison and Ed Pinto, AEI

In the latest Financial Services Outlook, American Enterprise Institute (AEI) housing experts Peter Wallison and Edward Pinto explain how decades of government intervention have gravely harmed America's housing market.

Among their key points:

  • WORST MARKET IN THE DEVELOPED WORLD: Today, the United States has the most troubled housing market in the developed world. It’s also the only developed country with a major government role in housing policy.
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  • LITTLE MONEY DOWN, LITTLE EQUITY: In less than twenty-five years, affordable housing" and other housing policies have turned a healthy market into a financial ruin. In 1989, for example, only 1 in 230 homebuyers made a down payment of 3 percent or less; by 2007, it was 1 in 3. Meanwhile, average home equity plunged from 45 percent to 7 percent.
    •  
  • MORE OF THE SAME: The policies that caused the financial crisis are still in force. Until they and the government's role in housing are eliminated, the US housing market will not return to health.

    • Peter Wallison is the Arthur F. Burns Fellow in Financial Policy Studies at AEI and previously served as general counsel of the Treasury Department, White House counsel to President Reagan, and as a commissioner on the Financial Crisis Inquiry Commission. He can be reached at pwallison@aei.org or through steffanie.hawkins@aei.org.

    Edward Pinto was a an executive vice president and chief credit officer for Fannie Mae. He has done groundbreaking research on the role of government housing policies in the lead-up to the financial crisis. Pinto is available for interviews and can be reached at edward.pinto@aei.org or through steffanie.hawkins@aei.org.

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    About the Author

     

    Peter J.
    Wallison
    Show More | See Full Profile

     

    Edward J.
    Pinto
    • An executive vice president and chief credit officer for Fannie Mae until the late 1980s, Edward Pinto has done groundbreaking research on the role of government housing policies in the lead-up to the financial crisis. In particular, his data have revealed striking facts about the contributions of housing policy to the mortgage crisis. Two of his major research papers have been submitted to the Financial Crisis Inquiry Commission: "Government Housing Policies in the Lead-up to the Financial Crisis: A Forensic Study" and "Triggers of the Financial Crisis." At AEI Mr. Pinto is continuing his work on the role of housing policies in the financial crisis and researching policy considerations and options for rebuilding our housing-finance sector.
    • Phone: 240-423-2848
      Email: edward.pinto@aei.org

    • Assistant Info

      Name: Emily Rapp
      Phone: 202-419-5212
      Email: emily.rapp@aei.org
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