Why Can't The US Government Get Out of The Housing Market?

The government is thinking of turning foreclosed homes into rental properties.

The Obama administration is examining ways to pull foreclosed properties off the market and rent them to help stabilize the housing market, according to people familiar with the matter.

While the plans may not advance beyond the concept phase, they are under serious consideration by senior administration officials because rents are rising even as home prices in many hard-hit markets continue to fall due to high foreclosure levels.

When will these people learn? How can someone look at this and take it seriously. We have to do something to bring down the cost of rent, I know, let's flood the market with rental properties. I thought that the idea was for everyone in America to own a home? How are we going to do that through rental properties?

The housing prices in the government rental areas are going to increase to ridiculous levels, because it will create a shortage of homes for sale in that market. It will be no different than the First-Time Homebuyer Credit.

Feb. 25, 2009

Buyers can claim 10% of the purchase price, up to $8,000, or $4,000 for married individuals filing separately, according to the IRS' Web site. The credit starts to phase out for those whose adjusted gross income exceeds $75,000, or $150,000 for joint filers.

The U.S. Department of Housing and Urban Development also announced on Wednesday that it will temporarily increase loan limits for Federal Housing Administration-backed mortgages, also in accordance with provisions in the stimulus. The new FHA limits now go up to $729,750 in high-cost areas. The new limit on FHA's reverse mortgage product also has been raised to $625,500.

The higher limits are in effect until the end of the year.

The First-Time Homebuyer Credit kept housing prices artificially high because sellers knew that most buyers had an extra 8,000 dollars on hand. The truth is; people paid more money for less house, but taxpayers supplied 10% of the inflated price (up to 8,000 dollars). Then when the credit expired; the housing market dipped again.

Most of these government housing programs only cause changes in the market for a short period, but the unintended negative effects are long lasting. The housing market will not stabilize until the government gets out of the market. Once the real bottom of the housing market is reached it will stabilize, but the government keeps stepping in and propping it up.

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