Seemingly everyone applauds the recent surge in home prices as a positive sign for the economy. But, in fact, it isn't. If anything, it's a sign the federal government still hasn't learned its lesson about excessive regulation.
While prices for homes have surged in recent years, they've done so thanks mainly to federal regulations put in place after the financial crisis. Low interest rates engineered by the Fed to stimulate the economy have fueled a surge in demand, driving prices up sharply. And federal regulations continue to require mortgage lenders to make risky home loans based on race and ethnicity, not creditworthiness -- just as they did in the Fannie Mae and Freddie Mac market bubble of 2006.
On the surface, it seems puzzling: The homeownership rate plunged to just above 63% in the first quarter of this year, down from a peak of 69% in the third quarter of 2006. And yet, over just the last four years prices have surged 30% or more across much of the country. How can long-term demand be falling and prices rising at the same time?