Government’s Housing Subsidy Program’s Ramifications

In a surprising twist of events, people who cannot afford expensive houses still do not have the money to pay them off.

As many economists predicted, the government’s mortgage subsidy program has simply delayed the inevitable. Now that the program has run out of money, homebuilders believe they will not be able to contribute to the economic recovery.

According to an Associated Press article, applications for building permits fell in May in spite of “promising economic data.” I believe this lapse in home construction is tied to the government’s now defunct mortgage-subsidy program. The same article states, “Homebuilders are feeling less confident in the recovery now that government incentives for buyers have expired.”

The tax credits on mortgages and home-building was simply adding fuel to the economic decline. In certain cases, it might allow those people who have fallen on hard times to pay off their houses, but in many other cases, it simply reinforces spending beyond peoples’ means. In other words, some people might have been encouraged by the program to buy houses, and once the subsidy ran dry, they still could not afford the houses.

The result? A longer-drawn out decrease in housing sales.

Specifically speaking, the subsidy kept the high-end housing market artificially high while the low-end and mid-end markets suffered from the economy. If you’ll recall, those markets, thanks to Fannie Mae and Freddie Mac, were some of the direct causes of the economic recession. Now that the subsidies have worn off, the high-end market is taking a dive.

While the numbers are not nearly as bleak as they were several years ago, they are still not where construction workers would like them to be. The article points out that house-building is a crux on the economy. Each house guarantees at least three jobs per year and provides a lot of money to state and federal governments. On top of that, the housing market creates dependencies to other markets, such as the home appliance industry and even lumber yards. With the housing market taking another sustained drop, it may be possible that the economy will face a double-dip recession, but economists remain optimistic.

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