Socialism is a dirty word in many parts of the US, but as the FT reports, the government has turned its mortgage market into a giant nationalized enterprise on a par with China’s Red Army with over 90% of mortgages subsidized by the state and aided by so-called “progressive” or “redistributive” policies.
In the UK, the government have also become entwined with the housing market, albeit in different ways. Rates have also been slashed close to zero; tens of thousands are buying homes arm-in-arm with the state under ‘shared equity schemes’; and one-third of all mortgages come from the two state-controlled banks (Lloyds and RBS); very reminiscent of supposedly communist China, where most banks are majority-owned by the state with small public floats.
The BoE has (supposedly temporarily) pumped over GBP14bn into a scheme called “Funding for Lending” aimed at forcing down the price of business loans and mortgages; also reminiscent of the “short-term” rescue of Fannie and Freddie five years ago. In spite of all this government-sponsorship (or perhaps due to its bubble reflation), analysts argue, “we still have a market where pricing is not at a rational level.”
The question remains how can they avoid another crash if and when they withdraw support from the market? “It’s broadly accepted nowadays that China still lives under the banner of ‘communism’ despite capitalist markets playing an increasing role in society. In Britain and America – at least where the housing market is concerned – the reverse process seems to be taking place.”
Full article can be found here.
I have been pondering the exact same sentiment during my current travel in China.