Over the next few years, the housing market that emerges from the bubble will look significantly different than your father’s oldsmobile.
That’s because it is being erected on a framework of new regulations and structural reforms that will significantly alter the reality of the real estate and home finance markets.
Understandably, much of the re-regulation efforts involve an attempt to reduce or eliminate risk for all parties. Homeowners, homebuyers, banks, and ultimately (to the exent that the solution to the to big-to-fail problem has largely been to make banks too-bigger-to-fail) the taxpayer, are all smarting from the last five years and are in no way eager to endure such pain again.
Thus we rail against “risky” this and risky that, and rush to regulate risk into oblivion (an impossibility, BTW) without thinking about what risk in the context of real estate actually is and what it means to the housing market.
These are important questions for the majority of Americans, who depsite the last five years, still regard homeownership as a worthy and admirable dream.
So yes, while “risk reduction” is a noble goal, remember that it will have costs (many of them worth paying,) and that many housing market opinion leaders have lost sight of a fairly basic truth when evangelizing a particular point of view:
To a first approximation, we have two choices:
1. We can have an accessible housing market that provides relatively easy access to housing credit (read: Reasonable down payment, interest rate, and credit qualty standards.)
2. We can have a risk-free (or near risk-free) housing market where foreclosures are very rare but access is rationed (Read: Higher down payment, interest rate, and credit standards.)
But we can’t have both.
Lets hope the regulators are getting the mix right.