There are two peculiar critiques in the economy today. The first is that it is so much harder to get a loan now than before. The second is that it is hard to get a house. But these complaints are using the standard of the excess period driven by perverse government incentives, not what should have been reality. It too hard to get a loan now, this is just how hard it should be. Steve Chapman makes the same argument about housing in critiquing the Federal Housing Administration (FHA):
Given the collapse in real estate prices, the weak economy and the epidemic of foreclosures, banks are acting with more caution than before. They now commonly require home buyers to make down payments of 20 percent to qualify for a loan. But the FHA often requires only 3.5 percent.
What most foreclosures have in common is that the mortgage holder owes more than the property could sell for. “Not everybody who has negative equity goes into foreclosure, but nearly everybody who goes into foreclosure has negative equity,” says Paul Willen, an economist at the Federal Reserve Bank of Boston.
But Stevens sees no reason the agency should raise its down payment requirement to 5 percent. “All that’s going to do is retard recovery,” he says, by making it harder for people to buy homes.
But guess what? It should be harder for people to buy homes. Making it too easy to buy homes is what caused the foreclosure epidemic, which led to the financial crisis, which helped crater the economy.
(Emphasis added)
Read Chapman’s whole piece here.