US govt is Subsidizing $1+ Million Condos In New York City

Discussion in 'Economics' started by misterno, Aug 17, 2010.


    Government support for the U.S. housing market hit a new high (low?) recently, when the Federal Housing Authority--an agency created to help low-income people buy homes--began subsidizing multi-million dollar condo apartments in New York City.

    According to Bloomberg, New York developers have seized on the subsidy as a way to sell apartments in a weak market. Thanks to the FHA, rich New York City buyers can now borrow 96.5% of the price of a new $800,000-$3 million condo and have their loans insured by the government--and developers are touting this opportunity to all who will listen.

    Help rich people buy multi-million dollar apartments? One suspects that this is not what the creators of the FHA had in mind. But it's indicative of how dependent the US housing market has become on the government handouts.

    The FHA news comes on the same day that politicians and bankers are meeting to discuss the fate of Fannie Mae and Freddie Mac, the two giant mortgage insurers who helped inflate the housing bubble to a historic peak a few years ago. The question on the docket is what to do about Fannie and Freddie, now that taxpayers have had to jump in and bail out the companies to the tune of $150 billion (and counting).

    The US housing market is now almost entirely dependent on Fannie and Freddie to underwrite mortgages, says Joe Weisenthal, Deputy Editor (and my colleague) at Business Insider.

    As a result, says Joe, although politicians may talk a big game about reforming Fannie and Freddie, the reality is that they're likely to do very little. With the wealth and livelihood of so many voters dependent on house prices remaining inflated, the government will likely do everything it can to keep them inflated. And that, says Joe, means keeping the Fannie and Freddie status quo.