No one has written as deeply and well on the financial crisis as Peter Wallison, once White House Counsel for President Reagan and now a senior fellow at the American Enterprise Institute. His core analysis: Beginning in the late 1990s, Fannie Mae and Freddie Mac — driven by the Clinton Administration and Congressional policy (read: Barney Frank and Chris Dodd) — pumped up a massive housing bubble that, when it burst, drove us into the financial crisis. In today’s New York Times, he has an op-ed, the title of which says it all: “The Bubble is Back.”
Down payments are again shrinking toward zero. Maturities are climbing toward the stars. Citing AEI’s National Mortgage Risk Index, Wallison reports that this past October, “about half those getting mortgages to buy homes — not to refinance — put 5 percent or less down.” So housing prices are again breaking away from their historic lockstep with the trend in rents and heading for the bubblesphere.
All this easy money has barely altered the level of American home ownership, which hovers around its historical place of 64% or so. Critics of tighter standards, Wallison concludes, “claim that people will not be able to buy homes. What they really mean is that they will not be able to buy expensive homes.”
Here is a chart that The Times did not include in the article, but that Wallison sent to his email list this evening. If looking at it doesn’t give you the willies, nothing will. Yes, the bubble is back: