Huge mortgage loan interest subsidized by savers
Large mortgage holders seem to complain limit is being reduced from $1000K to $750K. No one mentions that they get such low interest rates that, in my mind, are being subsidized by savers, such as fixed income elderly who cannot risk another bust as in 2000 and 2008. They are getting 0 to 1% on CD's. These low rates being forced down by quasi governmental Fed. What do you think or have written about? Do I have a point? Thanks
Terry Says
Oh you have a very good point! Savers have been subsidizing borrowers for the last decade -- earning low rates, rates forced down by the Fed, in the name of stimulating the economy to grow again. And since the housing market is a significant portion of the economy, the low mortgage rates were seen as a way to "bail out" not only the lenders, but the homeowners, the housing sales and construction industry, and potential homebuyers. It was a government directive (fostered by Freddie Mac and Fannie Mae, quasi-govt agencies that bought mortgages from lenders to "liquefy the market" and helped get us into the 2008-09 crisis! Now, it appears that decades of government policies subsidizing home ownership are being reversed. Mortgage interest deductions are being limited. Property taxes no longer are quite so deductible (along with state and local income taxes). And implicitly home ownership is becoming more expensive. that should put a lid on home prices -- for a while. And it might curtail homebuilding. Then we will see how the government likes the results of this new tax act! As for savers, the market has taken control from the Fed. Increased economic growth should force up interest rates -- both short and long term. And savers will be rewarded -- until inflation returns and destroys the value of their savings.
