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Another housing bubble is forming: OPINION

American Enterprise Institute fellow says Americans need to buy cheaper homes

The U.S. housing bubble is forming again, as evidenced by the fact that home prices are rising faster than rental costs, Peter Wallison, senior fellow at the American Enterprise Institute, wrote in a New York Times op-ed.

In order to stave off another housing bubble, homeowners need to avoid leverage, Wallison argued — lest the country be plunged into another financial crisis.

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Housing prices climbed by 5.8 percent and rental costs by 2 percent between early 2011 and the third quarter of 2013, he said. Wallison blames the apparent bubble on federal policies that augment the subprime mortgage market — the riskiest loans.

“Both this bubble and the last one were caused by the government’s housing policies, which made it possible for many people to purchase homes with very little or no money down,” said Wallison, formerly a member of the Financial Crisis Inquiry Commission.

“When down payments were 10 to 20 percent before 1992, the homeownership rate was a steady 64 percent — slightly below where it is today — and the housing market was not frothy,” he added. “People simply bought less expensive homes.”  [NYT] — Mark Maurer

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Federal ReserveHousing BubbleHousing Crisis