Assemble Historical Data Over the Last Several

Assemble Historical Data Over the last several years, the role of the federal government in the housing market has been increasingly brought to the forefront. This is because of the implosion in prices and support that was provided by Washington to address these issues. However, since the 1930s the U.S. government has been directly providing support to the housing market (through the FHA). This was in response to the impact of private mortgages on the economy during the Great Depression.

As time went by, this role was expanded with Washington providing direct and indirect assistance through: Fannie Mae, Freddie Mac along with the Veterans Administration (VA). The combination of these factors allowed the federal government to help with the financing and purchasing of homes. As a result, the numbers of Americans who own properties have increased exponentially since the 1940's. Evidence of this can be seen in the below chart (which is showing the total amounts of homeownership in comparison with interest rates from 1940).

Figure 1: Percentage of Americans who own a Home These figures are indicating how homeownership has increased exponentially. This is illustrating the impact of the federal government on these rates (through their direct and indirect involvement during this process). To fully understand what is taking place requires looking at: homeownership rates prior to their intervention, the decisions that were made and how these rates are affected by new federal homeownership policies that are enacted.

The combination of these elements will provide the greatest insights as to the effect of the federal government on the housing market. Research Question To effectively focus the all research, there will be an emphasis on one particular question. Most notably: is the involvement of the U.S. government in housing market having an impact on homeownership rates? Variable Definitions The basic standards that will be used to determine the effects of U.S. government policies involve: comparing their impact on the markets in contrast with previous periods.

This means looking at times prior to such active involvement (i.e. The Great Depression). Once this takes place, is when the impact will be obvious. Homeownership Rates Prior to the Involvement of the Federal Government According to the U.S. Census Bureau, homeownership rates remained between 43% and 48% during the Great Depression. This is because most housing transactions were conducted by private lenders (who normally required at least 10% to 20% down to purchase a home). This made it difficult for most people to purchase a property right away.

As, they had to: save and obtain financing for buying the home. The problem with this approach is that it did not address the underlying challenges impacting buyers (with most being able to afford the property once they are older). This is troubling, because it meant that many people were often forced to rent (which decreased their net worth and potential earnings). To help potential homeowners, the federal government began offering direct assistance through the FHA.

As time went by, these programs continually evolved to the point that the Washington was becoming directly involved in the majority of residential real estate transactions. This is illustrating how the federal government went from having no role in the housing market to becoming a major player in most transactions. The Decisions that were made The data from figure 1 is showing how the federal government's involvement has caused homeownership to increase dramatically since the 1940.

This is an indication that this kind of support is providing lenders with more confidence when underwriting mortgages. The reason why is because Washington can provide a form of protection in the event that the borrower defaults. As they have a stake in the process, which means that many of the mortgages offered will reduce the risks for financial institutions. As a result, the total amounts of mortgages that are underwritten by U.S. government agencies have increased exponentially.

Evidence of this can be seen in the below tables which is showing the types of loans that they are using to offer direct support to homeowners (according to the FHA). Table 1: New Single Family Mortgage for Fannie Mae 2006 to 2010 Alt A Interest Only 2006 22% 15% 73% 2007 17% 15% 75% 2008 3% 6% 72% 2009 0% 1% 67% 2010 1% 1% 68% Table 2: New Single Family Mortgages for Freddie Mac Alt A Interest Only 2006 18% 17% 73% 2007 22% 21% 74% 2008 7% 6% 71% 2009 0% 0% 67% 2010 0% 0% 69% These figures are illustrating how the involvement of the federal government in housing market has increased dramatically.

This is because there was emphasis on having different agencies providing loans to individuals that are from low income households. Over the course of time, this meant that they would underwrite mortgages that were considered to be more risky (i.e. Alt A and interest only loans). During the last part of the bubble, is when these activities accounted for nearly 25% percent of Fannie Mae's and Freddie Mac's portfolios.

When this data is compared with the information from figure 1, it is showing how this focus has helped to contribute to an increase in homeownership rates. The reason why is because the federal government is making it easier for everyone to be able to purchase a home without having to follow traditional lending practices. Moreover, they are allowing homeowners to deduct mortgage interest and property taxes under the Federal Income Tax Code of 1913.

At the same time, the Revenue Act of 1951 permits individuals to avoid having to pay capital gains taxes on the sale of residential properties. The combination of these factors is showing how the federal government is providing direct support to the housing market through: the availability of loans and tax friendly policies. This has encouraged more people to purchase homes since the beginning of World War II (which are contributing to a rapid increase in homeownership rates from this time forward).

Using the information from figure 1, every time a new program is introduced is when the number of American homeowners will steadily increase from these benefits. How these Rates are affected by new Federal Homeownership Policies that are enacted? The way that homeownership is affected by the federal government's policies is to increase the total number of available mortgages and reduce interest rates. While the favorable tax advantages are providing property owners, with the ability to increase the total return on their investments.

This is encouraging people who may not qualify for traditional mortgages to learn about these programs. Over the course of time, this will lead to greater amounts of homeownership by: making it affordable and profitable in purchasing residential real estate. As a result, the combination of these factors is showing how the federal government's role in the housing markets has encouraged ownership. This is taking place through.