Joined: 28 Dec 2005
|Posted: Sat Mar 19, 2016 6:44 am Post subject: Housing Market
There was too much money flowing into the housing market before the crisis, and it’s likely too much money is flowing into student loans after the crisis.
A large tax cut with higher lending standards in the housing market before the crisis would’ve caused households to save more, because of diminished marginal utility (the opposite of pent-up demand), to strengthen household balance sheets and the banking sector.
There was a homebuilding boom and a refinancing boom, because too many houses were purchased. So, more household debt was created and the expectation was either home prices would continue to rise or flatten-out.
Gradually raising lending standards, e.g. in 2004, would’ve slowed homebuilding and refinancing. So, there would’ve been less household debt. Some percentage of tax cuts would’ve further reduced household debt, while consumption continued to grow.