The Reverse New Deal

Change certainly, but hope?

“We are in the reverse New Deal,” Christopher Whalen, a savvy banking expert at Institutional Risk Analytics, told me. He meant that events are dismantling the ingenious engine that helped generate America’s broad middle-class. Homeownership was the main driver in accomplishing that great social change. For three generations, people of modest means could buy a house knowing it would secure their place in the middle-class and allow them to accumulate significant savings. If the family held the standard 30-year, fixed-rate mortgage, they were painlessly saving for the future every time they made a payment, acquiring greater equity in the home as they did so. With moderate inflation, the house would steadily increase in value even as their monthly mortgage payments stayed the same. So the cost of housing actually declined for the family, as a percentage of its income. Meanwhile, the accumulating equity became a nest egg for retirement or something to pass on to the kids.

That virtuous process, originated by New Deal reforms, is in peril and has already shut down for tens of millions, especially working-class families whose incomes are no longer rising. As described by the brokerage investment firm Amherst Securities, the housing picture is ugly. Among the 55 million families with mortgages, one in five is underwater—they owe more on their mortgage than their house is worth—or already delinquent. That’s 10.4 million families who are sliding toward failure and foreclosure. Virtually all of them will become renters, since no bank is likely to give them a new mortgage.–_is_it_time_for_debt_forgiveness_/


  1. One of the 99% says:

    So, what do you suggest those of us who are renting do? Hold off for a few years and then buy? Rent forever? At some point, shouldn’t we look to accumulate wealth in real estate to pass along to heirs?

  2. I suggest continue renting for at least 3 years.

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