The GOP Has a Dumb Mortgage Idea

Professor Ed Glaeser reports:

Today, the Senate Republicans bear the heavy burden of providing the primary check on one-party rule in America.

For that reason, it is particularly disappointing to see Senate Minority Leader Mitch McConnell embrace "providing government-backed, 4% fixed mortgages to any credit-worthy borrower" as his alternative to the Barack Obama/Nancy Pelosi stimulus package. Our nation needs Mr. McConnell's leadership, but this idea is bad economics and not a real alternative to the vision of America offered by Democrats. It also stands at odds with all that is good in Republicanism.


This massive lending program is justified as a means of boosting housing prices. But over the past 28 years, a 100 basis point reduction in the interest rate has been associated with a 4.6% increase in housing prices. Today's mortgage rates stand at 5.35%. If Mr. McConnell's proposal dropped rates by 135 basis points, history suggests that prices would rise by 6.2%. This bump would be barely noticeable in markets like Phoenix, Ariz., where prices have fallen by more than 40%, and it would do little to stem the wave of foreclosures.

It's time to separate housing from state.