Comment by altairprime

If you think of it as a homeowner debt subsidy, that forces a higher percentage of the country into recurring-revenue rentals, that provides an adverse incentive against correcting home prices for income. Right now the consumer debt that’s substituting for wage increases hinges on the middle class being able to access lines of credit; one very popular LOC is home mortgages. If home values are allowed to fall to the level predicted by median wages, that could trigger a massive wave of defaults and bankruptcies as existing loans go underwater, homeowners have their lines of credit shorn, and then start missing mortgage payments and file for bankruptcy. U.S. mortgage loans for 1-4 bedroom properties are currently $14.5 trillion USD; for comparison, U.S. GDP is around $31 trillion USD. So if 10% of homeowners default or discharge their mortgage debts due to home prices collapsing to realistic levels, U.S. GDP drops 5% that year (not accounting for the loss of interest the banks would’ve recorded to GDP as production output for up to decades). Median household wages for homeowners is $86k, well below the $120-140k threshold recently discussed, supporting the government estimates that 30% of homeowners have difficulty making payments on their homes. So, if those 30% went bankrupt over a home prices crash, there’s a plausible threat of a 15% collapse in GDP (compared to Covid, which was around 10%).

Relative to that, I don’t think economic policy is likely to prioritize new home ownership, not when a catastrophic reversal of years of GDP gain is a material risk. It would be a different story in a first world country, I expect, but here trying to reset home prices would just result in a massive rent costs spike (the U.S. free market tends not to build median-wages housing if it can avoid it) and a notable fraction of those households becoming homeless, while they watch as other families benefit from the price correction’s devastation by buying up their home at auction. The best that policy can do with the restrictions the U.S. government places on itself is to issue federal funding to regional governments to build median-price housing — and since much of that funding would go to regions explicitly hostile to current U.S. leadership, that is extremely unlikely to be passed by Congress.