Our government gives out massive subsidies to homeowners. There is the mortgage interest deduction, property tax deductions and all kinds of government loan programs. All these government "affordability" programs raise the price of real estate. Everyone that bids on real estate comes armed with the government handouts, and the government money just gets tacked on to the price of the house.
Thus from the point of view of the homebuyer, government welfare for homeowners makes the decision to buy a home more expensive and more risky. The homebuyer must not only buy the house but he must also buy all the government welfare programs for homeowners when he buys that house.
The wealthiest members of society are those that can most easily afford their homes. Further the wealthiest in society own the most real estate. Thus logically government policy which raises the price of real estate makes the wealthy more wealthy. Clearly if the wealthy are given a bigger piece of the pie, everybody else gets less pie. So of course the media and the politicians gloss all over this transfer of wealth upwards to the wealthy. Instead the politicians and the corporate media focus on those on the edge. The politicians and the media cry a river over the guy up to his eyeballs in debt who paid too much for his house and is now getting hurt by deflation in housing prices.
The obvious answer to the so-called "housing crisis" would be to let prices fall so that people that buy houses do not have to be buried in an unrealistic amount of debt if they choose to buy a house. The solution to our housing problems would be to remove all the government interference in the real estate market so housing can actually become affordable.
Instead the government has decided to ladle even more and more largesse on to homeowners.
Now that the price of housing has started falling, the government has unleashed a flood of federal dollars directed towards homeowners and the real estate industry--more tax breaks, favorable loans , and even offers to pay down principle, and the Federal reserve is printing dollars out of thin air to buy mortgages. If that wasn't enough the government is pouring hundreds of billions more dollars into Fannie Mae and Freddic Mac. Fannie Mae and Freddic Mac both have huge unknown losses on their books or rather the federal government's books as the federal government basically owns them now. The government has given these two agencies the green light to buy hundreds of billions of dollars more in more mortgages. In all likeliehood this will put hundreds of billions of dollars of more bad debt on the books of these agencies which will soon just be bad debt piled on top of our government's already massive inventory of bad debt.
This cannot end well.