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Government policies which encourage and subsidize the consumption of ever-increasing amounts of mortgage debt have transformed housing from a conservatively capitalized asset class, defined by stability and safety, into a highly leveraged one.  Declining equity has destroyed the characteristics which previously defined the housing market, safety and stability, and ushered forth an unprecedented era of housing volatility and risk.

The following chart is a historical analysis of homeowner's equity as a percentage of household real estate assets.





Today the Government continues to erode the characteristics which once made homeownership attractive by issuing highly-leveraged mortgages with little or no equity.  Policy makers wrongly believe that their loose-credit strategy will benefit the housing market by propping up prices.  In reality, the use of low-equity mortgages increases both the risk of homeownership and the potential that prices will fall further. 
 
Home buyers are not participating in the same market that their grandparents did.  Home prices are more volatile, more likely to decline in value and more dependent upon Government subsidized mortgage financing than ever before.  Owning a home has never been more risky and house prices should be discounted by an appropriate risk premium.  Yet one more reason why housing prices remain overvalued and will continue to fall.