The total expense associated with Housing Stimulus is unknown as defaults and foreclosures from low down payment mortgages will occur for years to come. 

We do know that the Federal Reserve alone spent more than $1.2 trillion subsidizing mortgage rates and that today the Government underwrites up to 95% of house loans.  Since these mortgages are being issued to purchase overvalued houses, which even today are declining in value, taxpayer losses will be massive.

Throw in the costs of HAMP, HOPE and numerous other misguided mitigation programs and housing stimulus may end up having cost more than $2 trillion.

It is difficult to capture the distortive influence of this direct spending and indirect subsidization, but post-Bubble demand trends provide some insight.

Greg Fielding of Bay Area Real Estate Trends observed that July's wretched existing sales figure was actually consistent with the long term declining trend which was disrupted by housing stimulus.  Link





Based on the historical trend, in excess of 1.5 million existing homes were sold solely due to stimulus efforts since February 2009.

While it is possible that Greg's trend would have continued uninterrupted I favor a more conservative estimate derived from the stable level of transactions from December 2007 through February 2009.  While it is possible that sales figures would have continued to drift lower had housing prices been allowed to continue their decent, it is impossible to know with certainty.



Based on an assumed sustainable sales rate of 4.6 million units per year, housing stimulus created approximately 900,000 incremental sales. 

Overvalued housing prices should have continued to fall over the past two years.  Instead, values were propped up and even artificially inflated in some markets through subsidized demand.  Today, there are an incremental 900,000 to 1.5 million housing stimulus homeowners with little to no equity in their new purchases who will be underwater in the months to come.  The Government has created a new supply of foreclosures, delayed a resolution to the economic downturn, and done so at extraordinary cost. 

Housing stimulus has also increased the potential for an unprecedented gap down in prices as 7.5 million existing homes were sold since February 2009 at values above market-determined levels.  Most of these houses were overvalued and undercapitalized.  When prices fall, a large number of these 7.5 million homeowners will sink underwater, and an increasing number of them will default.  All because our political leaders believed that command economy style price fixing would solve the problem of overvalued houses.