Too Much Credit or Not Enough?

Years ago, there was concern that the poor didn't have enough access to credit, and were denied access to the American dream of homeownerhsip. Now there is concern that there is too much credit available.

Easy access to the world's most efficient and well-developed mortgage markets helped increase homeownerships rates significantly over the last 40 years. In 1965, the homeownership rate was just less than 63% according to the Census Bureau. A few years ago in 2005, it hit an historical high of 69.1% partly due to subprime lending, and has fallen to 68.4% in 2007, due to recent foreclosures of marginal borrowers.

From Reason Magazine, "In a sane world, we’d say this is a market behaving as it should, and marvel at an economy where so many people who were once locked into the renters market have gotten a chance at homeownership. Some of them have blown their chance by exhibiting the same kind of behavior that made them bad credit risks in the first place. But most have not. In fact, about nine out of every 10 sub-prime borrowers are still making their payments."

Is there too much credit or not enough? Like all important decisions, let's let the market decide through a trial-and-error discovery process what the optimal amount and distribution of credit should be.

HT: Bill Hood