What can American citizens do to prevent another housing bubble from occurring?
There are wide varieties of “what ifs” in order to prevent the housing bubble from happening in 2007. Ultimately, now people wonder if another crisis is coming and how can they prevent it or help themselves? Personally, I believe another housing crisis will come, but trying to prevent it is no easy task. Individually people cannot truly prevent another housing bubble. The only aspect as an individual to help prevent a housing crisis is to not get overly excited about housing like people did in the previous housing crisis in 2007. This concept only works if almost everyone does this collectively, and that is not likely to happen. The other aspect to prevent people from being overly excited about housing would be implementing policy to try to let people see that they need to be calm. That would require a lot of effort and creativity from the policymakers. Although it may seem impossible for a way to prevent a housing crisis there may be a plausible preventative way with a shared appreciation mortgage. Niuewerburgh explained what a shared appreciation mortgage would do. Shared appreciation mortgage, “would index mortgage debt to house prices so that a borrower’s mortgage payments, principal balance, or both, would fall as house values decline.” This would result in lowering the burden for borrowing in poor economic times. Lowering the burden would result in a decrease in foreclosures. Although this is a positive aspect, there is a negative aspect to consider as well. Lenders would have to go through the struggles of losses from the debt forgiveness when the economy results in house prices falling. There is a possibility that the losses the lenders may face are at a time of financial stress. Some would argue it would not be worth it in the short run, others argue the short-term struggle is worth it in the long run. In the end, the decision of “Is shared appreciation mortgage worth it?” depends on the individual person’s situation. Niuewerburgh argues that the overall weakness found in today's system would be reduced under shared appreciation mortgages.
