The Entrenched 30-Year Mortgage Deepens Inequality in Frozen Housing Market
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The 30-year fixed-rate mortgage uniquely benefits U.S. homeowners by allowing them to lock in low rates for decades. This exacerbates inequality between owners and buyers.
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With few homes on the market, sales of existing homes have fallen over 15% as owners are disincentivized from selling. Many millennials struggle to buy their first home.
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The 30-year mortgage emerged from the Great Depression when the government helped stabilize the housing market. It has remained the dominant mortgage type, aided by government backing.
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Critics argue the 30-year mortgage overstimulates demand without increasing supply, contributing to the affordability crisis. It also leads to racial and economic inequality.
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Reforms like encouraging adjustable rate mortgages have been proposed, but the entrenched 30-year mortgage has built-in supporters. A thaw in the frozen housing market may happen slowly over years.