Finally the other shoe drops. On the front page of Monday’s USA Today, research done by Harvard University’s Joint Center for Housing Studies discovered “Homes that cost less hit the hardest.”

The article details the fact the lowest price homes in markets all across the US have experienced price drops greater than homes which cost more. This is no surprise and it is the natural consequence of artificial incentives instilled into the housing market by the Community Reinvestment Act originally signed by Jimmy Carter, and subsequently updated in the Gramm Leach Bliley Act signed by Bill Clinton. The latter reduced regulation of banks, opened the door for more and bigger bank mergers, and repealed the Glass Steagall (which allowed banks to offer commercial banking and investment banking services simultaneously – a substantive cause of the recession and subprime crisis).

The article lays out the facts of the recent and current housing situation for lower income earners, but does not connect the dots. First, prices of lower priced homes increased faster and to a greater degree than higher priced counterparts. In other words, lower income buyers paid more for their homes when they purchased them. The fact that prices rose and fell so dramatically, indicates greater amounts of debt were used to purchase the lower priced homes than more expensive ones. Further deduction suggests that more low priced home owners are now “under water” as prices have fallen below the mortgage amount contracted for. What follows, and the article points this out, is that greater numbers of foreclosures have take place for (former) owners of lower priced homes.

Summarizing, “policy” allegedly designed to help lower income Americans actually hurt them at each and every stage of their home ownership journey. They paid too much, borrowed too much, at rates too high, then had the rug yanked out from under them when home prices fell, causing a poor economy, followed by extensive job losses and ultimately foreclosures. Those who have hustled to make their payments, have homes worth drastically less than when they paid, and now these folks are being harassed by banks who are under government thumb after receiving bailouts. If I were in this situation…(and you would be too).

Here’s the point, which the article omits: The only way to get ahead and stay ahead is to work and save some capital. Then use the capital, while continuing to work personally, to invest and earn additional capital. Gifts, handouts, artificial incentives, and the like, while politically expedient, just create more hardship for the intended beneficiaries of the largess. These needlessly expose them to poor decisions for their part and cruelly subject them to being taken advantage of by unscrupulous charlatans. The only sound way to improve one’s life is through one’s own effort – anything else really screws things up. BTW, I have lived this lesson first hand, as Debra and I were homeless six months into our marriage in 1988 – but that’s another story.

Community Reinvestment Act information.