Mortgages: Systematic Mess

As millions of families who tried to buy or sell a house last year learned to their dismay, mortgage credit is something like an umbrella that collapses when it rains. Three times since 1950, the output of new housing has dived after the Federal Reserve tightened up on money to thwart inflation. No other major U.S. industry is quite so vulnerable to swings in monetary policy. Last year the money squeeze gave housing its worst setback since World War II.

The cost of mortgage loans rose to a 40-year peak and the construction...

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