The Wall Street Journal had a fascinating story on the regions with the most underwater mortgages, together with an invaluable map. When you look at the map, you'll see that the areas facing the greatest impact are also the areas most affected by immigration. The Inland Empire of California, metro Phoenix and Las Vegas, south Florida—all have had heavy influxes of Latino immigrants or of Anglos leaving immigrant-dominated places like Los Angeles and Miami-Dade counties. Homeowning here was in effect subsidized by the toxic-waste mortgages pumped through the system by Fannie Mae, Freddie Mac, and other improvident financial institutions. Now evidence is accumulating that Latino migrants are returning to their home countries because of the housing bust (construction jobs have disappeared), tougher immigration law enforcement, and a longer-term demographic trend that may be having an effect: a sharp decline in birthrates in Mexico and other Latin countries about 18 years ago. For speculation, some of which goes farther than I would, on how immigration has interacted with cheap mortgages, you can see any number of items in Steve Sailer's interesting blog. I hope to look further into this when I have the time—but campaign 2008 is calling.
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