2021-11-16: Economics Question                               rak
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Today in the Wall Street Journal [0], it was reported that the
U.S. federal government will back home mortgages of nearly $1
million dollars for the first time.

I understand the intended objective: the price of homes has
skyrocketed to astronomical levels (especially here in Canada),
putting the price of home ownership out of reach to most
families. By providing families with access to larger loans, the
government is trying to make home ownership accessible to those
who might not otherwise be able to.

My question is: how will this not compound the issue and drive
prices up even further? My (uneducated and uninformed) common
sense economic reasoning suggests that if prices get too high,
then demand will drop (because nobody is willing to spend $1
million on a bungalow in rural America), and prices will
eventually have to come back down to levels bearable by the
market. But if you make money more easily available, people will
be able to buy homes at prices they would not otherwise have
been able to, thereby sustaining the high prices.

I am not an economist, and my reasoning is obviously pretty
simplistic. What factors are at play that make my analysis
incorrect? How is this situation different from the housing
bubble of 2008, in which Fannie Mae and Freddie Mac allegedly
played a role?

[0] Andrew Ackerman. "Fannie Mae, Freddie Mac to Back Home Loans
   of Nearly $1 Million as Prices Soar", Wall Street Journal,
   2021-11-16

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