0
0

Government doing its best to make sure housing is NOT affordable


 invite response                
2007 Sep 20, 3:25am   35,339 views  159 comments

by Patrick   ➕follow (55)   💰tip   ignore  

fake money

Every government action designed to make housing more affordable has the effect of driving up prices, making housing LESS affordable.

We need lower prices, not subsidies, guarantees, or great buckets of profits for banks and Fannie Mae.

Fanny Mae buys up and resells conforming mortgages, giving the mortgages an implicit guarantee that the government will cover them in case of default. This increases the amount that banks are willing to lend, which drives up the cost of housing.

The deductibility of mortgage interest increasese the amount that buyers can borrow, and again drives up the cost of housing.

Even housing subsidies don't help at all, because they are simply eaten by higher prices, making them a direct transfer from taxpayers to sellers.

Every housing program by the government negates its own effectiveness by making housing more expensive. They harm savers, because savers are forced to pay higher prices. They do help banks though, by allowing them to make bigger loans and therefore bigger profits. The best thing the government could do for housing is to stay out of it and let prices come down to affordable levels.

Patrick

#housing

Comments 1 - 40 of 159       Last »     Search these comments

1   Claire   2007 Sep 20, 3:43am  

You're singing to the choir.....

Why is it no one (MSM) reports that house prices need to drop?

They do everything they can to point out all the other factors - sub-prime, rising interest rates - ARM's, mortgage fraud etc, but they never mention that people just can't plain afford the current prices!

2   e   2007 Sep 20, 3:45am  

To be fair though, the current stated goals aren't to make housing more affordable - it's to save FBs.

Homeownership is the core of Capitalism and Democracy and America - even if you can't afford it.

If we give up that, we might as well elect Ossama Bin Laden as our President.

Anyway, there are some good deals to be had already. The Fallujah house in San Jose is now in the $3xx's (according to Movoto.)

http://www.burbed.com/2007/03/26/affordable-starter-home-or-fallujah-replica-in-the-bay-area-you-decide

3   Brent   2007 Sep 20, 3:58am  

It appears that the desired outcome is to devalue our currency by ~50% to bring home prices back in line with incomes. This also has the benefit of in-sourcing labor, fixing social security, and perhaps getting us off our credit addiction.

Exactly how much of an over simplification is this? Don't people on fixed income tend to vote?

4   HARM   2007 Sep 20, 4:13am  

Every housing program by the government negates its own effectiveness by making housing more expensive. They harm savers, because savers are forced to pay higher prices. They do help banks though, by allowing them to make bigger loans and therefore bigger profits.

Which is precisely why the government cannot and will not stay out of housing.

5   Peter P   2007 Sep 20, 4:28am  

Homeownership is the core of Capitalism and Democracy and America - even if you can’t afford it.

Huh?

BTW, democracy is the one of the few things that really need regulations. We must ensure that it does not get in the way of capitalism.

Remember, capitalism without failures is not capitalism. Democracy is the best mode of society, but unchecked democracy will only lead to socialism.

6   sam2007   2007 Sep 20, 4:32am  

The government must clamp down on ARMs, because ARMs were used as a tool by successful flippers in the past, who used the low interest rates as a leverage. If owning a home is one's goal, one must go for the fixed rate mortgages and have the ability to pay, month after month, year after year. Please read my full article on this value proposition at
http://economy.franteractive.com/real-estate/dream-home3.html

Thanks,
Sam

7   Peter P   2007 Sep 20, 4:34am  

The government must clamp down on ARMs, because ARMs were used as a tool by successful flippers in the past, who used the low interest rates as a leverage.

No. The government should not clamp down on such thing. If those who have made bad decisions are allowed to fail, they will be more careful next time.

8   DinOR   2007 Sep 20, 4:39am  

Believe me, I understand Patrick's frustration here. Anyone watching the dog and pony show on CH today could see the frantic damage control, all of which designed to support home prices (and by default) their lenders.

Hank P. is a terrible public speaker. He hemmed and hawed, trembled and in general didn't exactly exude confidence. China's "nuke option" clearly has him rattled.

9   HARM   2007 Sep 20, 4:42am  

I have nothing against standard, full-doc ARMs per-se (they are the norm in many other countries), but negatively amortizing, interest-only and NINJA mortgages should be called what they are --financial WMDs-- and banned.

10   Peter P   2007 Sep 20, 4:43am  

Anyone watching the dog and pony show on CH today could see the frantic damage control, all of which designed to support home prices (and by default) their lenders.

It is too late to support home prices, one they have already started their descent.

11   Peter P   2007 Sep 20, 4:45am  

negatively amortizing, interest-only and NINJA mortgages should be called what they are –financial WMDs– and banned.

Perhaps. But if the lenders are allowed to fail, I do not mind if they choose to be generous.

12   HARM   2007 Sep 20, 4:53am  

Q: Do we allow neg-am, interest-only or 'stated-income' credit cards?
A: No --and for good reason.

But apparently something that's too "dangerous" to use for one's groceries, gas and discretionary spending is somehow A-ok when it comes to the single largest (and riskiest) purchase in most people's lives.

I am not against people or institutions making risky investments if they are: (a) willing to personally accept any negative consequences/not expecting a bailout, and (b) those risky investments do not collectively f*ck up an entire non-discretionary asset class like, say, housing.

Once other people's shit starts negatively impacting me and other people who had *nothing* to do with their grand Ponzi scheme, it's time to regulate.

13   Peter P   2007 Sep 20, 4:56am  

Once other people’s shit starts negatively impacting me and other people who had *nothing* to do with their grand Ponzi scheme, it’s time to regulate.

All Ponzi schemes fall apart eventually. We just need to let them fail. At the most, government should educate people on the danger of such schemes. If people are willing to commit financial suicide I say let them go.

14   DinOR   2007 Sep 20, 5:01am  

"it's time to regulate"

Well there was ONE positive out of that whole circus! The rep. from AL asked Paulson if he felt having a national registry for mortgage brokers was a good idea?

After considerable fumbling Paulson agreed, and agreed whole-heartedly! The way I understood the question it would basically establish a "Central Repository" where background checks and finger printing would be the new 'national' standard. Much as the NASD runs (complete w/ fines, investigations and expulsions!)

15   HARM   2007 Sep 20, 5:08am  

The way I understood the question it would basically establish a “Central Repository” where background checks and finger printing would be the new ‘national’ standard. Much as the NASD runs (complete w/ fines, investigations and expulsions!)

SarBox for banksters --Sweeeet!!

16   DinOR   2007 Sep 20, 5:09am  

HARM-BANK is pleased to announce our all new Interest Only Neg. AM Platinum Card (TM)!

Since we all know most Americans expect someone else to pay off their maxxed-out credit cards when they sell or serially re-finance their home why bother with those pesky principal payments!

You can cut your payments by up to 50%!

"I'd say anyone that actually made a principal payment on their credit card balances probably didn't do a very good job of managing their finances" (David Lereah)

APPLY ON-LINE! Click Here.

17   anonymous   2007 Sep 20, 5:10am  

The Bay Area is out of whack. I think if you look at the national median home price which is somewhere I think around 225k (and will be less once this whole thing shakes out), that's not too bad IMO.

I'd be curious to see what the median home price would be if you removed CA and NY from the picture too.

Chances are, probably 40 to 45 states are probably vaguely concerned about housing affordability but wouldn't count it as a major issue that affects a large majority of their respective citizens.

Which means you get the type of legislation that is coming out of DC.

18   Peter P   2007 Sep 20, 5:11am  

APPLY ON-LINE! Click Here.

It didn't work! I keep trying to click on the "link" but I am still on this site!

19   DinOR   2007 Sep 20, 5:12am  

HARM,

Since Paulson, Jackson (HUD) and BB were basically there "hat in hand" it would've seemed ridiculous for them to object to the proposal? I mean we're all here to discuss solutions to the Subprime crisis but you have objections to tracking these guys!? C'mon?

20   DinOR   2007 Sep 20, 5:12am  

Gotcha! :)

21   OO   2007 Sep 20, 5:13am  

Japan, Australia, UK, Canada, China, almost every country on earth is on a short-duration FRM or ARM. ARM is actually better for borrowers, because that puts them in a more defensive, conservative mindset.

Now that USD is confirmed its US peso direction, we should discuss what to stock up at home before the foreigners catch up. Obviously not the perishables.

BTW, US government is making housing cheap for FOREIGNERS to buy. In expensive areas where there are many foreign interests, foreigners will buy up even more as their relative wealth grwos as the local people suffer. By trashing the dollar, we are making it easy for foreigners to buy up US assets as well!

Oz has restrictions for foreigners to buy raw land and 2nd hand real estate, all such purchases have to be approved by a special board. I think we need one as well. Or else before long, the entire BA agricultural land may be owned by hostile foreign interests, and I am not kidding.

22   astrid   2007 Sep 20, 5:18am  

There are several things at play here. In the short run, government subsidy would dramatically increases housing affordability by giving the buyers a lot more money (either in the form of tax deductions or subsidized loans). In the long run, much but not all the buyer's advantage is eroded, with a remainder of the government subsidy going to the seller (often the people already reaped the greatest benefit from the initial subsidy). Meanwhile, the additional demand for home ownership spurs excessive building, buying and selling, and remortgaging, creating jobs.

It's a great system and everyone is happy and prosperous except the JBRs who are now out a lot of money with nothing to show for it except a lot of sneering housedebtors, but JBRs are subhuman so nobody cares.

23   Peter P   2007 Sep 20, 5:20am  

In expensive areas where there are many foreign interests, foreigners will buy up even more as their relative wealth grwos as the local people suffer.

Bay Area is relatively unattractive to foreigners.

It is already quite cheap compared to true international cities like New York and London.

Oz has restrictions for foreigners to buy raw land and 2nd hand real estate, all such purchases have to be approved by a special board. I think we need one as well.

No regulations please. Just let the market work its way through.

Most so-called "market failures" are caused by our unwillingness to let the market work. We inject so-called compassion into the equation and, in the end, get a mess.

24   StuckInBA   2007 Sep 20, 5:22am  

The result of recent "helps" from Govt will soon be seen. It's too early to say, but 10yr treasury has been rising ever since Fed dropped the rates. So much for helping mortgage rates come down.

Now that we have screwed foreign bond buyers enough, we are making our FNMA issued bonds riskier. Yes, that will bring the bond buyers back to us. Good move.

But I will repeat. The helping out homeowners is just lip service. Both these actions simply bail out banks who made these loans and hedge funds who bought them.

25   OO   2007 Sep 20, 5:22am  

Peter P,

if there were no regulations we'd be out there slaughtering each other.

A country absolutely needs discriminatory regulations for its own people vs. outsiders, or else why do I pledge allegiance to this country to begin with? What perks do I get by becoming a citizen?

26   OO   2007 Sep 20, 5:29am  

BA is very attractive to foreigners.

I don't want BA to go the way of London. Because UK adopts a policy encouraging foreign capital investment, foreigners investing money in London's real estate pays NO capital gains tax while British do. After the 1991 sterling crisis, many rich foreigners flock to London to buy up real estate to take advantage of the cheap sterling.

Today, the best parts and London are all occupied by Russian mafia, Eastern European tycoons, Arab oil money, etc. Some elite worker bee elites can also enjoy a claim of their own, but the majority of people working in London have to travel far on train to work, including the highly paid bankers. That's why young British talents are fleeing the country in hordes, making Australia their top destinations.

Is this what you want for BA?

27   DinOR   2007 Sep 20, 5:34am  

OO,

I remember in the late 90's several BNY employees that were analysts in London got caught up with the Russian mob there. Our guess was they could comply (or get your husband back one "digit" at a time). No thanks.

28   astrid   2007 Sep 20, 5:35am  

OO,

On the bright side, I heard that British restaurant foods have improved by leaps and bounds.

29   e   2007 Sep 20, 5:37am  

Is this what you want for BA?

If I were a property owner, sure that's what I would want.

How awesome would that be. Sell a home to the russian mob, retire. Period.

That's almost as good my proposal for Prop 1313:

http://www.burbed.com/2007/05/26/college-grads-fleeing-california-how-can-we-tax-them/

Summary: Tax people who leave California.

30   StuckInBA   2007 Sep 20, 5:43am  

Remember Jon Markman ? From MSN INvestor ? Last year he was asking us to buy homebuilder stocks, because the housing market was at bottom. Seems like he has taken the time to educate himself.

His recent article is based on his talk with Satyajit Das. There are some very nice snippets here. I highly recommend that you read it. Very sobering.

Are we headed for an epic bear market?
...
I started by asking the Calcutta-born Australian whetherthe credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?"

Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.
...
Like an ex-mobster turning state's witness, Das has turned his back on his old pals in the derivatives biz to warn anyone who will listen -- mostly banks and hedge funds that pay him consulting fees -- that the jig is up.
...
Bankers figured out how to strip money out of existing assets to do so, much as a homeowner might strip equity from his house to buy another house.
...
These triple-borrowed assets were then in turn increasingly used as collateral for commercial paper -- the short-term borrowings of banks and corporations -- which was purchased by supposedly low-risk money market funds. According to Das' figures, up to 53% of the $2.2 trillion commercial paper in the U.S. market is now asset-backed, with about 50% of that in mortgages.
...
Now it may seem hard to believe, but much of the past few years' advance in the stock market was underwritten by CDO-type instruments which go under the heading of "structured finance."

31   KurtS   2007 Sep 20, 5:57am  

"Bay Area is relatively unattractive to foreigners."
or...
"BA is very attractive to foreigners."

Who exactly are we talking about--"foreigners" who get paid local wages, or those sheiks and tycoons that buy prime metro properties? I'm sure a few foreigners "invested" in BA RE in recent years, but outside of short-term speculative gains, how do those BA "intangibles" compare against what draws money to London, Paris, Milan, and cultural centers in Asia? Besides, people of that level of wealth are a tiny segment of demand for local RE. They're interested in a very narrow luxury segment. I really doubt they're grabbing up 30 yr old suburb tract homes to become jet-setting landlords for the middle class. Nor, are they willing to catch that falling knife if they have any clue as what's going on. Europe's property boom appears to be weakening as well.

32   DinOR   2007 Sep 20, 6:01am  

StuckInBA'

I read that article earlier today and didn't realize Jon was advocating the HB's back then? Talk about a 180!? Das does have some good points and he definitely knows that end of the market.

Right now the GSE geniuses are describing the MBS Market as "The" market and really contorting priorities. If someone would've told me 6-7 years ago that MBS "market" would become "The" market and the cornerstone of all our conversations I think I would have laughed at the guy. When was the last time we talked about a company?

33   OO   2007 Sep 20, 6:04am  

A question for the loan experts here.

Are there 15yr fixed or 30yr fixed Jumbo loan products out there? I went to yahoo to see if there were any movements on jumbo rates, all the jumbo loan products I could find were 5/1 7/1 Jumbo. Was FRM Jumbo ever offered?

My question may sound stupid, since I have only dealt with FRM or ARM in my life. What are 5/1 7/1?

34   DJM   2007 Sep 20, 6:38am  

Re. fixed-rate jumbos, yes they have in the past offered 15-, 20-, and 30-year fixed. I have one, 15-year fixed. I'm planning to pay it back in cheap dollars...just kidding...well, sort-of. 5/1 and 7/1 are ARMs - the rate is fixed for 5 (or 7) years and then resets, I think annually. Those are "conventional" ARMs, or ARMs done right if you will. It's those ARMs AG had in mind when he was touting them years ago.

35   Peter P   2007 Sep 20, 6:44am  

Some elite worker bee elites can also enjoy a claim of their own, but the majority of people working in London have to travel far on train to work, including the highly paid bankers.

Worker bee elites? That is such is an oxymoron.

BA is very attractive to foreigners.

Perhaps foreign "worker bee elites."

BA is so infested with NIMBYism that it will never be attractive to the foreign rich.

And that is on top of the outrageous tax policy over worldwide income.

36   Peter P   2007 Sep 20, 6:47am  

The newest trend in wealth appears to show that natural resources is the place. Most fast-growing tycoons are in that area.

37   culady   2007 Sep 20, 8:02am  

Ok, guys and gals I'm trying to gather infomation on foreclosures. I have a family member who will be a first time home buyer in the East Bay (sf) area. He would like to pick up a home in the near future. I tired to share with him some of the info you have been posting on this blog, and could really use some help understanding forclosures and all the stages it must go though prior to it being placed on the auction block. Can you direct me towards some good sites to get started on this journey? I would like to arm him with as much info as possible so, when the time is right, he can hopefully get that mcmansion I've always wanted! Thanks, CUgal aka culady!

38   HelloKitty   2007 Sep 20, 8:04am  

I would argue EVERY problem the goverment pretends to 'solve' has opposite effect. Subsidies create more of what you subsidize.

war on drugs=we now have more drugs(meth is cheap and ez to make yourself. weaker older drugs are more expensive)

war on poverty=creates lifetime welfare queens

war on terrorism=making new terrorists daily in Iraq by killing parents, relatives, etc.

housing affordability=creates less affordable housing by known programs.

One interesting note about the famous Shiller housing price graph going back to 1890 is that he did NOT factor in 'goverment subsidies' which artificially inflate housing OR the NIMBYism which are both new (last 30 years?). I'm not sure how to quantify those or if they can be.

39   OO   2007 Sep 20, 8:22am  

DJM,

thanks for the explanation. Are they not offering FRM Jumbo any more? How come I can't find any FRM Jumbo? Is it a recent development?

40   Peter P   2007 Sep 20, 8:45am  

I would argue EVERY problem the goverment pretends to ’solve’ has opposite effect. Subsidies create more of what you subsidize.

Yeah. Government is there only for the noise.

More regulations would only mean more bureaucrats. Is that what we want?

Comments 1 - 40 of 159       Last »     Search these comments

Please register to comment:

api   best comments   contact   latest images   memes   one year ago   random   suggestions