patrick.net

forgot to add one:

low std of living is good.

CashOffer says

It's TOO late for US to offer lower price on food, gas, and HOUSE.

Food ? we have lots of it. Heck we were selling it to the USSR back in the 70-80s.
Gas ? we have lots of natural gas, bio, nuclear. We sold 55% of our oil international back in the 50s.

House ?

many seemed to have forgotten what prices were before the bubble compared to incomes/inflation. There was some common sense back than when most people knew what saving vs spending was.

chip_designer says

forgot to add one:

low std of living is good.

Yep, that is called some check from nature.

I'd say we want prices to go below the cost of renting the same thing. See my calculator:

http://patrick.net/housing/calculator.php

Too much easy money and tax deductions for debt just drives up the price of houses.

Agree. There's no free lunch. Subsidies just drive up costs.

The first law of economics: There's No Free Lunch
The first law of politics: To Get Votes, You Must Promise a Free Lunch

That combination is the root of most of our problems.

"Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry. This above all: to thine own self be true, And it must follow, as the night the day, Thou canst not then be false to any man." Wonder what the world would be like today if we'd listened to William.

My $.02 to Henry Waxman

Find your rep here - http://house.gov/htbin/findrep?ZIP5

--------

As you are aware, we are in the midst (arguably, tail end) of a housing correction (Not downturn) and it is understandable that the Obama administration and Congress is worried that lower housing prices would cause the economy to fare worse than it currently is.

BUT, housing prices have been so high as to turn normal, hard working folks into people "Priced out" of the market. Not because they could not or did not take advantage of the "Free Money" that was doled out by Countrywide and their friends in Orange County, but because they could not fathom undertaking debt that they could not possibly every fulfill.

Govt support for the housing market is only kicking the can down the road (arguably preventing an over correction of prices) and is just drawing out the inevitable, that is housing prices in line with incomes and inflation.

What are you doing to ensure that we do not support artificial housing price bubbles, and that we return housing prices to levels that people can purchase, with debt (or not) that they will actually repay?

Thanks,
Kunal

Thanks Kunal, it's a really good template.

Don't waste your effort fighting the military industrial complex. Our government is not here to serve us, but themselves. The earlier you realize that, the earlier you will spend your valuable time and effort on the items you actually can make a difference in. Trying to convince your govt anything is just a waste of time. Any reasonably smart person know that the politicians are here to serve their own interest, not ours.

Did Obmam make things right like he promised? NO
Will Ron Paul have a chance to win? NO

So, just talk in the air. Nothing is going to change. The government here is make sure you feel a sense of security. Pay your tax so they can get rich. If you get fuck or kill, they send a police to take a record. That's it. You think they are going to investigate your case and get the truth out???!! No, they are here to make money for themselves and their families. If police don't get paid, they will go home and forget about you. Just like everybody else. If government font get paid (tax), they will go home too. In short, everybody in a capitalist society is to serve their own interest and create a illusion to serve yours.

So, wake up. Vote with your consuming habit. Money is the only method. Consumers rule everything beneath the surface. Housing price will only go down when everybody really start to feel it's a piece of shit investment. 'till then, nothing gonna change. Invest in the bell curve in mind and you usually come out alright. Be an extremist, you get killed by team 6 or go bankrupt.

Absolutely right.

drew_eckhardt says

Follow the money.

The NAR PAC is the largest in the country and third largest campaign contributor.

Although the government sponsored enterprises are guaranteeing 75% of the mortgages written the banks still pick up big origination and servicing fees.

While low home prices are good for the people we're generally not the ones paying to get politicians elected.

Shorter AF: something something last realtor strangled with the entrails of the last banker...

I completely agree that artificially inflating house prices is WRONG and BAD for this country. I know that those who own houses, especially if they're upside down in their mortgage, or still in denial about their house never really being worth those inflated prices, do not want prices to correct. I get that they will potentially lose money or have a hard time letting go of the notion that they once thought they had more wealth than they really did...but it was not real, it was FAKE, it was fraudulently created by industry crooks and the politicians they OWN by way of campaign donations.

You are correct that even with attempts to keep prices at bubble levels, people still can't afford them.

Lots of things will have to be corrected for housing to be correctly priced, and that price is LOWER not higher.

For starters, we need to have industry here again, or something of value to trade on the world market. Right now we have let American co's take factories overseas and also any job that can be outsourced to a guy on a phone or computer overseas is being sent there, too. Even some medical test reading and legal work is being sent overseas. Without decent paying jobs here, people will not be able to buy any house, let alone an artificially overpriced one.

Also, incomes fell relative to the cost of living, particularly housing. Many professionals are finding that raises are a thing of the past, and taking pay cuts just to stay employed is becoming the norm. Again, people can't afford higher house prices. They also can't afford to save for a down payment and few will ever be able to pay cash.

Corporate influence over our govt has to stop or at least be greatly reduced; we got into this mess because the rule breakers were in charge, the fox guarding the henhouse. Our regulators and politicians depend too heavily on the money of corporate special interests to represent we, the people, anymore.

America's big business sold us up the river, folks. Until we stop that runaway train we're on a path to becoming a third world country. I have this to say to anyone who thinks housing needs to go up again: Get real!

2012 is shaping up to be the Center Right vs John Birch Society.

Well-played, conservatives, well-played...

Option C for me is going to be SJC to NRT . . .

tatupu70 says

"Lower house prices are GOOD!"

Actually, low house prices are good. Falling house prices, not so much.

I think the administration understands this. But I have a feeling the solution will be more low income housing.

Stop dreaming of buying a house in Beverly Hills or Lower Manhattan with cost of rental equivalent. There are millions of houses in America where is cheaper to buy then rent.

Housing prices need to be propped to keep interest/your blood flowing to banks.

REpro says

Stop dreaming of buying a house in Beverly Hills or Lower Manhattan with cost of rental equivalent. There are millions of houses in America where is cheaper to buy then rent.

And more ofen than not, those areas where buying is cheaper are places you likely don't want to live in. Either because it is a dangerous ghetto or there are absolutely no jobs.

HousingWatcher says

And more ofen than not, those areas where buying is cheaper are places you likely don't want to live in. Either because it is a dangerous ghetto or there are absolutely no jobs.

Absolutely disagree. You are looking only around your area. Try to think out of BOX.

HousingWatcher says

I think your calculator's numbers need some updating. I entered the numbers for my house in NJ and it said that the market value is $334,000 and the market rent is $2,300. A comparable house down the street just sold last week for $800,000.

Just because some fool overpaid by half a million dollars doesn't mean the calculator is wrong. The calculator uses pretty simple math, and explains exactly how it arrived at the fair value from the rent.

Of course if the rent estimate is wrong, that's another story, but just change the rent esitmate then.

Bro, the guy is still right. Your calculator is totally unrealistic. Housing will NEVER come back to this low. For example, my neighborhood 2500 SQFT can generate $2500 rent, but it tells me the house only worth $350k. Really!? If thats tue, everyone will jump in and buy it as rental already.

HousingWatcher says

I think your calculator's numbers need some updating. I entered the numbers for my house in NJ and it said that the market value is $334,000 and the market rent is $2,300. A comparable house down the street just sold last week for $800,000.

Just because some fool overpaid by half a million dollars doesn't mean the calculator is wrong. The calculator uses pretty simple math, and explains exactly how it arrived at the fair value from the rent.

Of course if the rent estimate is wrong, that's another story, but just change the rent esitmate then.

$350,000 x 4% is $1166/mo cost-of-money.

I know RE pros don't factor ROI/cap rates like that but I do.

"Someone told me that during the WPA Era, the government gave people jobs all over the country. They didn't pay people salaries but they gave them a job, food, a place to stay, and a few dollars a day. It really built infrastructure throughout the country. It gave people their basic shelter and food needs. It gave people a sense of pride and a sense that they were part of something greater than themselves. And it got the wheels moving again."

That depends as one could argue that was just a sellout to wall st again. Cheap labor for companies more or less with the government being the middle man.

http://en.wikipedia.org/wiki/Bechtel
This company pretty much has made many of the major projects around the globe over the past 80 years.

"Would that really be so difficult to replicate now? Our national infrastructure certainly needs help. And lots of people need a daily purpose and task in their lives and would embrace becoming part of a large movement to get America going again."

In all due respects I don't think so. Think about it this way. If someone really want to work with their hands on a trade they can do so. Simply shoving an book on electrical work to a noobie isn't going to make the project managers that much confident. Let's not also forget what you are saying would cause a massive uproar with the AFLCIO. The other issue is that unlike in the 30's we have a fair amount of regulations that would restrict the same work from being performed. Here's an example

http://en.wikipedia.org/wiki/Lunchtime_atop_a_Skyscraper

We're also more efficient today than back then. Why would we manually dig holes if a massive auger and do it faster? Supposedly there were jobs of digging a hole and then refilling it (teaching people how to dig basically).

If we want to admit to it or not the demand for manual labor keeps shrinking. I can't think of that many products that actually demand someone manually to manufacture it.

I think a vital issue that is being ignored is the demographics. I once heard the baby boom generation described as the fetal pig lodged in the gut of the snake, and it's an apt metaphor. Whatever our government does it has be work around that big lump. Home prices can't be permitted to reach equalibrium because that would cause that generation to draw more heavily on government resources as they grow older, something the government can't afford. Their 401k's are on life support, so market supports beyond housing can't be removed, lest they loose what's left of their retirment SAVINGS and start cutting back draconianly on their spending. I capitalize savings because everyone complains that the boomers didn't save. Yes, they did, just in investment vehicles they were told were safe but weren't. This image of Boomers not being as American as their forefathers is BS. They're just so much bigger than any generation before themselves, their lives had to be different. And unfortunately, for those of us who are younger than them, our lives will be less and our markets distorted, not because of their actions, but merely that they were all born together in a giant cohort.

Well, then there are lots of "fools" because another comp sold for $760,000 and yet another sold for $820,000. So we have $760,000, $800,000, and $820,000. I will gladly provide the addressed if you wish...

In this new environment, there is no way banks are going to lend money to buyers to buy a house that is $500,000 overpriced. It will never appraise. NEVER.

futuresmc says

I once heard the baby boom generation described as the fetal pig lodged in the gut of the snake

not quite that bad now:

perhaps a better analogy would be a pig through a snake that's constipated:

futuresmc says

I capitalize savings because everyone complains that the boomers didn't save. Yes, they did, just in investment vehicles they were told were safe but weren't. This im

One man's savings is another man's debt.

The only thing that matters really is whether or not the US has the productivity to support our consumption going forward.

We kinda do, but we've also offshored so much that I'm not entirely sure any more.

We can certainly feed ourselves -- Ag is only 2% of GDP -- but we have a bad energy deficit and a big trade deficit with China that needs levelling out somehow.

The projected multi-trillion-dollar medicare deficits are a joke. Medical services can't take 30% of GDP, something -- their obscene profit margins -- is going to have to give here.

HousingWatcher says

And more ofen than not, those areas where buying is cheaper are places you likely don't want to live in. Either because it is a dangerous ghetto or there are absolutely no jobs.

Please remind me again why I didnt go work for Cisco back some 20 years ago before they went IPO ???

Ahhh... They were located in East Palo Alto during a Crack epidemic of the early 90s.
Could have been retired 9-10 years later.

kunal says

As you are aware, we are in the midst (arguably, tail end) of a housing correction (Not downturn)

Good luck with that, many like Waxman, Dobbs and Franks consider the bust in housing due to bad loans and NOT that prices became disconnected from incomes or inflation. Pretty much Franks himself back in 2005 dismissed RE as being overpriced relative to incomes/inflation.

So for them to come 180 degrees and now accept that we are in a correction, not a downturn, would be a miracle. However as we have seen their actions over the past 5 years indicate their mindset hasnt changed nor will it.

http://www.youtube.com/watch?v=iW5qKYfqALE

Bellingham Bob says

The projected multi-trillion-dollar medicare deficits are a joke. Medical services can't take 30% of GDP, something -- their obscene profit margins -- is going to have to give here.

At the current rate, Insurance companies will simple send you overseas for more complex medical needs which is much cheaper.

Housing prices have been rising disproportionately to income since 1990, according to an article I read a couple years ago in the Oklahoman. Houses need to be restored to affordable pricing, especially for the 63% of American households, which, in 2006, had a household income of under $60k. There never should have been a bubble, and those who played with that fire are getting burned.

dlarryb says

Housing prices have been rising disproportionately to income since 1990, according to an article I read a couple years ago in the Oklahoman.

Funny stuff.. San Jose Mercury news ran articles dismissing the housing bubble will the typical nonsense reasons. Each one of their reasons over the past years has been proven wrong. Never did they or have to this day measured historical prices over incomes.

futuresmc says

Home prices can't be permitted to reach equalibrium because that would cause that generation to draw more heavily on government resources as they grow older, something the government can't afford. Their 401k's are on life support, so market supports beyond housing can't be removed, lest they loose what's left of their retirment SAVINGS and start cutting back draconianly on their spending. I capitalize savings because everyone complains that the boomers didn't save. Yes, they did, just in investment vehicles they were told were safe but weren't. This image of Boomers not being as American as their forefathers is BS. They're just so much bigger than any generation before themselves, their lives had to be different. And unfortunately, for those of us who are younger than them, our lives will be less and our markets distorted, not because of their actions, but merely that they were all born together in a giant cohort.

To a point I can agree with you but we've already crossed that point. Let's examine something a bit more basic and step back for a moment. As a historical basis when has retirement ever been viable or well defined?

Before the era of FDR people either relied on religions or their families for support. FDR was greatly inspired by Bismark..unemployment insurance, social security, medicare..all these concepts came from him. He created this as a way of pacifying any potential communist revolutions. This is how the age of 65 was established but life expectancy back then was only 45. By the time FDR introduced social security life expectancy was 65..meaning that some of these social safety nets for older people were incentives to live longer rather than a massive social blanket for tens if not hundreads of millions of people.

By any metric the baby boomers received some of the greatest amounts of advancements in the modern era. When tens of millions of people do the same things at the same times of course they would boom. Gerber baby food in the 50's, muscle cars in the 60's, education in the early 70s, real estate in the 80's, 401ks in the 90s. Generations that come later do not have as much wealth and are smaller in size and scope.

For any investment to work you have to be able to sell it/exchange it for something else in value. There's a strong reason why gold, silver and shares in apple do better than investing in 8track players, analog cell phones and old boxes of pac man ceral.

"BUYERS MAKE VALUE", until more powerful entities intervene. Gubmint only stalls equilibrium, because it would damage the powerful.

HousingWatcher says

"Just because some fool overpaid by half a million dollars doesn't mean the calculator is wrong."

Well, then there are lots of "fools" because another comp sold for $760,000 and yet another sold for $820,000. So we have $760,000, $800,000, and $820,000. I will gladly provide the addressed if you wish...

True story.

@HousingWatcher and Clara,
The purpose of the calculator is not to derive the market value of a house. Market vaule is determined at the bidding war and there are still people out there willing to spend overborrow for 500-800k houses that only rent at $2500. Overpriced or underpriced, the undeniable truth of the free markets is that the real price is the price that was paid. That is, until that changes...

What the calculator does for you is to help you determine if the prices the market is offering you are worth taking. Should you rent or should you buy? If you plug in the numbers it might tell you that you should choose to rent at $2500 until you can buy at $350k; that doesn't mean somebody else isn't going to go buy at $600k. Did they make a good choice? Should you jump in just because they did? I don't think so, but that's up to you.

Shawn says

Market vaule is determined at the bidding war and there are still people out there willing to spend overborrow for 500-800k houses that only rent at $2500

The average cost of ownership of a $800,000 house over 30 years is ~$1700/mo. (Not counting the opportunity cost of the $800,000 principal repayment.)

If history is any guide rents will be $5000 on this house soon enough. PITI is fixed at ~$5700.

Don't make the mistake I did and compare PITI vs rent. The P in PITI is principal repayment, which is not an expense, but a form of savings.

mdovell says

This is how the age of 65 was established but life expectancy back then was only 45. By the time FDR introduced social security life expectancy was 65

Life expectancy at age 20 has risen 10 years since 1930.

FICA has risen from 2% on first $40,000 (2010 dollars) to 12.4% on first $107,000.

http://staff.jccc.net/swilson/businessmath/taxes/fica.htm

http://www.infoplease.com/ipa/A0005140.html

mdovell says

Generations that come later do not have as much wealth and are smaller in size and scope.

Missing in this analysis is productivity per worker. Thanks to computers, cheap oil, automation, etc we're 50% more productive now than 30 years ago.

http://research.stlouisfed.org/fred2/graph/?g=1VI

The baby boom echo is only 10% smaller than the bb, btw.

Counting bodies is misleading. What needs to be counted is economic opportunity. That doesn't necessarily scale with just raw population, otherwise Bangladesh would not be nearly the poorest country on the planet.

Bellingham Bob says

Shawn says

Market vaule is determined at the bidding war and there are still people out there willing to spend overborrow for 500-800k houses that only rent at $2500

The average cost of ownership of a $800,000 house over 30 years is ~$1700/mo. (Not counting the opportunity cost of the $800,000 principal repayment.)

If history is any guide rents will be $5000 on this house soon enough. PITI is fixed at ~$5700.

Don't make the mistake I did and compare PITI vs rent. The P in PITI is principal repayment, which is not an expense, but a form of savings.

“Nessuna soluzione . . . nessun problema!„

I didn't run these numbers through the calculator, just commented on the statements others had made based on their use of the calculator.

But I find it hard to believe that the average cost of an 800k house is only $1700 a month. The interest alone doesn't get below that until after 20 years. Are you taking appretiation into account with that statement? If so that's one area where I'd have to disagree based on the direction I see the current market going. At best I see prices in my area 10 years from at or slightly below where they are now.

Shawn says

But I find it hard to believe that the average cost of an 800k house is only $1700 a month.

Yes, I as well just cannot see the numbers here. Moreover, is this economy (and many future projections that in a few years forecast numbers straight downward) and this real estate market, who are this smoke and mirror $5000. a month renters? Please. This thread has become out of control.

IMHO I do not see any of this flying in my lens but I do see there are plenty of people around still on Fantasy Island.

Shawn says

But I find it hard to believe that the average cost of an 800k house is only $1700 a month. The interest alone doesn't get below that until after 20 years.

Don't forget tax savings.

commonsense says

who are this smoke and mirror $5000. a month renters?

I'd imagine they are the same people that are paying $800K.

tatupu70 says

I'd imagine they are the same people that are paying $800K.

Good point!