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Of course it is subprime. You pay for it in the upfront fees and insurance. The substance is the same.
No, it's not. It sounds like you don't know the difference.
Loans are evaluated for credit, capacity to pay, and collateral. Subprime loans have lower credit, but have good capacity to pay and good collateral. These are not the same as the various flavors of non-prime loans that private banks issued during the boom.
Maybe you're thinking of FHA or something else. FHA is not securitized by FNMA or FHMLC. I believe GNMA handles FHA-based securities for the most part, and they never had any issues with them.
Bellingham Bill
2014 Mar 18, 4:37am
"If average home prices were still twice the average income"
http://research.stlouisfed.org/fred2/series/CAPOP
that ship sailed a long time ago.
Average household income is $50,000. A $100,000 mortgage at 4.5% interest has a monthly PITI etc. of $600/mo, which is easily affordable on a $50,000 income. Too easily, which is why home prices are higher, since we all bid up the price of housing to the edge of our affordability, or beyond, if the bank is stupid enough to lend us the money.
This nation is funneling $2T/yr into housing:
http://research.stlouisfed.org/fred2/series/DHUTRC1A027NBEA
as percent of income:
http://research.stlouisfed.org/fred2/graph/?g=tq5&dbeta=1
this has risen to double the proportion it was in the 1950s, largely thanks to two-income households bidding up the cost of housing.
Housing in all desirable areas is in great scarcity, that's what makes desirable areas desirable, not too many fucking people.
tatupu70
2014 Mar 18, 4:40am
Housing in all desirable areas is in great scarcity, that's what makes desirable areas desirable, not too many fucking people.
And only people who can afford to live in desirable areas. The riff raff cannot get in.
Bellingham Bill
2014 Mar 18, 4:43am
but Freddie and Fannie still have to be done away with. The institution is waste of time and money.
I disagree. We need a 'public option' for housing finance, too, where life necessities like housing don't get sucked into the 1%'s maw.
I'd rather the interest I'm paying on a mortgage go to DC than some hedge fund in the Caymans.
SFace
2014 Mar 18, 4:46am
but Freddie and Fannie still have to be done away with. The institution is waste of time and money.
I disagree. We need a 'public option' for housing finance, too, where life necessities like housing don't get sucked into the 1%'s maw.
I'd rather the interest I'm paying on a mortgage go to DC than some hedge fund in the Caymans.
+1. That's the whole point, the money will inevitable flow somewhere.
Bellingham Bill
2014 Mar 18, 4:47am
And only people who can afford to live in desirable areas. The riff raff cannot get in.
Prop 13 is a beautiful thing. My BIL is an extremely hard-core libertarian/conservative. They're renting a $900,000 place in a very nice part of LA that was inherited and has a Prop 13 value of $500,000.
We don't get into politics much, well I don't, but I like picking around the edges of this reality he's stuck in, paying sky-high rent to someone who's doing absolutely nothing to earn this money. . .
The contradictions are heightening. . .
SFace
2014 Mar 18, 4:50am
And only people who can afford to live in desirable areas. The riff raff cannot get in.
Prop 13 is a beautiful thing. My BIL is an extremely hard-core libertarian/conservative. They're renting an $900,000 place in a very nice part of LA that was inherited and has a Prop 13 value of $500,000.
We don't get into politics much, well I don't, but I like picking around the edges of this reality he's stuck in, paying sky-high rent to someone who's doing absolutely nothing to earn this money other . . .
The contradictions are heightening. . .
My neighbor once responded. I have been paying property tax for 40 years (in inflation adjusted amount), how long have you?
Well you know, If you hold 900K worth of Edison Electric stocks, you have done nothing to earn the 40K in dividends too.
My neighbor once responded. I have been paying property tax for 40 years (in inflation adjusted amount), how long have you?
Well, if the property is being rented, then the renter is paying the property tax to the property owner. That's sort of how the system works. People who are not renting their properties are paying their own property taxes.
In any case, property taxes in CA are a joke. Local governments are largely supported by state income tax proceeds kicked to them by the state government and sky-high sales taxes, so who cares what your uninformed neighbor says?
tatupu70
2014 Mar 18, 4:59am
The purpose of Fannie/Freddy is to push debt, make people debt slaves, artificially inflate housing, and maybe use the increased debt as a short term stimulus of the economy.
When Democrat politicians say "affordable housing" they really mean "unaffordable housing".
What are Fannie/Freddie doing that makes rents go up? Unless you can answer that, you can't make an argument that they are increasing house prices.
Heraclitusstudent
2014 Mar 18, 5:02am
Yeah, declining prices is just what will encourage homebuilders to increase the supply of houses.
That's a BS argument: Homebuilders can build new homes for $250K. That's about the average price of a NEW house in the US.
That's way below the median price of *any* house in CA.
Heraclitusstudent
2014 Mar 18, 5:06am
I do not believe in blaming the democrats, but I do believe what you wrote above is correct.
Democrats are hypocrites. Republicans are irrational. I hate republicans even more on that account.
But I won't vote for politicians that do everything possible to inflate housing prices.
hrhjuliet
2014 Mar 18, 5:10am
I do not believe in blaming the democrats, but I do believe what you wrote above is correct.
Democrats are hypocrites. Republicans are irrational. I hate republicans even more on that account.
But I won't vote for politicians that do everything possible to inflate housing prices.
Agreed. Here is what I purposed on Patrick's latest thread:
How about both conservatives and liberals joining together and demanding to end all campaign financing and setting all elected officials pay to the minimum wage? Wouldn't that automatically guarantee a better caliber of elected officials?
The internet could then be used for its original hope: direct democracy. A web page could be created were anyone could sign in as a candidate. Each candidate would be asked 100 important questions, plus have to state how important each issue is to them in percentages. The sign-up to run for office would not be complete until all questions were answered. That would be each candidate's "payment." There would be a place on each candidate's sight for Q&A and a bio. The website could have a test to see who your views are in alignment with to help narrow down different candidates to explore. The test could be the same 100 questions and same percent scale.
Heraclitusstudent
2014 Mar 18, 5:12am
The fact Realtors are lobbying heavily for housing market subsidies tells you everything you need to know above such subsidies.
hrhjuliet
2014 Mar 18, 5:13am
The fact Realtors are lobbying heavily for housing market subsidies tells you everything you need to know above such subsidies.
Figures.
http://research.stlouisfed.org/fred2/graph/?g=toT&dbeta=1
Housing affordability is significantly higher than it has ever been.
Didn't NAR change their formula to make it so more people found housing "affordable"?
That's a BS argument: Homebuilders can build new homes for $250K. That's about the average price of a NEW house in the US.
That's way below the median price of *any* house in CA.
Except that in certain parts of CA, it costs significantly more to build due to fees and permitting and other government requirements.
Heraclitusstudent
2014 Mar 18, 5:18am
What are Fannie/Freddie doing that makes rents go up? Unless you can answer that, you can't make an argument that they are increasing house prices.
What are Fannie/Freddie doing to make rents go down?
Unless you can answer that you can't make an argument we need them.
What are Fannie/Freddie doing that makes rents go up? Unless you can answer that, you can't make an argument that they are increasing house prices.
The market does not operate in a vacuum. If owning housing is subsidized, causing prices to go up, then renting prices will usually go up too, whether it's to pay off those more expensive housing or just to fill the gap.
Take away the subsidies, and the price of housing should go down, and theoretically rental prices should go down too, but none of this operates in a vacuum, and it doesn't happen immediately.
The price of a rental is theoretically the cost of owning plus a profit (a penalty for liquidity or whatever you want to call it), but market distortions can change the formula and it may shift around a bit sometimes based on various conditions, but should apply over the long-run if there aren't distortions.
Didn't NAR change their formula to make it so more people found housing
"affordable"?
Right... Go look at the source for that graph: NAR!!! Yep, totally unbiased
data....
You guys are such douches..
http://research.stlouisfed.org/fred2/graph/?g=tqP&dbeta=1
Interest carry cost of median home compared to median income. 20% down.
Historical numbers, not NAR numbers. I just used math.
hrhjuliet
2014 Mar 18, 5:33am
The market does not operate in a vacuum. If owning housing is subsidized, causing prices to go up, then renting prices will usually go up too, whether it's to pay off those more expensive housing or just to fill the gap.
Take away the subsidies, and the price of housing should go down, and theoretically rental prices should go down too, but none of this operates in a vacuum, and it doesn't happen immediately.
The price of a rental is theoretically the cost of owning plus a profit (a penalty for liquidity or whatever you want to call it), but market distortions can change the formula and it may shift around a bit sometimes based on various conditions, but should apply over the long-run if there aren't distortions.
A very good answer to a good question. Thank you.
YOU posted the graph with the NAR as the source of the data...
The new graph tells the same story as the NAR graph. Ergo, the NAR graph is at worst, directionally correct. At best, it is absolutely correct.
Either way, your ad hominem to the point is inaccurate.
Now, do you want to actually debate something here with facts of your own, or are you going to continue with logical fallacies that don't even stand up to 5 seconds of scrutiny?
tatupu70
2014 Mar 18, 5:52am
The market does not operate in a vacuum. If owning housing is subsidized, causing prices to go up, then renting prices will usually go up too, whether it's to pay off those more expensive housing or just to fill the gap.
I disagree. If owning is subsidized, causing more people to own, it will necessarily cause less people to rent and drive rental costs down. Renters don't care what your house payment is. It's supply and demand.
Take away the subsidies, and the price of housing should go down, and theoretically rental prices should go down too, but none of this operates in a vacuum, and it doesn't happen immediately.
See answer above--I completely disagree.
The price of a rental is theoretically the cost of owning plus a profit
The price of a rental is supply and demand. I guess in the infinite long run it is cost of owning plus a profit, but that never occurs. Because everyone's cost of owning is different.
tatupu70
2014 Mar 18, 5:53am
What are Fannie/Freddie doing to make rents go down?
Unless you can answer that you can't make an argument we need them
They are reducing the number of renters. That should reduce rental prices.
hrhjuliet
2014 Mar 18, 5:59am
Why can't we go back to housing prices being about twice the median income? Normal markets price adjust all the time. What would happen if Freddie and Fannie were eliminated? What if at the same time we tightened regulations for foreign investors, or better yet, made it a law that only tax paying citizens can purchase property? We could tax the 1% their share and force everyone the government bailed out to pay back the government at 14% interest. How about more afforadable housing? How about a tax on anyone owning more than one home? How about eliminating prop 13 while on this roll? If all that happened, and it could (and we the people could push for all of the above) then where would housing prices be?
Businesses and governments rise and fall. Is it impossible to imagine that housing prices could go back to former healthy numbers? Is the American housing market the most infinite institution in all of history? Is the American housing market and our government immune to change in a way no government or business has ever been before?
It takes some nerve to be so dishonest as to argue that houses are at their most affordable, while at the same time most expensive when you consider the price tag.
Yea, we all know that rates have never been lower, so the fuck what? What kind of asshole wants to finance a house with a 30 year mortgage? Anchored to 30 yrs worth of exhorbitant PMI?
I want to buy a house with cash, hence, an honest person would not dare to muddy the conversation with such bullshit as "housing is more affordable now, than ever.
Is it just coincidence that these lyijg ASSHOLES! All cheerlead the democrap party while blaming all societies ills on republicans. The same people that blindly support the affordable care (republican) act.
How can anyone take these people seriously if they are willing to be so dishonest on this particular issue,,,,the entire point of this website and its forums existence
tatupu70
2014 Mar 18, 6:07am
Yea, we all know that rates have never been lower, so the fuck what? What kind of asshole wants to finance a house with a 30 year mortgage? Anchored to 30 yrs worth of exhorbitant PMI?
Why is renting for 30 years OK, but paying a mortgage for 30 years is being a debt slave?
If you don't want to pay PMI, then save some damn money and put 20% down.
Bellingham Bill
2014 Mar 18, 6:09am
Why can't we go back to housing prices being about twice the median income?
get the specuvestors out of the market would have to be the first step.
How about more afforadable housing?
Housing is housing, the price level is largely set by the need for it and how much we are able to pay vs. the mix of available homes. Price is the sorting mechanism for who gets what from the mix, not what you get per se.
If by "affordable" you mean subpar quality aka "shitty", then that's not the place we need to save money on, all that will result is us paying more for shittier places to live.
What is actually needed is more QUALITY housing supply. Not gold-bricked $500/foot that developers prefer building, but decent stuff that ticks everyone's checklist for "reasonable" build finish and amenities and won't fall apart in 10-15 years.
How about a tax on anyone owning more than one home?
That would be good. We can imagine a lot better ways to penalize, er, de-incentivize, land-hoarding. Parcel taxes, rent taxes, land value tax. . .
then where would housing prices be?
absent more supply than the demand, whatever we are able to borrow, or whatever cash buyers want their cash-on-cash yield to pencil out at.
So if landlords can rent out a place for $1100 -- call it $12,000/yr gross -- $120,000 would give them 10% gross yield, $240,000 would be 5%.
With 4.25% interest rates, a family who can handle a PITI etc of $1200/mo can buy a $220,000 place (with 20% down).
The thing about real estate is this:
https://research.stlouisfed.org/fred2/series/CUUR0000SEHA
wages go up, rents go up.
it's a brutal cycle. breaking it is tough; even the nordic socialist paradises have screwed themselves with housing borrowing debt, and the periphery -- Spain, Greece, Ireland -- doubly so. Only Germany and maybe France is doing OK here, and I guess the former communist bloc, since they started with zero mortgage debt in 1990 at least.
India is horrific for housing, as is China. Maybe Mexico is OK but consumer credit doesn't exist there basically. UK, home of "buy to let", is screwed.
Japan blew themselves up with housing in the late 80s, but at least their ongoing depopulation should result in continued collapse of real estate -- when one out of four houses are empty, prices simply HAVE to go down.
http://www.japantimes.co.jp/news/2014/01/07/national/abandoned-homes-a-growing-menace/
Housing is a really peculiar sector of the economy, since land cannot be manufactured or shipped, yet it is considered capital anyway.
Obscuring this peculiarity is partially how the rich stay that way. It's really quite something.
We're so immersed in land economics that we cannot really see them for what they are. Just like fish in water, or worms in soil, do not think about the reality of the medium they're living in.
You guys are such douches..
http://research.stlouisfed.org/fred2/graph/?g=tqP&dbeta=1
Interest carry cost of median home compared to median income. 20% down.
Historical numbers, not NAR numbers. I just used math.
Well, you're the one who used NAR data, not me.
I don't know if medians are fully accurate for housing prices, but it'll do. I would include principal + interest + tax + insurance, although ideally it'd include maintenance too.
Even if principal comes back to you, you will eventually have to pay it. That's why I'd much rather pay 8% on a $300K loan vs. 3% on an $800K loan. The interest cost in the first year is roughly the same, but I can pay off the former much quicker and if the interest rate drops, I'm golden.
I disagree. If owning is subsidized, causing more people to own, it will necessarily cause less people to rent and drive rental costs down. Renters don't care what your house payment is. It's supply and demand.
That assumes that all of the housing being purchased are being newly occupied and not part of existing occupied housing stock, right? The reality is that assumption is false -- if renting is no longer a viable enterprise, landlords will sell houses to these new owners, so in the long-run. What you're saying shouldn't happen or else there would be a lot of vacants.
If you are a proper investor, if you're not getting the right percentage return on your rental, you should sell and deploy your money elsewhere. Why take the risk if the return sucks?
Someone on PatNet recently suggested that 3% would be an appropriate return on a house in Palo Alto, but that only works if you're speculating. When you're getting 2.7% on 10-year government bonds, 5% in intermediate bond funds, and some crazy number in the stock market, it's stupid to risk your money for 3% on speculation.
SFace
2014 Mar 18, 6:46am
Why can't we go back to housing prices being about twice the median income?
Normal markets price adjust all the time. What would happen if Freddie and
Fannie were eliminated? What if at the same time we tightened regulations for
foreign investors, or better yet, made it a law that only tax paying citizens
can purchase property? We could tax the 1% their share and force everyone the
government bailed out to pay back the government at 14% interest. How about more
afforadable housing? How about a tax on anyone owning more than one home? How
about eliminating prop 13 while on this roll? If all that happened, and it could
(and we the people could push for all of the above) then where would housing
prices be?
Politics in a nutshell. 50% wants something and the other 50% doesn't. It is a waste of time. The reason you are for somemthing is also something many are against for the same reasons.
In a capitalistic society, resources are scarce and things people like are coveted and competed for. Things will always get more competitive, not less competitive in the future.
tatupu70
2014 Mar 18, 6:57am
That assumes that all of the housing being purchased are being newly occupied and not part of existing occupied housing stock, right?
Nope--just that people have to have a place to live. So, they either buy or rent. Those are your two options. corntrollio says
If you are a proper investor, if you're not getting the right percentage return on your rental, you should sell and deploy your money elsewhere. Why take the risk if the return sucks?
Yes--I agree.
Nope--just that people have to have a place to live. So, they either buy or rent.
Right, but what you're saying can't really happen easily in the long-term.
I disagree. If owning is subsidized, causing more people to own, it will necessarily cause less people to rent and drive rental costs down. Renters don't care what your house payment is. It's supply and demand.
Let's go back to the quote above -- you can't say it's supply and demand and then say that the rental market will act completely independently of the purchase market. Those markets are intertwined, as you apparently agree now. If there are fewer renters, then fewer people will be landlords because it won't be as lucrative, so rents can't go down independently in the long term.
hrhjuliet
2014 Mar 18, 7:56am
Why can't we go back to housing prices being about twice the median income? Normal markets price adjust all the time. What would happen if Freddie and Fannie were eliminated? What if at the same time we tightened regulations for foreign investors, or better yet, made it a law that only tax paying citizens can purchase property? We could tax the 1% their share and force everyone the government bailed out to pay back the government at 14% interest. How about more afforadable housing? How about a tax on anyone owning more than one home? How about eliminating prop 13 while on this roll? If all that happened, and it could (and we the people could push for all of the above) then where would housing prices be?
Name one thing from above we shouldn't push for, and if we shouldn't, why?
Heraclitusstudent
2014 Mar 18, 8:03am
Except that in certain parts of CA, it costs significantly more to build due to fees and permitting and other government requirements.
That's exactly the point: subsidize demand, penalize supply.
That's the game they play to raise prices, and this is plain evil.
tatupu70
2014 Mar 18, 8:19am
Let's go back to the quote above -- you can't say it's supply and demand and then say that the rental market will act completely independently of the purchase market. Those markets are intertwined, as you apparently agree now. If there are fewer renters, then fewer people will be landlords because it won't be as lucrative, so rents can't go down independently in the long term.
I've always agreed that they are intertwined. In the long run, the only thing that can lower house prices is more supply. Freddie and Fannie have no effect. But they do allow people who would be renters for life the opportunity to buy. Which takes money from the landlord's pockets and puts it in the back in the pockets of the new homeowner. IMO, that is a good thing.
tatupu70
2014 Mar 18, 8:20am
Name one thing from above we shouldn't push for, and if we shouldn't, why?
Eliminating Freddie and Fannie won't lower housing prices and will make lifelong renters out of people that would like to own. Which would make inequality even worse.
Name one thing from above we shouldn't push for, and if we shouldn't, why?
Eliminating Freddie and Fannie won't lower housing prices and will make lifelong renters out of people that would like to own. Which would make inequality even worse.
Bullshit - plenty of countries with far lower house-ownership and less inequality. If there is a correlation, than it's the opposite: the more debt-serfs a country produces, the bigger the inequality. Debt is slavery.
Bellingham Bill
2014 Mar 18, 9:30am
the more debt-serfs a country produces, the bigger the inequality.
. . .
Gini vs. private DTI levels in the nordic states runs counter to that assertion.
http://runningofthebulls.typepad.com/.a/6a00d83451986b69e20134828024c4970c-450wi
Switzerland has 200% debt to income, LOL.
Furthermore, Mexico has negligible consumer debt and very high Gini, which rather destroys that assertion outright.
Bellingham Bill
2014 Mar 18, 9:33am
and if we shouldn't, why?
mainly
http://research.stlouisfed.org/fred2/series/HHMSDODNS
there's still $9.4T of TBTF assets tied to mortgages. Lowering the asset value by half or whatever would destroy the financial system we have.
It'd be a replay of 2008-2009 all over again.
Plus homeowners aka voters don't want to see their property values decline like that and will always vote to defend their property valuations.
Bellingham Bill
2014 Mar 18, 9:40am
it's stupid to risk your money for 3% on speculation
the only speculation on 3% in PA is on continued wage and income growth in PA.
http://research.stlouisfed.org/fred2/graph/?g=ttK&dbeta=1
SF to SJ employment
Nominal wages for the top 10% have tripled in 20 years, maybe quadrupled -- average high-level salary has gone from $30,000 ~ $40,000 to $120,000 ~ $150,000.
And this is aside from the fortress nature of PA itself, with all the non worker-bee residents.
Plus a lot of successful worker-bees become ex-worker bees and retire in-place, too. Most of my Gen X peers who beat me to the SV gold rush, sigh.
Plus that's just tech, and not health care and other high-end professional residential demand.
SFace
2014 Mar 18, 9:46am
Name one thing from above we shouldn't push for, and if we shouldn't, why?
"Why can't we go back to housing prices being about twice the median income? "
That presumes much lower prices which will benefit some but will devastate others. I don't think 2009 was all that great.
"What would happen if Freddie and Fannie were eliminated?"
Nothing really, private market will pick up the void. The US financial system is too dynamic to not pick up an extremely profitable segment.
"What if at the same time we tightened regulations for foreign investors, or better yet, made it a law that only tax paying citizens can purchase property?"
That implies that low price is a good thing. Good for some, not good for some. Almost everyone was a foreignor at one time anyway so not sure why natives are all that special. We want to attract bright foreignors not alienate them. nothings wrong with recruiting elites, that makes the country stronger.
"We could tax the 1% their share and force everyone the government bailed out to pay back the government at 14% interest. "
Taxing “everyone†but yourself is popular. Unless it effects you, it must be good. I support all taxes I don't have to pay as well and get government subsidized affordable housing.
"How about more afforadable housing? "
Who will pay for it and who will get it? Let's use the 1% money.
"How about a tax on anyone owning more than one home?"
Where in American law that says one home for all? Taxing “everyone†but yourself is popular. Unless it effects you, it must be good.
"How about eliminating prop 13 while on this roll?"
Taxing “everyone†but yourself is popular. Unless it effects you, it must be good.
All the questions amount to is socalism. I get that. but the US is competing against the world in a capitalistic driven society in a smaller planet. Better to compete than to give up.
tatupu70
2014 Mar 18, 10:07am
Bullshit - plenty of countries with far lower house-ownership and less inequality
Of course. Your logic is flawed. There are many, many factors leading to inequality--home ownership is only one small one. That doesn't mean I'm not right.
If there is a correlation, than it's the opposite: the more debt-serfs a country produces, the bigger the inequality. Debt is slavery.
Now that is BS. Again I'll ask. What is the difference between paying $2000/mo. in rent and $2000/mo. in a mortgage? Why is one "debt slavery" and the other not??
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http://www.huffingtonpost.com/harlan-green/losing-fannie-and-freddie_b_4975985.html
Comment/post from Michael S.: "If you increase "affordability" you will increase demand. When demand increases then prices rise. When prices rise, affordability falls.
Government backed loans don't help homebuyers, they line the pockets of bankers and the real estate industry. Rising prices help increase tax revenue too, so the industy lobbyists get what they want.
17 MAR 2:47 PM"
#housing