patrick.net

AdHominem says

The bubble was inflation.

No, the bubble was a bubble.
AdHominem says

Just because we now have a temporary contraction of they credit supply doesn’t mean we are not still going to feel the effects of both credit inflation of the housing bubble, and the inflation of the printing press over the past 18 months.

Maybe we will, maybe we won't. The jury's not in on that one yet.
AdHominem says

Look at energy and food prices. Look at health care. Sorry, just because you can buy a big screen tv or a house for less $ than last year or the new Ipod has more memory and features for less money doesn’t mean the value of your dollar is going longer when it comes to the necessities of life. If anything we have to work more hours to buy the same amount of food, fuel and electricity as last year.

Energy and food are two components of inflation, as are electronics. The total of the entire basket gives inflation. And the total has been negative for ~ 1-1.5 years.

Minus the cultural aspects, it sounds like the smaller homes (which would be similar to larger homes here) would be even more expensive than than the original post.

Smaller house, because that is what is accepted over there. This makes the average sq/f required lower, but the cost per sq/f is higher.
20% down + 15 year mortgage payback + lower pay for the people who live in those houses

It seems that this setup makes housing far more expensive over there for the type of house a person is buying, minus the bankers pay grade.

AdHominem says

(people borrowed money that didn’t even exist, it was created out of thin air and put on a balance sheet only to be lent out again and again

that's not exactly how money creation actually works but in the present case close enough not to quibble I guess.

The expansion drove the bubble and the bubble drove the expansion. Land values are a magical dimension of the economy. Land is free -- like the air! -- but unlike the air is fixed in location and thus location value attaches to it.

Location value becomes a treadmill -- the more productive a community becomes the higher its land values -- visible as purchase prices and rents -- becomes.

And not only rising productivity will push up land values -- ANYTHING that increases J6P's disposable income or otherwise increases his buying power will push up land values. This is basic economics.

Banks qualifying borrowers on total household income, not just the man's income? Higher home prices!
Mortgage interest rates generally falling over the past 20 years? Higher home prices!
More aggressive lending underwriting, pay-option, negative-am, outright suicide lending? Higher home prices!
The late 90s productivity boom, much lower oil prices, wage inflation, dotcom lotteries? Higher home prices!
Tax cuts and credits for all, especially families with multiple children? Higher home prices!
Higher home prices? Higher home prices! (the boom feeds itself)

By 2003-2004 all these factors were operative, PLUS the innovation of CDOs on the back-end to indirectly connect yield-seekers with home debtors, allowing not just savings money to fund loans but actual investment money -- there IS a difference.

Anyway, these higher home prices was a multi-TRILLION dollar stimulus to the economy 2003-2007. Ramping trade with China's magical factories filled the nation with cheap goods and the new big box retailers to move it. Home improvement and durable goods became a major engine of activity, all funded by borrowed money against rising land values. The Gov't of China wrapped some of this trade around by buying large amounts of GSE bonds. Virtuous cycle!

The real estate sector itself was chiseling off its 5% or so of the total transaction volume as its vig -- immense money flows into completely useless social parasites' pockets.

I’ve gotten double-digit increases from Kaiser every year since 1998.

Higher health insurance costs? LOWER HOME PRICES, ceteris paribus.

During the boom years, net mortgage lending was around ONE TRILLION per year (2004-2006), 2.5X what it was in the late 90s. 2009 should be coming in at NEGATIVE $300B. This is astounding.

tatupu70 says

And that was the correct thing to do. 2001 wasn’t the problem. And low interest rates weren’t the problem either–it was poor underwriting standards.

Exactamundo. Greenspan in 2001-2004 was really pushing on a string with the interest rate cuts. 30 year mortgage rates never got below 6% even when there was free money at shorter terms (everyone was guarding against inflation, even as late as 2007).

illustrates the diff clear enough.

^ that's also why he started jaw-boning for more ARMs in 2004, too:

http://www.usatoday.com/money/economy/fed/2004-02-23-greenspan-debt_x.htm

Troy says

^ that’s also why he started jaw-boning for more ARMs in 2004, too:
http://www.usatoday.com/money/economy/fed/2004-02-23-greenspan-debt_x.htm

Man I just love it when people dig up Greenspan gems. I particularly love this expert cheerleading:

"Joseph McKenzie, deputy chief economist at the Federal Housing Finance Board, says buyers like the stability of fixed-rate mortgages, but there is increasing flexibility in products. "There are lots of innovative programs, especially targeting low-income and first-time buyers," he says."

FIRST HIT'S FREE!

I looked up Joseph McKenzie on LinkedIn, and it shows he's been there for 21 years.

Really? How do you measure strength? GDP growth is what I use and it was pretty robust in 2003.

GDP entirely based on fictitious bubble wealth. Yes, it's still hilarious you think the economy was strong in 2003.

That’s not at all what I’m saying. Please read it again. I’m saying that in 2003 we should have had a surplus that would cover the deficit spending that we have to pursue during the next recession. But even if we don’t have that surplus, we still have to fix the economy.

I'll agree the government should have cut spending. But they should always be cutting spending. All they do is waste money.

Nice try. You can assume cause and effect there, but it’s still not true. I’d say–we tried deregulation in the financial industry in the early 2000s and ended up with more unemployment and bigger deficits a few years later.

This wasn't a laissez-fair approach. Wall St and the entire housing industry were subsidized through the roof.

And more inflation?? Are you kidding? Um, try more deflation.

Gas, food, housing, energy, insurance, rent, tuition, health care, transportation. All of these things are way above their 2001 levels despite us being in the worst downturn of our lifetimes. That's called inflation. Yeah yeah yeah I know. You bought a plasma TV for 20% of what it cost 8 years ago.

theoakman says

GDP entirely based on fictitious bubble wealth. Yes, it’s still hilarious you think the economy was strong in 2003.

OK--but I asked you a question. How do you measure strength of an economy.

theoakman says

This wasn’t a laissez-fair approach. Wall St and the entire housing industry were subsidized through the roof.

What exactly are you refering to? Please post some data showing your point.

theoakman says

Gas, food, housing, energy, insurance, rent, tuition, health care, transportation. All of these things are way above their 2001 levels despite us being in the worst downturn of our lifetimes. That’s called inflation. Yeah yeah yeah I know. You bought a plasma TV for 20% of what it cost 8 years ago.

Yes, of course. I didn't say we've had deflation for the last 9 years!! Only the last 1-1.5 years... But, I don't think most things are "way" above what you paid in 2001. Rent, transportation, housing, food--in most of the US are not "way" above 2001 levels.

tatupu70 says

food–in most of the US are not “way” above 2001 levels.

food has gone up a lot. What was the normal price in 2001 at Safeway is now the club-sale price now. Gas is up 50% but that's largely due to the weaker dollar, limited production, and increased buying from India and China, not monetary inflation per se.

theoakman says

I’ll agree the government should have cut spending. But they should always be cutting spending. All they do is waste money.

One man's waste is another man's paycheck!

If you /really/ want to see wasted money check out what Paris Hilton spends her inheritance on.

theoakman says

This wasn’t a laissez-fair approach. Wall St and the entire housing industry were subsidized through the roof.

That didn't push people to spend more on a house than they could afford. The price rises of 2003-2006 was partially a speculative bubble and the rather total abandonment of sensible lending underwriting.

Prices were set at what the Greatest Fool was willing to borrow. That wasn't the problem, though, the core problem was that the financial system was re-geared (by industry insiders embedded in government) to actually LEND the money to these fools.

Countrywide, WaMu, and several hundred more lending outfits left a vast trail of destruction in their wake.

The problem wasn't too much government, but too little.

You either already know this or are really obtuse.

Patrick's claim to 'honesty', after writing that sad and (obviously) desperate 'Glenn Beck Vicious Rumor' thread, is tenuous at best. It's support for 0bamaCare, like that, that netted the Senate a man like Scott Brown.

The "Glenn Beck Vicious Rumor" did not originate with me. It was a wonderful imitation of Beck's own method of innuendo (hey, it's just a rumor!), turned against him. Could not resist including it. I laughed for days, thinking how just and right it was.

"ObamaCare" seems to have no definition. It's just a phrase used to vaguely diss Obama even while actually agreeing with all his points on health care, such as more competition and an end to legal discrimination based on pre-existing conditions.

Those of you with sand in private places, obviously are not readers of FARK.com. The blogosphere is thick with people putting their own commentary into the headlines they are linking. A lot of people read sites like Fark precisely BECAUSE they riff on all the idiotic MSM corporate-approved dreck out there.

Is this new? No. Even in corporate-approved MSM articles frequently ridicule other sources of media and highlight quotes. I'm pretty sure about the time writing was invented someone scribbled heiroglyphs at the white space atop their work "look what this moron from the wrong side of the river thinks..."

Interesting post SF Ace.

I spent a week in Hong Kong about 10 years ago, travelling on a very tight budget. I stayed in Kowloon on something like the 15th floor of a condo complex, where many families rented out rooms for extra cash. If I remember right I was paying like $10 or $15 US a night for the tiniest place I have ever stayed in. Maybe 5x9 feet, and they still managed to pack a toilet, a shower, and a small bed into the space!

Fascinating place, Hong Kong. I've never seen such a densely populated place, except for Tokyo.

elliemae says

I think that, if we gave them all marijuana, their symptoms would be greatly reduced and they wouldn’t feel like fighting. Both sides of the conflict.

That would be a great form of chemical warfare. Maybe there could be a "Cannabis Mist" developed and battlefields and "hot zones" could be misted 3-5 times per day depending on the tolerance of the combatants.

Bap33 says

I bet that if all men on both sides were sexually pleasured thrice daily in a male-selfish manner, there would be no war. For the same reasons ellie suggested.

Well, I think that this would be very practical. Unfortunately "Don't ask / Don't tell" eliminates certain possibilities and would place an undue burden on our womenfolk. *wink*

(Both comments should be taken as "tongue in cheek".... Well... sort of... ) ;-)

Anyway, whenever you watch or read or pay attention to any news outlet whether "professional for profit or non-profit" or "non-professional for profit or non-profit" you must realize that there is always spin. Always take in information with a critical mind, in the positive sense. Use those filters in your mind that your Creator gave you.

http://en.wikipedia.org/wiki/1997_Asian_Financial_Crisis
http://en.wikipedia.org/wiki/Asian_property_market

Some forgot about the Asian Debt Crisis and its aftermath.

Hong Kong has one of the most developed mortgage market in Asia. Mortgage loans account for 25-30% of bank loans in Hong Kong. Land ownership and land restrictions by the government risk inefficiencies with housing supply and demand. In 1998 there was a property price collapse; from 1997 to 2003 Hong Kong residential property prices fell by 61% following the Asian economic crisis. Investigations show that there is a distinct correlation between lending and property prices and that the influence is thought to have come from the property prices to the bank credit rather than the other direction. Hong Kong is known for having one of the most expensive real estate sector in the world, in both commercial and residential space. As property value increase, the tendency with Hong Kong property owners is to leave property vacant whilst waiting for a better time to sell it on. This subsequently raises the vacancy rate. (For example in 2007, the vacancy rate for residential properties in Hong Kong was close to 2.5% with an 11 % increase in the value of residential properties)

Fantastic self-referential use of "tongue in cheek"! Now I'm going to be chuckling for no apparent reason all day...

And so history repeats itself... fast forward to 2009
http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory_339904.html

iHONG KONG - PROPERTY prices at Hong Kong's most prestigious location - Victoria Peak - plunged 41.4 per cent in the last quarter of 2008, a consultant group said on Wednesday.
The percentage drop compared to the third quarter was the largest for any luxury residential areas on Hong Kong island, CB Richard Ellis said in its report.

The plunge in prices at the scenic location, perched above the skyscrapers of Hong Kong and a favourite for the city's wealthy elite, was blamed on collapsing confidence during the economic downturn.

'Hong Kong's economy has decelerated markedly in the fourth quarter as investment sentiment and consumer confidence plummeted significantly due to the global credit crunch, striking a hard hit towards the property market,' the report said.

Property prices for all luxury properties on Hong Kong Island fell 35.4 per cent in the final quarter, the report found.

The fall was also the biggest on record in Hong Kong's luxury real estate market, even worse than during the Asian financial crisis in 1997-1998, according to the South China Morning Post.

The total number of transactions worth 10 million Hong Kong dollars (S$1.97 million) in Hong Kong amounted to only 575 in the fourth quarter last year, compared to 2,807 transactions over the same period in 2007, CBRE said.

In October, a 307sqm house on The Peak was sold to cartoonist Ma Wing-shing for HK$76 million, less than half its asking price.

The original owner bought the property in 2006 for HK$90 million. -- AFP

SF ace says

A remarkable 34% gain in less than a year.

RIIIIIGHT! Wink wink nudge nudge!

Buy than sell in a year! More like a ponzi scheme going on.
Sounds like speculation vs secular buying as a family home.

Needless to say, the ones who overpaid are still underwater!

It doesn't mean that the appreciation will continue, it was just stated that people rapidly sold off, and then rebought quickly. Not exactly a ponzi scheme, unless the same people are going to continue doing this year after year.

It sounds more like a stock crash like we had, then a rebound. People who bought at the very bottom did great! Especially if they had all their cash on the side lines.

WillyWanker says

Patrick’s claim to ‘honesty’, after writing that sad and (obviously) desperate ‘Glenn Beck Vicious Rumor’ thread, is tenuous at best. It’s support for 0bamaCare, like that, that netted the Senate a man like Scott Brown.

And yet, you're reading this forum, owned by a sad and obviously desperate man. What's that say about you?

"Tongue in" what? I need a moment...

“ObamaCare” seems to have no definition. It’s just a phrase used to vaguely diss Obama even while actually agreeing with all his points on health care, such as more competition and an end to legal discrimination based on pre-existing conditions.

While I agree you have the right to edit headlines, I don't agree with your claim that everyone that "vaguely" opposes “Obamacare” somehow agrees with "all his points on health care." For example, I know of no one that "agrees" that the federal government should be allowed to FORCE anyone to "buy" healthcare insurance. Many people do not even know that under the Democrats' plan, there are stiff penalties from the outset for those that refuse to participate. Incidentally, this is the first time in history that the federal government will force American citizens to purchase anything from a private entity. If this is initiated, you can bet your bottom dollar, in time the penalty will significantly increase.

RayAmerica says

For example, I know of no one that “agrees” that the federal government should be allowed to FORCE anyone to “buy” healthcare insurance. Many people do not even know that under the Democrats’ plan, there are stiff penalties from the outset for those that refuse to participate. Incidentally, this is the first time in history that the federal government will force American citizens to purchase anything from a private entity. If this is initiated, you can bet your bottom dollar, in time the penalty will significantly increase.

Well, now you do know someone. You HAVE to madate it. Otherwise noone would buy coverage until they were sick. After all, you can't be denied coverage because of a pre-existing condition, so why buy insurance until you need it?

If you want to be purist "anti-socialist" then you must avoid all insurance. After all it's a sort of commune. You are pooling money to pay fora stranger's illness when you are not ill. Properly speaking the Libertarian thing to do is either save money to pay for future illness, or visit a registered bookie every year that you are well, and make a bet that you will become ill in the coming year. If you remain well the bookie wins, if you become ill you.... errr win. The modern obsession with insurance is a bit odd you must admit, it floats a rather large administrative sector that contributes little.

tatupu70 says

Well, now you do know someone. You HAVE to madate it. Otherwise noone would buy coverage until they were sick. After all, you can’t be denied coverage because of a pre-existing condition, so why buy insurance until you need it?

Why am I not surprised that you would be all for government imposed penalties on American citizens? So much for individual liberties.

Troy says: The problem wasn’t too much government, but too little.

I would frame it a different way. There was too little governance. The Fed and Treasury had largely the same powers as now, but they chose not to probe deeply into underwriting standards. They opted not to increase reserve requirements when lending was getting overheated. I don't think that we need a whole bunch of new laws or agencies (unless it's to limit naked shorts and exotic derivatives). Greenspan and Bernanke both had the available tools to apply the brakes at any time in the past 10 years. Along with Paulson & Co., they deliberately chose not to exercise their powers, for a variety of theoretical and ideological reasons.

Like Charlie Munger said recently on Slate: These economists had intense faith that any outcome at all in a free market—even wild growth in casino gambling—is constructive.

In other words, your agencies and laws are useless if you have poor bureaucrats running the show. There is no way to pass a law that says, "Don't appoint poor bureaucrats to critical government positions.", hence a large component of this problem cannot be resolved via legislation.

RayAmerica says

Why am I not surprised that you would be all for government imposed penalties on American citizens? So much for individual liberties

Why am I not surprised that you completely distort what I said and ignore the actual issue at hand?

tatupu70 says

Why am I not surprised that you completely distort what I said and ignore the actual issue at hand?

I haven't ignored anything you've said. You believe in the government FORCING American citizens to purchase insurance from private companies ... I don't.

"Well, now you do know someone. You HAVE to madate it. Otherwise noone would buy coverage until they were sick."

Where in the Constitution does Congress have the right to force people to buy a product from a private, for-profit corporation? I have an idea: Maybe the NAR lobbysists shoudl get Congress to MANDATE that everyone buys a house! We can outlaw homelessness. And we should pass a law to mandate everyone has a job. We can outlaw unemployment!

HousingWatcher says

Where in the Constitution does Congress have the right to force people to buy a product from a private, for-profit corporation?

Wow--the Constitution is no longer a framework, but a document that specifies anything and everything that can happen in the US? If that's the case, then send Congress home--no need to make laws. If it's not specified in the Constitution, then it's not allowed....

HousingWatcher says

Where in the Constitution does Congress have the right to force people to buy a product from a private, for-profit corporation?

Commerce Clause. The same power that prevents you from growing a small amount of MJ in your basement is the same power that can force you to insure yourself.

The liberal majority knew this in Raich, which is why they voted on that as they did.

You believe in the government FORCING American citizens to purchase insurance from private companies

You bet your sweet bippy I do. Economists say we can't get something from nothing, but FORCING all Americans to carry coverage will over the long run take money out of the housing market and put it in the medical services sector.

Lower housing costs and healthier Americans. What's not to like?

tatupu70 says

If it’s not specified in the Constitution, then it’s not allowed….

Well, that actually isn't quite what their argument is. I believe in constitutional limits to the Fed's power. Like the 5-4 case the told the Congress that they couldn't pass a no-gun zone around schools.

Congress needs to focus on the big-picture stuff and not try to run states. I consider a national health insurance system big-picture enough.

Vicente says

If you want to be purist “anti-socialist” then you must avoid all insurance. After all it’s a sort of commune. You are pooling money to pay fora stranger’s illness when you are not ill. Properly speaking the Libertarian thing to do is either save money to pay for future illness, or visit a registered bookie every year that you are well, and make a bet that you will become ill in the coming year. If you remain well the bookie wins, if you become ill you…. errr win. The modern obsession with insurance is a bit odd you must admit, it floats a rather large administrative sector that contributes little.

I don't think anyone is arguing for pure socialism or pure anything else either. What I would like to see is voluntary socialism. If you want to buy something like insurance, buy it. If not then don't. Prepare for the consequences of your choice. Just don't let anyone choose how to spend your money for you.

AdHominem says

Vicente says

If you want to be purist “anti-socialist” then you must avoid all insurance. After all it’s a sort of commune. You are pooling money to pay fora stranger’s illness when you are not ill. Properly speaking the Libertarian thing to do is either save money to pay for future illness, or visit a registered bookie every year that you are well, and make a bet that you will become ill in the coming year. If you remain well the bookie wins, if you become ill you…. errr win. The modern obsession with insurance is a bit odd you must admit, it floats a rather large administrative sector that contributes little.

I don’t think anyone is arguing for pure socialism or pure anything else either. What I would like to see is voluntary socialism. If you want to buy something like insurance, buy it. If not then don’t. Prepare for the consequences of your choice. Just don’t let anyone choose how to spend your money for you.

So what should we do with the uninsured? Let them die? "Sorry sir, you chose not to be insured. This M.I./stroke/car accident/cancer/etc is gonna cost you likely X amount of dollars. And since you can't pay we are stopping care now. Enjoy the afterlife."

I'm an RN at a large university hospital and I'm imagining the conversations now. :O(

Leigh says

I’m an RN at a large university hospital and I’m imagining the conversations now. :O(

The basic problem is people think they're immortal. I know I did in my 20s when I didn't carry any insurance from 1992-1996. Never crossed my mind.

Making it optional just means people are free to rationally if riskily go uncovered, using the money to bid up housing instead. Free market fundamentalists see nothing wrong with that, but that's because they are fixated idiots.

"Making it optional just means people are free to rationally if riskily go uncovered, using the money to bid up housing instead. Free market fundamentalists see nothing wrong with that, but that’s because they are fixated idiots."

So you say we shoudl require everyone to buy insurance to keep housiong prices down? Well then let's keep houses down even further by madating that everyone buys a new car every year. Let's require everyone to go to college. Let's require everyone to buy bottled water. THere is NOTHING in the Constitution that allows Congress to have an inruance mandate. Why do you support a mandate? Do you have insurance company stocks in your portolio?

"You bet your sweet bippy I do. Economists say we can’t get something from nothing, but FORCING all Americans to carry coverage will over the long run take money out of the housing market and put it in the medical services sector.

Lower housing costs and healthier Americans. What’s not to like?'

Your idea will utterly fail. The fine is only going to be $750. That is compared to $4,000 + for an individual policy. People will just pay the fine. Drivers are required to have insurance but we all know uninsured drivers are on the road. Your idea of a mandate only benefits the insurance industry. Personally, I think linking an individual mandate to lower housing costs is insane. Housing will not be affected at all by it. In fact, if it is successful, the bill will actually INCREASE housing costs since people will not have to sell or go into foreclosure when their medical bills become overwhelming and the insurance company cancels their policy. Anyone who supports the mandate is a shill for the insurance industry.

HousingWatcher says

THere is NOTHING in the Constitution that allows Congress to have an inruance mandate.

Commerce Clause, look it up.

Why do you support a mandate?

I just said why -- health insurance is not an optional luxury, it is a necessity. I favor a single-payer system as can be found in Japan, Canada, and the other G-8 nations, BUT WE ARE TOO F----ING STOOPID as a nation to be willing to implement this.

No biggy. I've got mine, for now at least. $3000/yr. If everybody has to pay then there will be fewer people trying to get something for nothing and we all win.