patrick.net

"We should not get upset that richer folks can afford to pay $500k cash for an entry level home."
I disagree, unless the building of that home is paying the community back in some way (an estate that allows people to visit for some reason (education, recreation, etc.). The money people tie up in accumulating wealth represents resources that should be utilized to rebuild the soil, the air, the water, political stability, community skills, etc. The idea that it is OK to compete against our own future (storing wealth beyond our physical security needs) needs to be reevaluated in the context of diminishing fossil resources and increasing populations. We no longer have the luxury of waiting for the lazy Invisible Hand Job to decide for us who is 'good' and 'bad' when it comes to being part of the real world instead of the perpetual fantasy of capitalism.
People don't create wealth by themselves. It takes a relationship with other people to create that wealth, and when someone takes that wealth and ties it up in a ludicrous house or in nonlocal 'investment', then they break the social contract with those who helped them get rich. Granted, many of the masses aren't doing much to deserve a share of wealth (not taking care of their health, or their own property and relationships; not building their own skills, etc), but those who are claiming they deserve to be rich because they are more skilled or more intelligent still have some responsibility to those people they can take advantage of, if only for the sake of their own children to be leaders in a better world.

Auntiegrav,

From what you are suggesting, your idea of a perfect world is where it does not matter what profession you choose; the pay will be the same; 1 piece of bread per member of your household. There is nothing wrong with some one accumulating wealth by reasonable means to extrude themselves from the rest of the population by having better homes, cars, food, etc.

Properties are taxed which provides back to the community already. However, prop 13 seems to be blocking the purpose of it for many people.

We agree. Mortgage debt is a primary mechanism to do that massive transfer from the general population to the rich. But making the rest of us liable for that debt to the rich is even worse than the usual transfer. At least mortgages are voluntary. Taxes to bail out the rich are not.

Thanks for the info Patrick. Sounds like NYTimes is playing verbal acrobatics to try to justify the ballooned housing prices and defend the big banks yet again.

The only way to accelerate the drop in housing prices is to basically change societal beliefs and expectations around housing in general. The only reason starter homes in decent parts of the Bay Area are still at 500k price levels is because people are still paying those prices. Its all about rational people making often irrational decisions. The reasons you hear are often similar but boils down to one simple belief that buying a house brings some sort of stability. The usual reasons involves marriage and kids. I've more or less given up on even trying because places like the Bay Area seems to foster irrational behavior even from fairly smart people.

bgamall4 says

And even if prices decline, it is difficult for any except cash investors to take advantage of the bottom.

This is exactly how I feel about removing mortgages also.

And if mortgages never existed from day 1, most of us would not be ahead of the game in the rat race to save to purchase. The top few rats would have bought much more.

If anything, it should be the rich that should hate mortgages because it puts the 99% in the game. If there were no mortgages, building homes would not be viewed as profitable so the supply side of this would not have been this high in the first place.

It's easy to say we should remove mortgages after you've gone thru the system which enabled you to save enough money. Think about how we came to where we are today. It wouldn't have happened without mortgages.

Please write Obama and your Congressmen and ask for a complete end to mortgage debt subsidies, so we can accelerate the drop in housing prices.

Neither Obama nor my congressional repesentatives care for my opinion on anything. They have already made up their mind on everything.

bighorse says

And if mortgages never existed from day 1, most of us would not be ahead of the game in the rat race to save to purchase. The top few rats would have bought much more.

Isn't it this way in a lot of foreign countries, even today? As well as in the US at some point in the past.

bubblesitter says

considering phantom money as a wealth was NOT a good idea after all.

Yes, it was all counted as money, but it wasn't money.

Actually - given the system we have - it was money: just not yours, or the people spending it.

If I declare there are a billion shares of Patrick.net and then I sell one share for $1, does that make me a billionaire?

Amazingly, Martin Feldstein of Harvard would say yes.

Not sure what point you're driving here, according to Wall Street and most people who own stocks the answer is also yes. Are you just saying that people are naïve? I'd like to think most people on this forum already know that...

But to answer your question, I'm not sure how to force prices down. It seems that in many places prices are once again reasonable, but given the slight deflationary environment they can fall further still.

I can see two possibilities - one would be to start buying houses with considerable low-ball offers. This eventually drives all prices down, while bankrupting your local city (assuming it's been as stupid as most local cities).

The other would be to nationalize the banks and let the fed/federal government take the losses. Of course, that only works out with increased tax revenue. In the current political environment it risks bankrupting, effectively, the world, but it would drive down prices.

Of course, in that case, the people with money just end up owning everything and we return to a semi-feudal state but that, like all human conditions, is also temporary.

"People don't create wealth by themselves. It takes a relationship with other people to create that wealth, and when someone takes that wealth and ties it up in a ludicrous house or in nonlocal 'investment', then they break the social contract with those who helped them get rich."

Just because a person doesn't create ALL of the wealth by himself, that doesn't mean that his CONTRIBUTION to the overall wealth creation cannot be accurately measured and properly rewarded.

For example, let's say that you and I for some insane reason form a business. Should we take equal shares of the profits if I work 80 hours a week and you work 8 (assuming we produce the same quantity and quality of work per hour)? No, that would be unfair to me. Does it become more fair to me if you have a great need for the income, like five children to feed? No, this just confiscates the value of my labor to feed your children. How is this any different than slavery?

A philosophy of: "To each according to his effort, and from each according to his need" squares a lot better with principles of Yankee ingenuity, thrift, and work ethic than the socialist philosophy of "To each according to his need, and from each according to their ability."

bgamall4 says

I would like to agree with you, except that the 30 year fixed is the foundation of a strong middle class. The easy money mortgages of the last few years destroyed the stability of the 30 year fixed, crashed house prices, and pushed more money up to the top 1 percent.

Yeah the system does have some serious issues but I don't think removing the mortgage system is the way to go. These bail-outs assisted so much of the transfer in wealth. I can see why so many people are occupying Wall Street at the moment. The White House probably supports this as they are glad they are not occupying Capitol Hill :)

Patrick I have a question for you (and other democrats).

How can you support the democrats when one of your 'big issues' is you are against the artificial price supports/debt traps the gov provides to jack up house prices and make people debt slaves?
The R and the D are identical on this issue, no?

I am like Ralph Nader (an unreasonable man) - hes says both parties are same two headed corporate monster.

partial list of abominations:
(3% or less DP FHA, 400,000 federally subsidized loan mods and counting, foreclosure moratorium, bank bailouts, endless money printing to paper over bad loans so they dont have to foreclorse, etc, etc,etc S-8 vouchers used to buy a home, etc.)

let interest rates rise ...

End the blacklist periods for strategic defaulters, foreclosees, and short sellers, for a start.

Wrote a whole piece on it...
http://bayarearealestatetrends.com/2011/10/13/reconsidering-the-housing-crisis/

To those of us renting, patiently waiting for prices to drop enough, its very frustrating to see everyone working so hard and spending so much to prop up prices.

But then it's easy to understand. Most of the power is in the hands of people who own real estate and want to see the prices propped up. I don't see his plan as a solution, or as being fair. It would probably cause an extra decade of anemic growth. But who knows, maybe that is the best we can hope for ?

Certainly the financial institutions are in trouble if prices drop another 20%. And meanwhile money and interest rates are increasingly fraudulent compared to what we would have in a properly functioning economy.

The process of prices droppping is far from over:

http://www.sfexaminer.com/local/peninsula/2011/10/foreclosure-crisis-lingering-san-mateo-county-housing-market

The article refers to the growing load of reposessed properties in San Mateo County, one of the most resistant places to price drops.

And where is the prosecution of the fraud perpetrated on many ignorant home buyers by agents, banks,etc., who passed the crap loans up the chain without responsibility? I see plenty of blaming of starry-eyed would-be homeowners, but where's the responsibility of the carnival tent proprietors? They are the ones who made money from this process.

monkframe says

http://www.sfexaminer.com/local/peninsula/2011/10/foreclosure-crisis-lingering-san-mateo-county-housing-market

I see the news always talk about how banks are holding on to properties in Bay Area. But throughout the years, I can only spot a few. I'd like to see a list of properties by address that the banks are actually holding on to without a squatter inside preventing them from selling.

Whoever holds the note should have to pay taxes on real estate. This includes banks. If the banks had to pay all the taxes on foreclosed houses, then they wouldn't be able to just hold on them w/o bleeding money. Then the houses would be price to sell and local communities wouldn't have tax shortfalls.

Amazingly, Martin Feldstein of Harvard would say yes.

George W. Bush graduated from Harvard, and it wasn't even an undergraduate degree. A Harvard degree means nothing to me. If anything, I'd question someone's ability if they graduated from Harvard, Yale, or the University of Phoenix. They're all the same.

Now, an MIT or Cal Tech degree, I can see meaning something.

We let OBAMA know the bailouts backfired, (he does not seem to know)
We demand OUR money back !!!
We elect a president to protect PEOPLE, NOT fat cat banks !!!

J.K. You NEVER get anything back from any gubmint.

Auntiegrav says

I disagree, unless the building of that home is paying the community back in some way (an estate that allows people to visit for some reason (education, recreation, etc.). The money people tie up in accumulating wealth represents resources that should be utilized to rebuild the soil, the air, the water, political stability, community skills, etc. The idea that it is OK to compete against our own future (storing wealth beyond our physical security needs) needs to be reevaluated in the context of diminishing fossil resources

This really resonated with me. I'm not saying that I agree with all (or any) of it, because deciding what I think about this subject is difficult...but it speaks to how I feel about the topic, and it was presented better than I could say it myself. Well said, thanks for that.

-S

Market should have been left alone.

There is a difference between abolishing the entire mortgage model, and getting rid of the mortgage tax deduction.

Who here thinks the latter is still a good idea? All it does is encourage people with money to buy more house than they would have otherwise, and by people with money, I mean upper-middle income coastal dwellers from expensive places. Like, say, Silicon Valley.

Folks from places where homes cost less don't pay enough in interest to bother itemizing tax deductions.

Don't get me started on Prop 13.

We're already past the inflection point of the deflation so acceleration is negative.

"I see the news always talk about how banks are holding on to properties in Bay Area. But throughout the years, I can only spot a few."
Gotta look deeper for the shadow inventory.
If banks were fully exposed and revealed for their possessions, tbey would be revealed as insolvent.
Which some of them are.

Oh, and thank whomever for the Patrick point, I know it cost you a dollar, and I'm glad you're supporting the site.

monkframe says

And where is the prosecution of the fraud perpetrated on many ignorant home buyers by agents, banks,etc., who passed the crap loans up the chain without responsibility? I see plenty of blaming of starry-eyed would-be homeowners, but where's the responsibility of the carnival tent proprietors? They are the ones who made money from this process.

If the prices were not so inflated, but were around 1996-97 prices plus inflation and income growth, most likely half as much... no matter what loan the buyer had (Crap or otherwise) foreclosures would have NOT occured. Its not the loans at fault .. it the irrational buying by consumers who pumped prices beyond any rational reason.

If there were no mortgage debt, there would be no negative equity or foreclosures.
If there were no mortgage debt, the banks never would have had a mortgage debt crisis.
If there were no mortgage debt to compete against, your savings could buy a nice house

Buying with cash, or no mortgage debt, does not protect you from price drops. Its about having some common sense and money smart.

Those who stupidly overpaid, reap their own rewards of losing money.

Steven Spielberg Sells Malibu Home at a Loss (1998)

Not everyone is making money in the California real estate boom. Director Steven Spielberg just sold his oceanfront Malibu home, not his primary residence, for approximately $4.5 million or $1.5 million less than he paid for the property when he purchased it in 1992. His loss is his lucky buyer's gain.

http://realtytimes.com/rtpages/19980819_celebrity.htm

"it the irrational buying by consumers who pumped prices beyond any rational reason...."

That's true, but the consumer was aided and abetted by all the real estate agents, mortgage brokers, banks, securitizers, ad nauseum, who all made piles of money from crap loans that they knew many people would become trapped by.

bgamall4 says

thomas.wong1986 says

Those who stupidly overpaid, reap their own rewards of losing money.

I am actually tired of hearing this. If markets are manipulated and people don't know what things are worth, how can overpaying be stupid?

Buying something without knowing its worth can pretty easily be classified "stupid". Buying something just because the price is rapidly increasing is a pretty good metric as well.

Right now, interest rates are at the lowest they've ever been. Are people rushing out to borrow money? No? Well, not for houses anyway. Clearly, easy money alone doesn't cause the problem.

As to thomas.wong's comment, most people didn't "lose money" on the deal. They may have sold for less than they paid, but thanks to ol' Bushie they no longer have to claim the difference as income, as they should, so the losses fall onto the banks and the public.

And as to monframe's comment, let's not forget the people who bought the mortgage bonds ... most likely some of the same people who just made a mint flipping their overpriced house. The sellers certainly knew the house's true worth.

bgamall4 says

cc0 says

Buying something without knowing its worth can pretty easily be classified "stupid". Buying something just because the price is rapidly increasing is a pretty good metric as well.

Monday morning quarterbacks are a dime a dozen, don't you think Thomas?

I have no idea what you're talking about. I've been telling people not to buy houses since 2002.

Now I know better.

bgamall4 says

Do you know how to diagnose your own illnesses to and fix the computer on your car? Not everyone knows what everyone else knows Thomas.

This thread has just gone absurd.

You don't need to be a car mechanic to know that buying something solely because the price is going up is a bad idea.

bgamall4 says

It is not absurd. You diagnosed the prices of houses in a way that most have no clue how to do. Very few people knew in 2002 that houses would peak in 2007 and fall back to as low as 1990 prices at the time of this post.

I'm not claiming any super-powers here. In 2001 I was shopping for a house. I finally found one that I liked that was a little out of my price range. I tried to offer what I thought I could afford and the listing agent said she wasn't even going to entertain it because she expected multiple offers over the listing price. I had no idea what was going on but knew that's not how things work. You list for more than you want, expecting to haggle. But prices kept going up, and I sat on the sidelines.

I didn't know when the peak was. I didn't know anything about real estate. I knew my income as a professional was higher than the majority of the people in this area and I was being priced out. I was scared by Realtors® saying I was being priced out of the market forever, but I had already decided what I would pay and I wasn't going to overpay because some schmuck told me "It's only $X per month".

Maybe I was lucky because in 1996 I went to a car dealer who refused to tell me how much a car cost. "We don't do that here," he said, "We only go by the monthly payment."

Say what? "I don't think so, buddy," says I, and leaves.

Maybe it was 2003 when I started saying not to buy houses, but it was somewhere around there when I heard people say that they were buying second homes and condos and time shares so they could flip them. If I knew what was going to happen, I would have flipped to some of these idiots but I didn't make a dime off this mess.

A few years later some of my younger friends started to say that they were going to buy a first house. This may have been 2005-2006 time frame. At this point it was simply blatantly obvious that things were overpriced. Houses that I'd looked at for $160k were now being listed at $280k. Someone else I knew sold his house just so he could rent. Here I said many times over not to buy. The only people who thought differently were greedy idiots who were buying for the sole reason that they knew that they were expensive. They just expected that to go on forever.

This is just plain stupid. Whether it's houses, stocks, tulips, or cabbage patch kids, buying things because they're expensive is stupid.

There is nothing absurd about criticiziing arrogance. If the financial system had thought people were as smart as you they never would have attempted the housing bubble in the first place.

Methinks you prescribe too much to malice that which can be adequately explained by ignorance. There's a lot of people on Wall Street who are a lot smarter than I am, but I'm pretty sure that the bubble was well underway (say, 2003/4) before anyone really realized what was going on.

What happened after that, though, was criminal. Or would have been hadn't Clinton deregulated it. But there were many forms of malfeasance so it's difficult to ascribe all of it to Clinton's legislation and Bush's being a crony lovin' moron. bah!

I'm not saying that innocent (though naïve) people didn't get caught in the mess. They did: I don't know anyone who listened to me when I told them not to buy. But, at least in this area and I'm sure in yours, most of the money came from the northeast and north-central areas, and the houses they bought are vacant.

Read through my other posts (there aren't that many). Even though the Realtors® should have been actual professionals giving genuine advice, that doesn't absolve even the "innocent" people from being dumb. At some point they had to do an evaluation and they determined that paying $1500/mo to buy a house was a better deal than paying $900/mo in rent. These people probably believe that the American Dream really is home ownership, too. Ignorance is no excuse.

And don't forget that Clinton began the plan to increase home ownership by reducing eligibility requirements. Clinton's actions stimulated the economy but - like fire, like government - needs to be run by competent people. I'm just not ready to buy that the banks intentionally created this, as you seem to assert. The banks - especially the smaller ones - are run by the same idiots.

Actually, didn't http://www.zillow.com/blog/2009-06-03/geithner-cant-sell-decides-to-rent/

So, let's get back on topic.

When prices fall these people are going to get screwed even harder. Unless they do the smart thing and walk away. Then we all get screwed as our money (which is just debt) gets destroyed. Which brings about world economic collapse unless the federal government produces more money by issuing new debt. Which could be good because it turns unproductive money into productive money by improving infrastructure. Which means that money moves and we can start collecting taxes again. But all the income goes to the people who aren't taxed all that much, relatively speaking. So we aren't actually able to pay down the debt. So we go bankrupt and bring about world economic collapse again.

How do we get started??

Patrick--There is yet one more way to hasten the normalization and dropping of house prices! I agree with having a moratorium on buying ANY property using debt/mortgage. But look at this idea. Real estate "professionals" enjoy control of the market via the MLS, enjoy the use of "teamwork" to increase housing costs, and use tricks such as the "multiple offer" ploy...where there are actually NO offers. they would rather NOT sell, than allow anyone other than their fraternity (or sorority) to get the lower prices.

For those of us who OWN our properties debt free....we can always place the house on our FSBO market using the internet to PUMP DOWN the prices. Sell the house to a spouse or other trusted family member...especially with a different last name. Give it a go with at least a 60 Days "on market". You than "accept an offer from yourself at a MUCH lower price....down down down she goes. This will have an immediate effect on comps in the neighborhood, and in many areas of the country, will also result in LOWER PROPERTY TAXES and lower house insurance costs! Who cares what the "paper" equity is...it's only a scam for Real-A -Tors and mortgage brokers, who rely on it as their lifes blood. HIGH PRICES...keeps the mortgage Ponzi scheme going.

This will have NO EFFECT on people who just want to live in their houses. No debt, no mortgages....I guess the Real-A-Tors will have to go back to serving fast food or selling used cars? Do you want fries with this? LMAO

"Even though the Realtors® should have been actual professionals giving genuine advice, that doesn't absolve even the "innocent" people from being dumb."

Uh, real estate agents have a vested financial interest in the public being "dumb," i.e., uninformed.

"And don't forget that Clinton began the plan to increase home ownership by reducing eligibility requirements."

It's amazing how many crimes that Mr. Clinton committed that he's NOT being held responsible for and this certainly isn't one of them. A right-wing canard, this ridiculous charge lives on like Dick Cheney returning to his box of consecrated earth each morning.

How'bout Alan Greenspan? The man who never enforced the laws already on the books about lending standards and associated fraud? He did nothing as the bubble inflated and then warned about the consequences after he's retired and out of office. What a creep.

monkframe says

How'bout Alan Greenspan? The man who never enforced the laws

One of us is very confused. Greenspan's job was not to enforce any law, it was to manipulate the currency. And employment for some asinine reason.

monkframe says

It's amazing how many crimes that Mr. Clinton committed that he's NOT being held responsible for and this certainly isn't one of them.

bgamall4 says

As far as Clinton and the CRA, according to the Fed's stats they only made 24 percent of the subprime loans [...]

Please don't misunderstand me - I'm not blaming Clinton, but he did, I feel, sow many of the seeds of this mess. He took off the training wheels, as it were, and then we the people (or really, we the courts with Al "I concede" Gore) put an H.L. Mencken approved president in charge of a now-tipsy economic system.

At the time, I might have even thought it was a good thing. It also passed with overwhelming support. But if the next presidential election's candidates were Zombie Reagan, Read my Bush Lips, Slick Willie, and Bush the Lesser, I'm going for Willie. If we really want to get all finger-pointy, everything (including Bush II) points directly at Nixon.

bgamall4 says

And also at Basel 2 they allowed false risk management math thought up by a guy who used to work at JP Morgan, to be adopted as the math accepted for risk. But they knew it wouldn't work and didn't care.

I'm not familiar enough with the Basel Accords, but I don't understand what you're saying. It looks like you're referring to Basel 1, approved in 1988; Basel 2 wasn't enacted until 2008. Basel 1 set the reserve requirement at 8%, and JPMChase used CDSes to effectively drive it down to 1.6% (per Wikipedia, fwiw).

If that's what we're talking about - and even though JPMChase was one of the strongest banks coming out of the crisis - I find it difficult to believe that they did this with the express intent of destroying the banking system 20 years later solely to increase their own market share. At the basest levels, more leverage equals more profit, plain and simple. Greed, yes. Conspiratorial malfeasance, not so obvious.

bgamall4 says

If the financial system had thought people were as smart as you they never would have attempted the housing bubble in the first place.

Home prices in the Bay Area doubled between 1997 to 2000. Where were bankers ?

Dan8267 says

Whoever holds the note should have to pay taxes on real estate. This includes banks. If the banks had to pay all the taxes on foreclosed houses, then they wouldn't be able to just hold on them w/o bleeding money.

Banks do have to pay taxes on foreclosed houses. They put it on their balance sheet as REO -- real estate owned. Why would they be able to dodge property tax?
Dan8267 says

Now, an MIT or Cal Tech degree, I can see meaning something.

Why is an MIT history degree better than a Harvard history degree?

Agree with the general premise of this thread however -- the real crisis in housing is that prices are still too high and the government keeps propping them up.

bgamall4 says

That was when the private MBS totally replaced the CRA (community reinvestment act) lending.

Yes, there are plenty of charts that show this. Private lending skyrocketed during the most recent housing boom, while government sponsored lending dropped. Of course, government made up for it by becoming the housing market most recently and subsidizing homeowners significantly in order to prop up prices.

corntrollio says

Banks do have to pay taxes on foreclosed houses.

I'm not very knowledgeable about how that works, but I've read a lot of articles that say towns and cities are losing a lot of tax revenue and running deficits because of all the foreclosures. If banks had to pay taxes on the foreclosed houses, how could this be the case?

corntrollio says

Why is an MIT history degree better than a Harvard history degree?

Harvard and Yale let people in and let them graduate on the basis of who their family connections are. Yale gave Bush an undergraduate degree, and Harvard gave him an MBA. Any college that gives someone as retarded and lazy as Bush a degree, especially a graduate one, does not deserve respect. Such a college has sold its academic integrity for kickbacks and political connections.

Frankly, I don't see how anyone can make a case that George W. Bush should even have a high school diploma or G.E.D. And that has nothing to do with his politics. He really is an illiterate moron. He even seems proud of that fact, as if it makes him more "American".

At least MIT and CalTech let people in and graduate based on merit, not connections to old money. So I know that an MIT or CalTech graduate is intelligent and has worked hard. I can't know that for Yale or Harvard even if most of them did graduate based on their own merits rather than connections.

Dan8267 says

but I've read a lot of articles that say towns and cities are losing a lot of tax revenue and running deficits because of all the foreclosures. If banks had to pay taxes on the foreclosed houses, how could this be the case?

Because the owners are squatting for years at a time and not paying taxes.

Dan8267 says

Harvard and Yale let people in and let them graduate on the basis of who their family connections are.

That's not universally true, and the statistics don't agree with you. In fact, only a small percentage of the class gets in on a legacy basis. It ain't the 60s any more. Harvard and Yale's classes are far too competitive and many legacy kids get denied. In contrast, schools without nearly as much demand are more easily able to let legacy students in. You're probably more likely to have a random small private college admit your kid on a legacy basis than Harvard and Yale these days. The Bushes are another story -- and even so, one of the Bush twins went to UT, not Yale. Prescott Bush was worthy of Yale and so was HW. You can't judge a school on one graduate. Just look at average SAT scores, for example.

Dan8267 says

At least MIT and CalTech let people in and graduate based on merit, not connections to old money. So I know that an MIT or CalTech graduate is intelligent and has worked hard.

This is bullshit. MIT and CalTech are just as likely to let legacy kids in as Harvard and Yale. This misperception just sounds like Ivy-hate from people who don't know better.