patrick.net

Oh, and HARM, I guess you might be the thread poster? Sorry, I get confused and picture disembodied heads when there is no name signed to the thread. Weird hang-up, I know.

Oooh, look I'm all chatty tonight. Two whole posts. Not a single valuable contribution. My work here is done.

@Jamie,

Forgot to make my mark --yes, this is my thread :-) .

Harm,

You've really nailed it here! This is the core structural cause on which the entire bubble is built. Originally designed as a way for empty nesters to downsize w/o being penalized it spun out of control to the complete debacle we are now confronting. Because this had the "hearth and home" appeal it was thought that Americans would not hesitate to do extensive home improvements w/o fear of incurring a huge tax bill when they ultimately sold. Enter greed. Now "ultimately" translates into 2 years and one day for tax free money! Can't wait 2 years? The formula was pretty simple and universal. Just do yet another re-fi, spend cash on anything you can take to your next house (to hell with improvements) then write off the points and additional interest! In times past most of us dreaded April 15th. Seems like lately people can't wait to get their turbo tax, then file electronically and have their returns, yes their returns, direct deposited into their checking accounts. What's not to like?! Who needs to save or invest in the stock market when you can spend your way into prosperity?

Check this article out Take this house and shove it

I read "Take this house and shove it", interesting. However, the article accepts as gospel the dogma of "renting bad, I must buy to get ahead." I mean they give examples of all these people leaving Long Island NY and the Bay Area because they "can't afford to buy a house." But the thing is, median income levels in both of those areas are still higher than they are in most of the rest of the country and rent is relatively cheap, especially when compared against that high median income. So why are people afraid to live and rent in these high housing cost areas, earn the high income, sock away that money, and get ahead? Unfortunately, I think most people lack investing knowlege and are still gun-shy from the tech bubble NASDAQ crash. It's too bad. Housing is just the "it" asset class these days, have to move away because I can't afford a house. Oh cry me a river...

I don't think the original poster was trying to insult Libertarians in general(although I'd be happy to), I think he was just trying to point out the dichotomy that a lot of business bigwigs seem to exhibit these days: being pro free market when it benefits them, and begging to the Government for help when the free market starts to work against them (usually as a result of their own faulty business decisions).

A1337 & Sriram,

This was my post, and I was definitely NOT trying to insult Libertarians with it. The term "Big Government Libertarian" is an obvious oxymoron (true Libertarians are against big government) and it was meant to be ironic. San Francisco RENTER said it best:

I don’t think the original poster was trying to insult Libertarians in general... I think he was just trying to point out the dichotomy that a lot of business bigwigs seem to exhibit these days: being pro free market when it benefits them, and begging to the Government for help when the free market starts to work against them (usually as a result of their own faulty business decisions).

He nailed what I was trying to do here.

Personally, I like Libertarians and have even considered joining the party myself. They come very close to my own political philosophy on a variety of issues.

Once again, "Big Government Libertarian" is meant to be IRONIC.

There is really no such thing --only hypocritical business leaders who want "less regulation" when it suits them, but demand big taxpayer bailouts after they ruin their businesses, thanks to their own greed and stupidity.

@SQT,

. ;-)

hell if there is a well known liberertian elected to office you can Name, let me know

We should only be so fortunate.
The voters have plenty of alternative parties to choose from every election cycle, and yet they have been brainwashed into thinking they only have two (usually bad) choices.

@PolishKnight, not a bad topic for a future thread.

This just in...

Housing Bubble Bursts in the Market for U.S. Mortgage Bonds
Dec. 6 (Bloomberg): http://tinyurl.com/7dl57

...but you can take 125K after 1 year. or about 10,500 of profit per month you’ve lived there (doubled if you are maried)

A1337,

Thanks --until now, I was under the (wrong) impression you had to hold the house for the full 2 years, but as you pointed out, not always so:

http://www.deadlinenews.com/capgains.html
Two-year requirement loophole

That means if you only live in your home a year before you are forced to sell, you can exclude from taxes up to $250,000 in capital gains if you are married and file jointly or $125,000 for separate and single filers.

Shouldn't be too hard to fake a "hardship" and qualify. This just further reinforces the perception that ordinary people are exploiting this loophole/subsidy to flip properties.

i’m really think the next jump is to gold.

I also suspect that's the next mania, and I've already noticed the media priming the appetite for that. Keep on the lookout for gold cheerleading.

I also suspect that’s the next mania, and I’ve already noticed the media priming the appetite for that. Keep on the lookout for gold cheerleading.

I will not be surprised that the next bubble is in equities.

Don't worry, I'm not going to insult any Libertarians because I actually share many of their ideas and principles. But the one Libertarian principle I cannot agree with is the idea of a completely "Laissez Faire" (hands-off) free market with no rules or Governmental regulations. I am definitely oppossed to big Government, but I think Government rules and regulations are necessary to lay down the foundation of the free market and the provide the rules by which the game is played. Otherwise you don't have a free market, you have Capitalistic anarchy. There are a number of issues for which a Corporation would have no incentive to pursue if not for Governmental rules: pollution inhibibiting smokestacks on factories for example. There's got to be rules so you can punish people when they break them.

I'm not putting any money in gold right now just because of how high it's already run up.

But the one Libertarian principle I cannot agree with is the idea of a completely “Laissez Faire” (hands-off) free market with no rules or Governmental regulations.

So you are against "market fundamentalism". This is completely understandable.

I’m not putting any money in gold right now just because of how high it’s already run up.

This is not a good reason though.

"If you borrow to make investment, the interest you pay is deductible as investment expense. It would be strange if mortgage interest were singled out for exclusion." - H.Z.

Agreed, excellent point. However, it is also strange right now that RE investors get a capital gains exemption and other investors do not.

Agreed, excellent point. However, it is also strange right now that RE investors get a capital gains exemption and other investors do not.

Exactly. Also, we should issue "margin calls" to investors with upside-down mortages.

As long as the mortgage interest deduction is roughly in line with deductions provided to other asset classes, then I suppose it's ok (the point being not to favor RE over other investment types). But the capital gains exemption --especially for second homes-- and the "pro-rata loophole" should definitely go.

@H.Z.,

What do you think of the Presidential tax refom panel's proposal to replace the mortgage deduction with a tax credit (which would also be available to renters)?

It is considered “immature” to be renting too long. Especially by fiancees and wives. The “earn the high income, sock away that money, and get ahead” strategy does not go over very well with them.

It's no wonder the divorce rate is so high!

In a normal market, buying is way better than renting....but we are far from a normal market! The sheeple don't understand that just because you rent now doesn't mean you will rent the rest of your life. It's all about time preference, that is why you can sell something for 10x its price if something is on backorder....always a sucker to overpay you for it.

It is considered “immature” to be renting too long.

I know... it is difficult to be mature without losing everything at least once. Many recent homebuyers will get the chance to be "mature" though. :)

recent homebuyers will get the chance to be “mature” though.

PeterP, LOL...glad to see you and your wit are back!

It is considered “immature” to be renting too long. Especially by fiancees and wives. --DrChaos

I think you're on to something there Doc. I'm tempted to use that as an excuse for why I have not yet found a (good) fiance or wife! Anyway, I tend to think the prevailing dogmatic school of thought concerning housing will change quite a bit once the current debacle unwinds itself. The masses will likely reassess the maturity level of the renters who chose not to bankrupt themselves by taking on an onerous debt burden to acquire a wildly overvalued asset!

I know… it is difficult to be mature

Peter Pan, is that you? :-)

>

Men are just as susceptible to this kind of thinking as women. In fact in my household I am the one who would be happy without the outer trappings of success, while my husband feels like if he's earning the cash, he should have the outer proof of it.

"The “earn the high income, sock away that money, and get ahead” strategy does not go over very well with them. Firstly having a house in an expensive area is “proof” that the man is making money, and many consider having a home the primary reason to earn the high income. "

Darn it I made my quote disappear again. The above quote is what I was replying to with my last post...

Men are just as susceptible to this kind of thinking as women. In fact in my household I am the one who would be happy without the outer trappings of success, while my husband feels like if he’s earning the cash, he should have the outer proof of it.

I have a suggestion/request for a future discussion topic:

What housing stocks, indices, REITs, or whatever do my fellow bubble watchers feel is one of the better candidates to short sell or buy put options on? This of course would be purely hypothetical as options trading in general and short selling in particular are extremely risky speculative bearish bets....

Oh and of course it would most interesting to know WHY people have selected their candidate...

Peter Pan, is that you?

Peter Pan? I cannot fly.

P staPeter Pan, is that you? :-)The P in "Peter P" stands for "Peter P"

Am I a "Big Government Libertarian"? I do not know, but I do think that justice ought to be swift and severe...

http://tinyurl.com/8ryzv

An Australian was hanged in Singapore for smuggling 26000 doses of heroin. I may be insensitive, but I do consider justice pervailed.

Unlike the US, which spends millions in taxpayer money to put convicts on death rows for many years, Singapore took less than 3 years from arrest to execution. (They are not as "efficient" as China though :) )

I think what we should learn from Singapore is its efficiency in delivering death sentences, not necessarily its position on drugs.

Why should we clog our prisons with inmates? When putting them in the chamber is more efficient.

Putting convicts on death row for over a decade with countless appeals is even worse.

In the rest of the world, justice prevails - in the US, oops I mean “Eww ess”, justice “pervails”.

All right, I am a bad speller...

Most of the time, Fannie and Freddie break even or lose money on the resale of repossessed homes. Only rarely do they make money, and then only when there is considerable equity in the home. But if it were not for them, would there be any repossessed homes on the market that were clean, repaired and fully functional? I don’t see how.

There will always be an investor who will buy a fixer and turn it over for a profit (well maybe not right now!). It will sell for whatever the market will bare. The GSE's make themselves out to be the good guys, but I can see through their very thin disguise!

I wonder if anyone has ever thought about what the real estate market would be like without this service.

The only ones who benefit from the GSE's are those who work in the RE industry....so maybe for you they are a blessing!

They have provided liquidity in the mortgage market by buying loans from banks thus allowing them to take on much riskier loans....this is what drives up prices! If it wasn't for them, houses would be much cheaper. You don't make housing cheaper by putting more money into peoples hands!

They claim that they make it cheaper for minorites to buy houses, yet only 10% of their business is to minorities. They also claim to pass on savings to the borrowers, but what are they passing on? 7 lousy basis points! That's .07%! .......Fannie you can keep the pennies!

To top it all off, when this market crashes (and it most definetly will!), Fannie will fall on her ass and us taxpayers will have to take the hit! ....and YOU ask what it would be like without them!

Shine A Hard Light On Fannie Mae

Take a look at our favorite housing stocks.

@ScottC

I want to discuss the GSEs, namely Fannie and Freddie. Yes, these are privately owned corporations backed by government guarantees. They also provide an invaluable service–rennovating repossessed homes for resale at fair market value, which provides many people with access to reasonably priced older homes.

Scott,

Regardless of the original lofty intentions of the bureaucrats who created these high-risk behemoths, the GSEs aren't doing crap to help the "little guy". The only thing they're good for is taking much of the risk off the banks'/lenders' hands by purchasing their paper then re-selling them to institutional investors. This enables lenders to make no-doc I/O loans to dead people as often as they want. Even Alan Greenspan admitted they've (at best) shaved about .07% off mortgage interest rates --big deal.

I wonder if anyone has ever thought about what the real estate market would be like without this service.

Hmmm.... let me think... Affordably priced?

ScottC,

Most Libertarians I know --and on this blog-- are calling for the end to the GSEs' exclusive government charters (and taxpayer guarantees). If they can still survive as private companies, more power to 'em.

This is ideal for young first-time homebuyers. There is no way these people could afford to buy a home in disprepair and fix it up, even if they wanted to. If it were not for Fannie and Freddie, these people would have very little access into the housing market.

Wrong, Scott.

If it were not for the housing bubble (of which the GSEs are a major contributing factor), young first-time homebuyers could easily afford homes, because they would be priced based on sane valuations, not Fed/GSE-generated monopoly money.

When most people are shopping for a home, they want one they can move into and live in. They don’t want to buy a dump and repair it. They want a clean, fully functional home.

Again, if not for the housing bubble, ALL homes --turn key new ones and fixer-uppers alike-- would be much cheaper. Fixing up repossessed homes is great, but this is not the GSEs core business (providing mortgage market "liquidity"). HUD and Habitat for Humanity, by contrast, do this as their main mission. There are plenty of private entrepeneurs/contractors who also do this as their core business. This argument is a red herring.

Most of the time, Fannie and Freddie break even or lose money on the resale of repossessed homes. Only rarely do they make money, and then only when there is considerable equity in the home. But if it were not for them, would there be any repossessed homes on the market that were clean, repaired and fully functional? I don’t see how.

Again, there are tons of private and government organizations out there whose main mission in life is to renovate repossessed homes and help out first-time buyers. This is not the GSEs main mission, nor has it ever been. Btw, last time I checked, the GSEs were making plenty of money for themselves and their investors. They are hardly in the charity business.

and why on earth do people care so much if someone does drugs?

Geez, let me guess, because illegal drugs have side-effects, leading to lethal overdoses, and induce addiction, forcing drug users willing to do anything, including killing and stealing, to get their fix? Okay, if drugs were all legalized, and the cost were nominal, so to speak, wouldn't the price eventually go up because of huge demands? What about criminals using drugs to get kids hooked up and do bad things, like robbing you? If you had kids (I doubt you don't), would you be thrilled seeing your kids smoking pots and injecting heroin in the third grade? All those, and I have not accounted the brain damage and the loss of productivity caused by illegal drugs.

I'm surprised to see the Australian media blow the whole thing out of proportion about that execution in Singapore. Just like the U.S. media, the Austrialian is chasing cheap sentimental stories. The guy deserved the death penalty, period. He was a career criminal, and so is his twin brother. I would've felt sorry for that guy if he had shown remorse before death, but he did not. The last request from the guy was to be allowed to chew gum on his way to the hanging. I'm glad the Singaporeans turned that "last request" down.

Don't take poverty to be your excuse. Low-income people in Australia receive government assistance every month (and significant, too), and the homeless in the SF get $400/month. There are jobs around, too. A decent person should rather stay poor than dealing and trafficking drugs.

I'm with the conservative government on this one. Liberal or libertarian are too soft on morals, which everyone nowadays seems to severely lack of.