patrick.net

Shawn says

We have not had unemployment and low wages in the past years because of low prices, we have had them because of the affects of the high prices of the bubble that we are now paying for

No, the high prices during the bubble wasn't all lit on fire. For every buyer overpaying there was a seller cashing out, and also the REIC taking their 5-10% spiff.

ALL of that money is still with us. The problem is the players of the system got the cash and the dopes got the shaft.

http://research.stlouisfed.org/fred2/graph/?g=1U2

The housing bubble was a period of free money that allowed this country to really screw itself up -- the trillion-dollar wars and the accumulating trillion-dollar trade deficits.

The recession we have now is just the natural state affairs, now that the trillion-dollar per year inflow from the bubble machines is gone.

http://research.stlouisfed.org/fred2/graph/?g=1U3

Not 1 person in 100 understands that graph.

I just watched the movie, A Crude Awakening: The Oil Crash, and I think higher gas prices are good. We've entered peak oil. I think we need to develop alternative energy and the low gas prices don't give incentive to research and development.

As someone in the movie pointed out, it only takes something like 20 cents to move yourself and up to six friends loaded with luggage in your vehicle one mile. The ability to travel far distances is wealth. This will become more apparent when only the wealthy can afford to fly, because no alternative energy has been developed after the oil wells have run dry.

One barrel of oil is equal to 25,000 man hours. It's the most valuable resource ever found on the planet, it's going away, and it's too cheap.

In many areas, home prices have fallen by 60 + %. How much lower do you people want prices to go? Your not going to get free houses.

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

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

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

i agree we live in peak oil

the best way to live in the last days is to drive an H2, muscle car, fly as much as you can.

see europe/asia (because your kids wont be able to)
conserving oil is for chumps - its gonna run out anyway.

Debt-free Renter says

The ability to travel far distances is wealth

once I found this definition of wealth:

"that which satisfies human needs and wants"

the world became a bit clearer. To be "wealthy" doesn't require a lot of money, it just requires not having unmet needs and wants.

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

'd say we want prices to go below the cost of renting the same thing

To what horizon? I think averaging the 30 year cost-of-ownership (which is largely known) vs. 30 years of renting (which is unknown) is a critical point of analysis.

"Lower house prices are GOOD!"

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

Shawn says

Astst, homes aren't supposed to pay for themselves, that's a myth of the bubble era, spread by late night infomercials. Interest, insurance, mainenance, and etc are the costs you pay to be a homeowner. You should buy a home and agree to pay them because you deem it worthwhile, not because you see it coming back to you.

We have not had unemployment and low wages in the past years because of low prices, we have had them because of the affects of the high prices of the bubble that we are now paying for. This is where everyone seems to get confused, they ask how to fix the bust when the question should have been how not to overinflate a bubble.

Shawn, to clarify I didn't mean to imply that housing appreciation should pay the full costs of ownership. I do think people willingly pay the awful terms on a 30 year mortgage (all the interest up front) only because of the assumption of housing appreciation. I don't know that the joys of being a homeowner are worth the added costs to most people when they look at the bottom line on what the mortgage will cost them over the life of the loan.

Real estate is an industry that's too big to fail. Too many greedy hands have too much to lose, and they won't allow their assets to dry up.

Bellingham Bob says

The housing bubble was a period of free money that allowed this country to really screw itself up -- the trillion-dollar wars and the accumulating trillion-dollar trade deficits.
The recession we have now is just the natural state affairs, now that the trillion-dollar per year inflow from the bubble machines is gone.
http://research.stlouisfed.org/fred2/graph/?g=1U3
Not 1 person in 100 understands that graph

That was pretty much the point I was trying to make.

Btw, great way to get someone to look at the graph.
While the graph makes it look like there was a massive falloff in household debt, it's really only showing that debt is decreasing at ~1/6th the rate at which it increased during the peak of the bubble years.

BobbyS says

Real estate is an industry that's too big to fail. Too many greedy hands have too much to lose, and they won't allow their assets to dry up.

Oh I see, so they are all above the fundamental laws of economics and nature. LOL.

The Great thing about writing off losses, is you get to start fresh.
American can't get back on track and in action until it feels it has either regained the lost wealth(Aint going to happen in the twenty teens) or we write off the lost debt and start fresh. There's always more to be gained going forward than there is looking back waiting for losses to catch up.

And the next stimulus will be Cash for Klutzes.
Uncle Sam will pay you break your crap and buy new.

shrekgrinch says

Yes, he IS that stupid. Guess who was the numero dos guy that received the most in campaign contributions from Freddie and Fannie?
A junior senator from Illinois. Barack Hussein Obama
http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html
Christopher Dodd was numero uno because he did a lot with getting CRA and other crap out there while leaning on regulators to look the other way when some of them smelled a foul stench coming from CountryWide and other such institutions.

Nice try, but you lose points for forgetting to mention Barney Frank in that propaganda piece.

You guys don't get it. All guys in Washington want the same salaries,perks and pensions they currently have. What is so hard to understand when they want to restore bubble prices?

atst1138 says

Shawn, to clarify I didn't mean to imply that housing appreciation should pay the full costs of ownership. I do think people willingly pay the awful terms on a 30 year mortgage (all the interest up front) only because of the assumption of housing appreciation. I don't know that the joys of being a homeowner are worth the added costs to most people when they look at the bottom line on what the mortgage will cost them over the life of the loan.

I paid the "awful" terms on a 30 year mortgage with my first and second homes because mortgage/taxes/insurance/maintenance cost less than renting a comparable property, that wasn't going to change with interest rates which hit double digits in the 1980s, and I was saving the difference/building equity fast enough to cover the transaction costs if I moved in a few years.

A shorter loan amortization would have given the bank less but been a bigger bite out of my budget and wouldn't be cash-flow positive if I decided to rent it out.

An ARM might have saved a little but could have cost a lot. People buying homes which are affordable now won't be happy as their payments double with interest increasing from the artificial low 3% starting rate to the 7%+ historical average.

I understand he doesn't want people to lose all their monies

Apropos of nothing, this is the second time today I've heard this word used in this context. It's also the second time in my life. The word "money" is already plural. What the hell is "monies"? I can see it if you're talking about different KINDS of money, and grouping them together, but not just a quantity of money. Did they just change the rule on that? I would ask a person, "How much money do you have?". I would never ask, "How many monies do you have?" I heard someone use the word earlier today, and now am reading it here. Strange.

I like renters. Please rent. Amen.

shrekgrinch says

Yes, he IS that stupid. Guess who was the numero dos guy that received the most in campaign contributions from Freddie and Fannie?

A junior senator from Illinois. Barack Hussein Obama

http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html

Wrong.

http://politicalticker.blogs.cnn.com/2008/10/07/fact-check-did-obama-get-second-most-money-from-freddie-and-fannie/

The Facts: Federal law forbids candidates from receiving money directly from companies. The nonpartisan Center for Responsive Politics tracks donations from employees of various companies. The center's list of contributions from Fannie and Freddie employees places Obama second. Ahead of him is Sen. Chris Dodd, Democratic chairman of the Senate Banking Committee.

The total listed for Obama is $126,349 - a tiny fraction of the approximately $390 million his campaign has raised, according to the center. The list shows McCain has received a total of $21,550 from Fannie and Freddie employees. The list includes donations of at least $200 from those who receive paychecks from Fannie and Freddie. It also includes donations from political action committees - pooled contributions from employees.

The report spans from 1989-2008 - just a portion of the time since Fannie Mae went private in 1968 and Freddie Mac was created in 1970.

The New York Times has published a separate list looking at contributions from "directors, officers, and lobbyists for Fannie Mae and Freddie Mac" for the 2008 campaign cycle. That list - using figures from the Federal Election Commission - shows McCain receiving $169,000, while Obama received only $16,000.

VERDICT: Misleading. No donations actually came from the companies. One method of measuring employee contributions does put Obama second overall, but another, for the current election cycle, shows McCain receiving significantly more.

Of course he's that stupid - his advisor Tim Geitner used a toxic mortgage to buy his house. He's the last one that should be giving advice about how to fix the real esate market.

cab says

gameisrigged says

What the hell is "monies"?

@gameisrigged

Just because you don't know how to use a dictionary, it doesn't mean a term doesn't exist. Re-read the post so you understand the implied meaning of the word in context. Then go to any American dictionary and look up the word "monies."

Just because YOU don't comprehend a word doesn't mean it doesn't exist or have a bona fide use in the English language.

Whoah, dude. Calm the eff down, man.

I know it's a word, but the dictionary merely states that it is a plural of "money", which is ALREADY plural. I don't see how it is necessary to write "monies" in that context, when "money" would do quite nicely. Perhaps you would care to explain it, rather than screaming "You don't know how to use a dictionary". That's not helpful at all.

And I have no idea where you're going with "implied meaning in context". WTF? Is that supposed to mean something?

Quant HF Mgr says

Of course he's that stupid - his advisor Tim Geitner used a toxic mortgage to buy his house. He's the last one that should be giving advice about how to fix the real esate market.

Source?

There are still areas of the USA with reasonable housing costs. Yes, many of those same areas have terrible economies (i.e. Detroit). The key is to find areas with good economies AND reasonable housing costs. I'm thinking places like Dallas, Houston, Atlanta, Kansas City, Indianapolis, Minneapolis, Chicago, etc.

I was lucky enough to land a good job in a place with VERY reasonable housing costs: Corning, NY (upstate). Yes, winters are cloudy and cold. No, it isn't the most "hip" place in the country. But I'd rather not spend my life as a debt-slave in some expensive "trendy" coastal city. For the price of a run-down shack in the SF Bay Area, you can get a mansion (with a view) here.

Bellingham Bob says

"that which satisfies human needs and wants"

That would be the definition of Marginal Utility.

wthrfrk80 says

There are still areas of the USA with reasonable housing costs. Yes, many of those same areas have terrible economies (i.e. Detroit). The key is to find areas with good economies AND reasonable housing costs. I'm thinking places like Dallas, Houston, Atlanta, Kansas City, Indianapolis, Minneapolis, Chicago, etc.

Same regions where Silicon Valley companies are expanding their workforce. Recent example, Yahoo moved some of their finance functions to Omaha NE. Ebay has some ops in NE as well. One of many examples. Yes, low costing regions are attractive.

For every baby born, we borrow $64,000 that they have to pay back someday in order to raise the price of a house they will buy from $150,000 to $800,000.

Austria, Brazil, some Germany, Cuba, Nicaragua,Philippines Slovenia and Switzerland lets some 16 year olds vote. Their young can help stop this generational looting.

tatupu70 says

Quant HF Mgr says

Of course he's that stupid - his advisor Tim Geitner used a toxic mortgage to buy his house. He's the last one that should be giving advice about how to fix the real esate market.

Source?

Actually we do know it was Bernanke that used an ARM loan to buy his in NJ.

Timmy actually took a loss on his sale where he overpaid and went underwater.

Long term stable and reasonable prices are good.
We certainly havent seen that over the past 10+ years.

That's day dreaming here! It's TOO late for US to offer lower price on food, gas, and HOUSE. LOOK AT THE DOLLAR BILL WE'RE PRINTING, TOO MUCH DEPT WILL DRIVES THE higher price on food, gas, and HOUSE.

CashOffer says

LOOK AT THE DOLLAR BILL WE'RE PRINTING, TOO MUCH DEPT WILL DRIVES THE higher price on food, gas, and HOUSE.

The counterargument is that long term interest rates are very low.

Low interest rates imply that investors in long term bonds do not think there will be much inflation. And they are betting money on that.

Or maybe long term interest rates are being faked, with the only one really buying long term bonds being the Fed itself.

Shawn says

Astst, homes aren't supposed to pay for themselves, that's a myth of the bubble era, spread by late night infomercials.

Wow, that's the best thing I've read on here in a long time. Yes.

thomas.wong1986 says

Actually we do know it was Bernanke that used an ARM loan to buy his in NJ.
Timmy actually took a loss on his sale where he overpaid and went underwater.

All ARMs aren't toxic.

So, was that BS about Giethner taking out a toxic loan then?

forgot to add one:

low std of living is good.

CashOffer says

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

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

House ?

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

chip_designer says

forgot to add one:

low std of living is good.

Yep, that is called some check from nature.

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

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

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

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

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

That combination is the root of most of our problems.

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

My $.02 to Henry Waxman

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

--------

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

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

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

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

Thanks,
Kunal

Thanks Kunal, it's a really good template.