Well, that’s that. Housing rescue bill heads to Bush for signature
Congress passed the most significant housing legislation in decades Saturday, offering help to struggling homeowners and seeking to stabilize a troubled housing market that has dragged down the economy.
President Bush will sign it quickly…
…
Housing “is a matter of grave concern to many of us who see across America foreclosures that are taking away the homes of many American families and affecting the value of millions of other homes. But this could have been done yesterday,” said Sen. Richard Durbin, D-Ill.
Would anybody care to explain to me why it’s a bad thing when someone who should have never bought a home in the first place ends up in foreclosure? Why should we be spending our tax money to help people keep something they can’t afford, or to cover the losses of large institutions that took huge risks?
Of course, we all know the real reason this garbage passed:
“No matter what’s wrong with it, most of the members of this Senate are going to come in and vote for it, and check the box and go home and say they did something about housing,” [Sen. Jim] DeMint said.
Indeed.
In the CNN front page poll, so far 69% think this is a bailout of reckless homeowners.
We have to keep Americans in their homes, regardless of whether they can afford it or not!! It’s in the Bill of Rights, for goodness sakes!!
Most of the bill is taken up with new oversight and regulations of the mortgage industry. The $300B in new loan guarantees is an attempt to shore up the prices of houses at a level this is hopefully sustainable. The big losers are the mortgage companies that need to accept significantly lower amounts that will get repaid. In turn, the underwater home owner has to give up 50% of the appreciation potential in their property to the government. Assuming the housing market does bottom out soon, the big winner is the taxpayer. The underwater homeowner is avoiding having to pay back some prinicipal, but many were just using bankruptcy anyway to avoid that.
Seems like most of the bitterness is people who missed out on the run-up in prices and don’t appreciate that they have also missed out on the chance to see 50% of their future equity taken away. Hopefully that will be punishment enough to satisfy the bitter renters.
Jon -
If the housing market does not bottom out soon, then what happens?
And as RAL pointed out, those who were hoping that the housing crash would let them pick up a house at a cheap price are overlooking the damage to the economy that would result from such a severe economic depression that would entail. If you had your cash parked in stocks, that’s not going to work because those will go down as the economy collapsed. For those waiting for a fire sale in gold or foreign currency, well, tough sh**, you lost.
“If the housing market does not bottom out soon, then what happens?”
Then the taxpayers will have to start shelling out money to mortgage holders. Some are retirees and some are foreign investors. So basically all taxpayers are now real estate investors with 50% upside potential and 100% downside risk, once the 15% in equity is used up and the 3% fee that was paid to the government. That puts a real incentive on us all to make this work.
Well my guess is that it comes down to the whole “core” of our particular brand of capitalism. I think it can be summed up as “always moving forward”, where “moving forward” means to stimulate the economy in some way to produce growth or reduce the impact of some unintended ( or ignored) consequence on Wall Street.
And so we provide the assistance to big business, or in some cases a class of consumers that is tied to the same above mentioned consequence (mostly for convenience- to “sell” the bailout/legislation to the people).
The concept that the market should falter, or that a business should fail, and, as a result, benefit an even larger class of people (future homeowners) by reduced market prices is something that, to us, goes against the grain of our narrow mindset that sees big business and the stock market as the holiest of institutions, and the only mechanism for promoting the public good.
Not that it will necessarily do much to prop up home prices, but, if it did, the end effect on the American consumer would, I think, be very negative. What effect does it have on the economy if in the course of six or seven years a middle-income families (as in “future house buyers”) housing expenditure increases, say 40%? Obviously their spending for other consumer goods goes down in direct proportion hurting the wider economy, while lowering their “standard of living”.
So were trying to sell-out the the interest of future homeowners for the sake of todays homeowners. The further we go into the future, the more the benefit to “todays” economy fades, and the more the burden becomes apparent. “Trading future comfort for todays consumption” is something that should be translated into to Latin and incorporated into the seal of the House of Representatives. Rant off.
…..So basically all taxpayers are now real estate investors with 50% upside potential and 100% downside risk….
This is a good thing?
jon, an economic depression doesn’t mean everyone goes down with the ship. People can come out ahead. If others are falling by the wayside, just breaking even means you will be ahead. It seems like we are now in an era when the government wants to get rid of recessions from the business cycle entirely.
“If others are falling by the wayside, just breaking even means you will be ahead.”
Sure, but there just aren’t enough people who want to get ahead that way to elect representatives to have the country run in that manner. Most people recognize that we have always been in this together, and recognize that spending money to stabilize the economy is a good investment overall. When people are out of work, less stuff gets produced, and everyone is worse off. This bill doesn’t let off the hook the lenders who lent foolishly and aggressively. It just stops their bleeding.
Going forward, we should see a drop in foreclosures and a drop in inventory, and that should result in stabilization of house prices since there won’t be quite as many distressed sellers. People afraid to buy in a falling market will then start buying. Yes, there will be a few people who miss out on a steal of a house price, but prices now are below replacement cost. After all this, and the new regulations in the bill, there won’t be the runaway rise up in prices after this, at least until the next generation forgets about all this. So future homebuyers are not being hurt, they just can’t take advantage like they may have been hoping to.
“So future homebuyers are not being hurt, they just can’t take advantage like they may have been hoping to”.
in Freudian Psychology, I think this is called “projection”
Couple nights ago, Jim Cramer was talking about the $300 billion housing bill and at one point he said “Go Buy a house now”! He is obnoxious sometimes however he is right on the dot this time.
.
From Market Ticker
.
Watch the Video
Jim Cramer also said Bear Stearns was going to be fine.
The government is not doing this for the public good. It is funny they want to control the downside but not the upside when home prices have become wildly unaffordable. They didn’t do their job regulating the credit market and the lending industry.
I knew I should have gotten that HELOC for 200K and spent frivolously. Dammit!.
How convenient that neither Obama or McCain decided to even bother voting on this, although I suspect I know what the outcome would have been in a non-election year. I would say vote anyone out who voted for this piece of garbage, but we have such short memories so by election time, this will be a distant memory.
Sigh….
I’m concerned about the economic consequences of proping up Fannie and Freddie.
I predict that this bill will not be enough.
Interest rates will continue to rise as banks try to make back the money they’ve lost. Higher rates will have a negative impact on home sales.
If this bill is not enough, it’s going to be very interesting to see what happens when the politicians say we need more money for the housing market….especially if the economy continues its decent.
I agree with The Tim in that this is mainly a political move on the part of our elected officials to say they “did something” about the housing crisis.
On the up side, there is ONE provision in the new law that I like: National loan originator licensing for all LOs, no matter where they work, a mandatory test with a 75% pass rate, and a mandatory 20 hour pre-licensing class. I like this because…..well because this is 10 years overdue and also because as an educator, my company will directly benefit.
Interesting story on HousingWire about how Congressman Frank is pushing for lenders to hold off on existing foreclosures until this bill goes through (October 1st). Yet HUD is saying it will take likely until mid 2009 before they can get their act together to create underwriting guidelines for loan servicing. End of the article questions whether servicers will need to access the fed discount window:
http://www.housingwire.com/2008/07/26/as-housing-act-passes-questions-emerge/
.
A better link to the video on Market Ticker. I sure wish I could edit previous posts.
.
Watch the Video
jon -
Hoping for prices to stick is damaging to the economy in whole for a long time. Mortgages and housing are not productive allocations of resources. Propping up the inflated bubble prices to force them on buyers of the future forever is just siphoning off future productivity into houses which provide little more than shelter. It is better for the economy when people spend 20% of their income on housing instead of 50% of their income. Housing provides minimal use to the economy outside of shelter for the owner and maintenance costs going back into the economy. We might as well just bury that money in the backyards of these homes, a waste of productive capital.
b -
I doesn’t really matter what level is housing is best for the productivity of the economy, because in this country such decision are made by individuals, whose preference is for much more than the bare minimum of housing.
I happen to disagree that prices are still at bubble levels. There is buildable land that is cheap in many areas, but builders have cut way back, which indicates that current prices are not sufficient to build more. And yet the inventory of new houses nationwide fell last month, so there is demand for it at current prices. Those two facts indicates we are near the equilibrium. All that is missing is stability so buyers won’t stay out of the market to get a lower price. Potential buyers today may be ticked off that they aren’t going to get such a bargain, but a chance to buy a house at below cost is a windfall that doesn’t always happen.
What is high is prices in the core of highly desirable locations such as Seattle. But that is the value derived from all the jobs and other benefits of living in the city. Sure a recession could force sellers to sell at a lower price, but most people in this country don’t want a recession, and so our representatives are taking steps to stabilize the market. I’m usually a big opponent to bailouts, but I don’t see this as a bailout since to me the evidence strongly suggests that prices are already slightly below where they ought be. To me, this just seems a way to provide stability that will benefit a lot of people. Those people will now have an incentive to work hard to keep their house and maintain its value.
Much ado about nothing…
The $300 billion to help refinance trouble loans will have little impact: (1) little incentive for second-lein holders to play ball; (2) loan servicers get nothing out of the deal and have to facilitate this; (3) homeborrowers still have to actually qualify for an FHA loan at the reduced loan value; (4) only owner-occupied homes are eligible; and (5) FHA would be ready to implement this program until sometime next year, minimum 6 mo out (see Housing Wire).
THe blank check for Fannie and Freddie IS a big deal, but we all knew that would happen. Implicit government backing becomes explicit government backing. Bigger government dept, falling dollar, higher interest rates, and housing prices keep on falling. TO qualify for a GSE loan, LTV of 80% or PMI (increasingly expensive), 28% of gross income in monthly PITI, 36% total monthly nut including all debt. So WHO is going to qualify for overpriced housing? Answer: No one!And one third of currrent FHA borrowers with no downpayment are now out of the game (downpayment assistance no longer exists).
Moreover, if the Treasury has to actually use that line of credit to bail out the GSE’s (I imagine they will), the gig is up politically. More oversight of the GSE’s, stricter lending requirements, perhaps even nationalization.
Check back in one year.
“What is high is prices in the core of highly desirable locations such as Seattle.”
Right… checked price/rent or price/income stats lately? And why did Seattle become so desirable just in 2003? Wishful thinking Jon, but housing prices will continue to fall until housing becomes affordable. And construction costs will FOLLOW the market, not set the market. Econ 101.
[...] that it will be taken away from you and big government will come in and rescue you, sending the clear message that being financially responsible is, not only unnecessary, but actually stupid, since the tax [...]
I do not wish for total collapse of everything. I wish for a fundamentally (historically) sound environment in which I can purchase a house.
If the housing market or any market fundamentals are healthy, then there is not a need for external intervention. This bill may ease the rate of correction, but if a correction is needed then why should it be eased?
Any local RE market that has a median income of X and a median housing price significantly higher than 3.5 times X will need to correct at some point. As stated by many others in his forum and elsewhere. Spending more than the above ratio draws money out of the family and community and is unsustainable. Without HELOCs or other avenues to earn or borrow cheap money the market will correct.
I will not be voting for either of our senators again. If the market here does bounce (up) I hope that everyone here needing to sell does so quickly.
“I’m usually a big opponent to bailouts, but I don’t see this as a bailout since to me the evidence strongly suggests that prices are already slightly below where they ought be.”
———————————————————————————————————–
Come buy some 4-500k downtown 1BR condos then.
Put your money where your mouth is.
“There is buildable land that is cheap in many areas, but builders have cut way back, which indicates that current prices are not sufficient to build more. And yet the inventory of new houses nationwide fell last month, so there is demand for it at current prices. Those two facts indicates we are near the equilibrium”
So builders cut back because prices are currently too low to justify the expense of building more homes?
Wow! I thought it was because of a severe lack of demand due to potential buyers not being able to qualify for the purchase of these homes now that no-doc and other crazy financing was off-the -table. But you are telling us that houses are simply not expensive enough to justify further building, as in “hey, we can’t give these things away, ya know!”
Also, you make the argument that since inventory has fallen that this necessarily is a result, and proof of (significant) demand for houses?
Were you aware that sellers pulling their houses from the market after trying in vain to sell them at current prices and financing options would also reduce inventory?
I don’t think there is even a builder out there insane enough to make the argument that they are not building homes due to the low market value of real estate. No, I think it would take a Realtor to make such an argument.
So you see, what you present as support for the housing market being at “equilibrium” are anything but “facts” . Equilibrium will be what people can afford given traditional financing, and when the the concept of a home as an investment vehicle is removed.
The bail out has passed Congress. I WIN. You renters LOSE!
“I wish for a fundamentally (historically) sound environment in which I can purchase a house. ”
Bubble sites love to show graphs of how the ratio of price to household income has gone up recently. For some reason there is not so many graphs of why people make the decisions they do: smaller average household size, preference for more space and amenities than before, preference for locations closer to jobs, etc. If people in aggregate shift their preferences, that will show up in the median price paid. That doesn’t automatically mean that they overpaid, although admittedly in some locations that did happen. The question is whether prices have fallen enough to correct for that. I always look to what the replacement cost is. Builders will adjust the size mix of the houses they build to match the market, but existing houses will comp themselves to the size they already are, as we discussed before.
“Put your money where your mouth is.”
It is.
Jon, you write so nicely it almost sounds as though you know what you’re talking about. But there are so many erroneous assumptions and logical inconsistencies underlying your arguments I don’t know where to start when attempting to refute them.
Unfortunately, the $3-400 billion minimum that this bill will cost won’t fix the problem. It’s not enough money to make everyone involved whole, it’s too late, and it doesn’t correct the underlying problem of affordability relative to income. It will, however, make a mess of the bond market, increase interest rates, increase government costs, lead to increased taxes that further depress the economy, and reduce American competitiveness in the world marketplace. It simply “kicks the can further down the road” (thanks, Eulea) before eventually pushing all of us over the cliff. It not only harms the economy, it redefines the values and parameters of American government.
While our politicians may think they’ve dodged a bullet, all they’ve really done is crack open a Pandora’s Box of unintended consequences. Better get ready to hold on tight. By next Spring we’ll be in for one wild ride.
Direct quote from the Chimp In Chief just a few weeks ago…..”It’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford”
For a short time I actually applauded The Chimp!
So wtf happened?
The Chimps handlers said “jump”……..
“I don’t think there is even a builder out there insane enough to make the argument that they are not building homes due to the low market value of real estate.”
True, they will build a house to fit your budget, whatever that is. They have two problems: one is the existing inventory already out there, and the fact that lenders will not lend in a falling market. When the market stabilizes, lenders will be willing to lend, sales will rise, and the months-of-supply that the existing inventory represents will drop. Without this bill, they would have to wait until the price is so low that buyers and lenders go ahead even if the price is still falling. The falling inventory of new construction indicates that has already started to happen. With this bill, there will be fewer foreclosures and so fewer distressed sellers driving the prices down.
With restrictions going back to what they used to be, the average affordable price will go back down. As we discussed previously, that will leave an oversupply at the high end that will take time to correct. Oddly, it seems to be the high end that is still in the best shape price wise.
Scotsman, thanks for the kind remark, but without further clarification will have to just agree to disagree.
t dsn’t mttr wht y prsnlly thnk f th Prsdnt f th ntd Stts. Th ffc dsrvs rspct.< hrf="#" clss="rplyt" nclck="rplyt('53087','∓#91;trll∓#93;','33'); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('53087','∓#91;trll∓#93;','t dsn\'t mttr wht y prsnlly thnk f th Prsdnt f th ntd Stts. Th ffc dsrvs rspct.','33'); rtrn fls;">Qt
Two more restricting criteria:
–only loans that were issued between January 2005 and June 2007
– all HELOCs and 2nds must be paid off before a primary loan qualifies.
In addition to:
–primary residence
–proof of inability to pay
–qualify for FHA loan (restrictive debt load)
–negative incentive for loan servicers to participate
So how many homeborrowers will actually qualify in the summer of 2009 when this finally hits the streets? And how far will home values have fallen by then?
Question for the contributors out there smarter than I am:
Earlier Jon stated that the fall in home prices (or a return to affordability) would result from a “severe economic depression”. Is it true that the state of economy is so directly dependent on the value of the housing asset class? Can the value go down while the economy recovers? Who would be hurt–investors, the construction industry, homeowners looking to extract more equity out of their homes or sell them for retirement?
Forgive me if this has already been discussed here. I am just curious.
My opinion on the direction of the housing prices differs form the most opinions here, though I do beleive we have a huge bubble. Renting is currently much cheaper then owning – but this difference can be corrected in two ways. I wonder why no one thinks about rents (+ all other prices, except housing) going up to eliminate this difference, which is actually inflation, but without wage increase.
In fact, US has one more bubble on hand, which no one prefers to talk about. Wages here are much higher then, say, in China – and this bubble is already deflating. At the equilibrium point an average american will be able to afford much less then now, unless some technical breakthrough will ease this.
I think many are doing an assumption that might no longer be true. That buyers will buy to whatever price they can get a loan. I think we have moved past that in most if not all areas. One thing the government can’t do is to force people to buy a home. It’s still we, the poeple, the buyers who decide what prices will be by what we offer to pay. So what if loans et easier to get at this stage? I will not buy since prices ARE still way to bubbly and I might just be in majority here. If that’s so it doesn’t matter what is done in any bills. Prices will fall until buyers feel comfortable to make a move and that they are getting a good deal that will sustain it’s value. The blood is in the water and can’t get put back into the wound so to say. If you want to show displeasure with the bill, a buyer strike is one way to show it.
boomertoo -
if our housing deflation plays out similar to japan, you can have 90% depreciation in real estate prices and just have a stagnant economy, but no severe depression.
Hello boomertoo,
You can find a wide array of opinions on this blog.
I disagree with jon. Housing prices will continue to fall and it is likely that prices will actually swing below “equilibrium” before the market correction is complete. The easy financing is gone and the speculators feeding the “real estate always appreciates” fantasy have moved on. Increasing inventory coupled with reduced sales is predictive of downward price trends IMHO.
jst rd th bll (n prt) rgrdng rfnncng.
k, s th lndr tks ht t 90% f crrnt vl, hs ptn t frcls r wrt ff th dffrnc btwn 90% f crrnt vl nd th rgnl mrtgg mnt.
Brrwrs wll hv t py 1.5% f prncpl nnlly s mrtgg nsrnc nd shr n ny prfts n sldng scl frm 1-5 yrs f th hm s sld r rfnncd. Pls 3% chrg n prncpl t gt t f th hm s sld. Th prft shrng strts t 100% t yr 1, nds nd stys t 50% t nd ftr yr 5.
My tk s th hmwnr tht s n trbl (M) hsn’t gt th fnncl sns t ndrstnd ths “nw dl” bt wll tk t t sty n thr hm f thy cn mk th pymnts.
Ths wll tk frclsrs ff th mrkt n drvs whch wll dfntly stblz hm prcs, nd wll mst prbbly rslt n hghr hm prcs.
Th Gvrnmnt sms t b cntng n mr rbst cnmy n th nxt yrs t tk t ths brrwrs, s blv thy wll vntlly lnd p n trbl gn.
S, my tk? Ths s th “Bg Pctr” bl t, nd ths bng bld t r nt rlly th crrnt hmwnrs n trbl, thy wll lnd p wth vry lttl t f ths dl.< hrf="#" clss="rplyt" nclck="rplyt('53094','∓#91;trll∓#93;','40'); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('53094','∓#91;trll∓#93;',' jst rd th bll (n prt) rgrdng rfnncng.\r\n\r\nk, s th lndr tks ht t 90% f crrnt vl, hs ptn t frcls r wrt ff th dffrnc btwn 90% f crrnt vl nd th rgnl mrtgg mnt.\r\n\r\nBrrwrs wll hv t py 1.5% f prncpl nnlly s mrtgg nsrnc nd shr n ny prfts n sldng scl frm 1-5 yrs f th hm s sld r rfnncd. Pls 3% chrg n prncpl t gt t f th hm s sld. Th prft shrng strts t 100% t yr 1, nds nd stys t 50% t nd ftr yr 5.\r\n\r\nMy tk s th hmwnr tht s n trbl (M) hsn\'t gt th fnncl sns t ndrstnd ths \&qt;nw dl\&qt; bt wll tk t t sty n thr hm f thy cn mk th pymnts.\r\n\r\nThs wll tk frclsrs ff th mrkt n drvs whch wll dfntly stblz hm prcs, nd wll mst prbbly rslt n hghr hm prcs.\r\n\r\nTh Gvrnmnt sms t b cntng n mr rbst cnmy n th nxt yrs t tk t ths brrwrs, s blv thy wll vntlly lnd p n trbl gn.\r\n\r\nS, my tk? Ths s th \&qt;Bg Pctr\&qt; bl t, nd ths bng bld t r nt rlly th crrnt hmwnrs n trbl, thy wll lnd p wth vry lttl t f ths dl.','40'); rtrn fls;">Qt
I have a lot of questions right now about this little bitty bill that passed on a Saturday so that every one would notice. It’s 300 billion dollars or the price of about a week of the war in Iraq. It’s nothing, you’re right, a feel good measure.
Now about those housing prices we are way past that. Housing prices will return to normal. That is from the past fifty years appreciated at the rates best described as the rate of the Consumer Price Index because housing costs are directly tied to inflation, the cost of goods, the cost of services, and then you have the price of housing. Wage earners are the bulk of housing consumers, whether they rent or buy. Housing will remain affordable, it’s the loan values that are inflated. It’s the paper turned securities turned into investment instruments that’s in trouble because the loan value far outstrips the value of the housing unit.
The problem we have today is liquidity, it’s keeping the dollars circulating. Lenders are for sure the beneficiaries here. Home Owners or Investors are a conduit, but lenders need the money to keep flowing. New loans need to be made and the old loans need to be serviced. It has to keep moving.
OK, I was going to leave it alone, but what do you mean Responsible Americans?
Japan is tricky to compare to because that country is so different from the US. Reasons they may have avoided a depression include:
- They started from a lower base relative to us.
- Their government was willing to overlook massive insolvency of their banks.
- They have a strong work ethic and low expectations of standard of living, and their resulting trade surplus provided cash to hide a lot of problems.
- They still provide lifetime employment, and so unemployment is not visible.
- Their strict immigration rules reduce the tendency to unemployment.
- Their culture presumably would lean more to just keep on paying rather than admit the shame of bankruptcy.
- The value of housing was going to head down anyway with their falling population, whereas the economic force required to drive down real estate in the US, which is growing, would have to be greater.
WHAT NO ONE MENTIONED
Its not just a fix Fannie/Freddie and give freddie the freeloader a handout, then we can go back to normal….its global kids….
This American subprime [and prime loans too] mess is in Great Britain, China, etc, etc….its hidden throughout the world’s banks in SUVs and a plethora of acronyms even the saviest of financial advisors don’t have a clue where the rotten paper is hiding. Its a witches brew stirred together and we the Americans owe them and with more $300B debt and lower dollar, guess what?
We in essence default on our world bank debt and give them dolalrs that don’t buy nothing.
What we they do?
Tank, they depend on us and we give them phony money back. China’s stock market has devalued 50% the last year….how long before they cash in their devalued American chips and then watch interest rates go through the roof.
This Bill makes it all far worse and Dr. Roubini predicts it too. If this keeps on, say hello to $150K average priced Seattle homes that need $150K incomes to qualify.
YOU BUBBLEHEADS WITH THE $150K CASH ARE RARE
So don’t expect all the rentors to rush out and buy homes with checkbook in hand, most have a modest 401K, if they’re lucky, and using that for a house is retirement stupid. Most will be loking at 80% loans, with 20% down; even $150K homes that need $150K incomes to qualify. Ohhhh….job layoffs, I hope you have seniority, those should be coming in groves to at a theater near you too at the same time interest rates peak….
Use your delicious home equity to snap up bargains? What equity?
Interesting opinion piece from the New York Times:
Too Big to Fail, or to Survive
.
CRITICS of the Congressional housing package complain that we are now committing taxpayers to huge new outlays to rescue Fannie Mae and Freddie Mac. That view is wrong: Congressional inaction over the past 15 years had already committed taxpayers to the bailout.
.
Congress could and should have required Fannie and Freddie — which enjoy a peculiar and highly advantageous status as quasi-public agencies and quasi-private companies — to maintain more capital, but didn’t. Now the costs from Congressional inaction are becoming painfully apparent, and they cannot be avoided. To permit the two mortgage giants to default would set off a worldwide crisis. But we can decide what should become of Freddie and Fannie after this crisis. The best option is one getting little mention in Washington: get rid of them……
.
“Wld nybdy cr t xpln t m why t’s bd thng whn smn wh shld hv nvr bght hm n th frst plc nds p n frclsr?”
Gd qstn, Tmstr. Wld y cr t xpln t m why y kp wbst p tht n n n prtclr thr thn bnch f whnrs wnt t rd?
“Why shld w b spndng r tx mny t hlp ppl kp smthng thy cn’t ffrd, r t cvr th lsss f lrg nstttns tht tk hg rsks?”
nthr gd qstn Tmstr. Why r y rsng mny fr yr wbst? Dd y nd t fr smthng tht y cn’t cvr yrslf?< hrf="#" clss="rplyt" nclck="rplyt('53102','∓#91;trll∓#93;','46'); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('53102','∓#91;trll∓#93;','\&qt;Wld nybdy cr t xpln t m why t&crc;€™s bd thng whn smn wh shld hv nvr bght hm n th frst plc nds p n frclsr?\&qt;\r\n\r\nGd qstn, Tmstr. Wld y cr t xpln t m why y kp wbst p tht n n n prtclr thr thn bnch f whnrs wnt t rd?\r\n\r\n\&qt;Why shld w b spndng r tx mny t hlp ppl kp smthng thy cn&crc;€™t ffrd, r t cvr th lsss f lrg nstttns tht tk hg rsks?\&qt;\r\n\r\nnthr gd qstn Tmstr. Why r y rsng mny fr yr wbst? Dd y nd t fr smthng tht y cn\'t cvr yrslf?','46'); rtrn fls;">Qt
Jon, while I have some issues with some of the assumptions your arguments are based on and disagree with some of your conclusions, I want to thank you for presenting your opinions in an articulate and thoughtful manner. It is quite a refreshing change from the tone of late. Reasonsed discussion is both welcome and appreciated.
As opposed to Nostra…
I expect we’ll be seeing a lot more anger between now and the end of the year. Once people figure out that home values are still falling while energy, food, and taxes continue to take an ever greater part of their income the frustration will increase.
I second LHR’s post #45. The truth is revealed thru informed discussion.
Until it is normal for an entire generation to fear banks so much that they bury and stuff cash in mattresses after living in hoovervilles this return to sensible historical financial discipline is a pipe dream.
The real question is what part of this bill is going to cause the next boom, as the creation of SIV’s and CDO’s by the government to solve the $160 billion S&L problem in 1991 caused the financial issues of today, so I imagine this $300 billion package has a loophole or clause or two that will cause the 650 billion dollar bailout in 2035. A 6 or 7 billion dollar green tech bubble will probably occur in between.
TRY SWFs AND FIRE SALE IN AMERICA
Dr Doom (Roubini) states in part:
“This will be the results of a eight years of the U.S. household sector spending more than its income and running negative savings, the U.S. spending more than its revenue and running large fiscal deficits and the country spending more than its income and running massive and unsustainable current account deficits. The ensuing fall of the U.S. will make this fire sale of the best U.S. private asset a true bargain basement deal: with the dollar price of these assets now imploding and with the U.S. dollar now in free fall non-residents will be able to buy most of U.S. Inc. for the cheapest bargain. This ideology of reckless free-market fundamentalist financial and public policies is what has led great empires in the past to become colonies of new emerging powers…”
The rest of the URL (you may not be able to read it if you don’t register, that’s why I gave the conclusion above):
http://www.rgemonitor.com/roubini-monitor/253111/who_is_going_to_rescue_the_hundreds_of_busted_us_banks_dont_count_on_suckering_again_the_foreign_governments_the_sovereign_wealth_funds_and_the_biggest_fire_sale_in_the_history_of_humanity
Thanks LHR.
From David Losh –I have a lot of questions right now about this little bitty bill that passed on a Saturday so that every one would notice. It’s 300 billion dollars or the price of about a week of the war in Iraq. It’s nothing, you’re right, a feel good measure.
————————
David Losh, I think you have your facts wrong. According to the Seattle times today the cost of the Iraq war is around $600 billion dollars. So this bill will could cost us half of the price of the Iraq war. If the housing market conitinues downward it could equal the price of the Iraq war. This is not a token measure, it is could be several thousand dollars for every man, woman and child in the U.S.
Happy Homeowner — explain to me how you win by footing the bill for someone else’s bad investments.
Hmm.. the title is a case of overgeneralization, isn’t it? I mean, supposedly, the “responsible Americans” must include the renters who didn’t buy a house that they can’t afford but instead saved their money, and now able to afford a house (because of their saved down payment or lower prices..). It looks like those people are getting up to $7500 check from the government in the form of tax credit. So, obviously they are not being screwed. The homeowners who are current on their mortgage and didn’t go ga-ga during the bubble times don’t get direct benefit but indirectly they probably will through stabilization of their home equity (well, if this bill works out..). So I’m not sure if they are particularly being screwed. The homeowners/investors/spectulators who made bad decisions deserve to pay for this, so that’s that. The tax payers that get zero benefit and are the renters who don’t want to or can’t buy a house (or not first-time buyers). A more fitting title could be “US Government to Responsible Renters Who Have No Plans to Buy A House: Screw You”
Anyhoo, I wonder if this bill is going to be enough to stop the bloodshed. If they allowed the tax credit to apply to more buyers, I think it might have been far more effective..
[...] it all about the bill the Senate passed today and which the president has said he will sign: “US Government to Responsible Americans: Screw You.” Why should we be spending our tax money to help people keep something they can’t afford, [...]
Jon,
How do you know that home prices are below where they should be? By what metric?
This law is going to make it more difficult for real estate to appreciate. In fact, the provisions are decidedly deflationary in terms of real estate.
It essentially kills the private securitization of mortgages, and diverts securitization to the .gov channels, which cannot originate enough to satisfy any meaningful demand. This will force prices down, which will only serve to increase the obligations of the .gov.
The main parts of this bill were to reliquefy the Federal Reserve in all the money it burned in the TAF/TSLF. That money was used to keep the banks from imploding over the past 8 months, and had it not been for this legeslation, the FED would have been BK by September. This gives the FED another 6 months to live.
This just bought the banks another 13 weeks. They needed to roll their CP from the BSC takeunder, and this gives their investors the confidence to extend the banks LOCs.
All the rest was eyewash to get the sheep/Congress on board for the real bailout. The workouts will drive down prices, and without the expectation of housing profits, the entire system is going to stall.
Enjoy.
l, yr cmmnt r vry nsghtfl. lmst tps Tm’s.< hrf="#" clss="rplyt" nclck="rplyt('53118','∓#91;trll∓#93;','59'); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('53118','∓#91;trll∓#93;','l, yr cmmnt r vry nsghtfl. lmst tps Tm\'s.','59'); rtrn fls;">Qt
56 comments and I don’t see one that really sees the nature of this action.
Simplify the situation to a single homeowner who is about to be foreclosed.
Without the bill the foreclosure happens and he has nothing. No equity. No payments…….and a bank is stuck with a house and is receiving no payments.
With the bill he avoids foreclosure and he has (probably) zero equity and is still making payments…..meanwhile business as usual for the bank as it receives his payment.
Either way the homeowner has zero equity. Why is he the focus of your ire? Do you not see the true beneficiary? Really now. Fifty six of you……oh and the original blogger too….57.
Never mind. Ya’ll were having fun. Carry on.
Some people like to attack us “bubbleheads” and think we here are the only ones who don’t want to see a bailout. Guess what? Look at that CNN front page poll. 66,000 people have now voted, 72% of them think this is a bailout for reckless homeowners rather than a needed boost to the economy. Don’t tell me only “bubbleheads” go to CNN.com.
hey, nostradumbass is back, oh how nice — once again we all have a chance to point out what a fing idiot nostradumbass is.
Wll th S Gvrnmnt. jst gv rntrs th FNGR wth ths hsng bll.
Thr s f crs NTHNG fr rntrs, ZLCH, ND!
s hsng stblzs nd prcs jmp p by tkng th frclsrs ff th mrkt, r whny Bbblhds wll b PRCD T gn.
Yr mnthly rnt wll ncrs s wll, dbl whmmy :-)< hrf="#" clss="rplyt" nclck="rplyt('53125','∓#91;trll∓#93;','63'); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('53125','∓#91;trll∓#93;','Wll th S Gvrnmnt. jst gv rntrs th FNGR wth ths hsng bll.\r\nThr s f crs NTHNG fr rntrs, ZLCH, ND!\r\n\r\ns hsng stblzs nd prcs jmp p by tkng th frclsrs ff th mrkt, r whny Bbblhds wll b PRCD T gn.\r\n\r\nYr mnthly rnt wll ncrs s wll, dbl whmmy :-)','63'); rtrn fls;">Qt
Break your Arm? Here is a bandaid. Don’t say we didn’t help!!
SIncerely,
Congress
This is all a bunch of politcal crap. Prices will still come down….significantly.
As a renter and an American, this is frustrating. Mostly because of the unnecessary burdens the govt is putting on itself. The dollar will probably fall hard on this news.
For all the show-boating home-owners: GET A CLUE!!….The Real Estate crisis and price drop is far from over!!! Do you honestly think Congress would pass an emegergency bill like this if they didn’t think our economic situation is in grave danger. In Seattle, Inventory continues to rise….tick, tick, tick….hear that….the depreciation bomb is every so close to exploding. I’m not looking forward to an economic downturn, but its going to be nice to hear you all moan over the next couple years. Unfortunately, you won’t be on the board bragging then. You’ll be at your Bankruptcy Attorney’s office deciding between Chapter 7 and Chapter 13.
We bought a new house in a new subdivision at pre-construction pricing 5 yrs ago. The property has depreciated to 15% less than our purchase price because of all the foreclosures nearby. We have already paid off our house. We found higher paying jobs and moved out of state. I hope this helps us sell.
Yes I thought about the cost of war after I hit the submit button.
My premise is still the same. This bill churns dollars back into the system. Housing prices have never had anything to do with the financial aspects of lending more money than a property is worth. If you chose to pay $500K for a house worth $350K that was a choice. The problem is the lender who lent $500K on a $350K asset.
Our government encouraged it as a way of churning more dollars into our economic system. Yes those dollars paid for plasma tvs, cars, boats, food, and clothing, all churning more dollars into our economic system.
We don’t save. If you want that responsible American crap go to Canada. People in Canada have a very well scrubbed practical approach to economic responsiblity, it’s called socialism. In Canada the government churns dollars into the economic system all day long. They collect taxes and spend those dollars on the social welfare of the people.
Here in the United States we have a corporate welfare system. Corporations provide basic services to our working welfare system. Workers, if they are good, get health care, 401Ks, pensions, and a promise of Social Security. They get just enough so that if they are very responsible they can save a down payment, go to a lender, and get a mortgage for a house.
Are those the responsible Americans we are talking about here? The working welfare recipients? Because if that’s the case our government has no choice but to bail out our corporate welfare system. Who’s going to pay for health care if they don’t?
“Helps responsible homeowners too! ” @ comment #62, said:
[we bought at] “pre-construction pricing 5 yrs ago. The property has depreciated to 15% less than our purchase price”
————–
Something doesn’t add up here. I haven’t yet seen a neighborhood in King County or surrounding areas where prices rewound all the way back to 2003, like what you’re describing above. Do you want to disclose more specifics (perhaps just to me in e-mail?). Maybe you’ll even find a buyer in this forum.
Ths Thrd hs bn rnmd:
S Gvrnmnt t Rntrs hpng fr frthr hm prc dwnsd: Scrw Y< hrf="#" clss="rplyt" nclck="rplyt('53135','∓#91;trll∓#93;','68'); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('53135','∓#91;trll∓#93;','Ths Thrd hs bn rnmd:\r\n\r\nS Gvrnmnt t Rntrs hpng fr frthr hm prc dwnsd: Scrw Y','68'); rtrn fls;">Qt
That area South of Everette called North Lynnwood is the perfect place where housing units aren’t selling for 2003 prices. Larger new units with upgrades aren’t selling for about $70K more.
Sorry Alex, I just clicked your name and another area of rapidly depreciating value came up.
The problem with new construction is that it requires immediate attention to remain viable. New construction needs to be painted inside and out within five years.
There are a lot of things that need to be addressed for newer construction housing units, depending on the builder, from wall board that is impoperly attached, cheap carpet, lower end cabinets, it’s a long list.
Many of the outlying areas had unsupervised labor trying to keep up with demand.
RAL,
Have you ever heard of Peter Schiff? He’s the President of Euro Pacific Capital. He’s also renter. Care to call him a loser? I’m sure he could afford to buy 100 of your homes, but just won’t because it does’t make financial sense at this time.
He is a frequent guest on CNN and Fox (Faux) New.
http://www.europac.net
You, on the other hard are just a dick.
“It seems like we are now in an era when the government wants to get rid of recessions from the business cycle entirely.”
That’s the windmill they’ve supposedly been tilting at for a hundred years. If that were all, they’d save themselves some time by just reading their von Mises:
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
Of course, bubbles just happen to be terrific vehicles for stealing from honest people and conferring the loot on the politically favored, without having to stoop to anything so obvious as taxation. I’m sure that has nothing to do with why we keep having them, though.
I doesn’t really matter what level is housing is best for the productivity of the economy, because in this country such decision are made by individuals, whose preference is for much more than the bare minimum of housing.
Well then I guess you think the government should just get out of the way and let this whole house of cards come down, right?
It seems like we are now in an era when the government wants to get rid of recessions from the business cycle entirely.
That’s what Joseph Stalin did. How did that turn out?
That’s what Joseph Stalin did. How did that turn out?
Economist – Unlike American politicians; I don’t think Joe was thinking about reelection.
economist,
don’t bring Joe into this discussion as you do not have the facts in front of you.
http://finance.yahoo.com/q?s=^DJI
I thought everything was ok!
The housing bill and the timing of the new bond rlease smells fear and deperation. Wall Street not likey.