In case there is any doubt about whether NAR chief “economist” Lawrence Yun is just as much of a shameless price-boosting shill as his predecessor David Lereah, I present some excerpts from a post he made on Friday regarding the inefficient, expensive, and economically stupid homebuyer tax credit: Unleashing Pent-Up Housing Demand and Sustainable Economic Recovery
There is no delight in watching the budget deficit soar. The $1.4 trillion deficit in the completed 2009 fiscal year to September is the highest ever in the U.S. in sheer dollar figures, and the highest since the Second World War if measured in relation to the overall economic pie. It’s a huge burden to the future generation and could easily cause interest rates to rise much sooner and quite sharply. Washington needs to come out with a credible plan to reduce the deficit over time.
However, one area where federal taxpayer dollars have effectively been utilized is in providing a homebuyer tax credit. The key to any future sustainable economic recovery lies in home values stabilizing or, better yet, a return to a historical appreciation rate of 3 to 5 percent each year. The bubble prices crash landed. All the excesses have already been removed. In fact, one could legitimately argue that home values have overshot downward.
…
It would be an utter pity if the housing market, just at the cusp of self-sustaining recovery, rolls downhill again. That could indeed happen if potential buyers step back and inventory again climbs. Falling home values – independent of whether overcorrecting is happening or not – will bring back all the associated collateral damage.A much happier scenario would be that the buying momentum continues for few additional quarters such that inventory falls back down to the normal 5 to 7 months, a level consistent with home value stabilization. Once that is accomplished, the consumer “fear factor” of waiting and waiting for a lower price later down the road will no longer be part of home buying decision.
…
For that happy scenario to play out, a time extension on the home buyer tax credit is critically needed.
Unfortunately the full post is available only to registered members of the real estate professional’s social network ActiveRain. If you for some reason have a desire to read the whole thing, drop me an email and I can email it to you.
Lake Hills Renter » Oct 11, 2009 at 4:52 pm
So, the deficit is bad except when the money goes to help his industry, then it’s critical.
S-Crow » Oct 11, 2009 at 5:34 pm
The responses from within the Active Rain network appear to have a good discussion going. There are some agents who disagree with Dr. Yun’s post.
AMS » Oct 11, 2009 at 5:46 pm
RE: Lake Hills Renter @ 1 – Yes, just like the old saying, “A recession is when your neighbor loses his job; a depression is when you lose your job.”
Scotsman » Oct 11, 2009 at 7:06 pm
Glad to see NAR is working hard to restore their credibility after a series disastrous calls during the initial bubble burst. /sarc
JohnnyBigSpenda » Oct 11, 2009 at 7:26 pm
Here’s a fun game…. complete this sentence: “Calling Yun an ‘economist’ is like calling ________________”
BillE » Oct 11, 2009 at 10:58 pm
Yeah, houses are too cheap now, so the guberment should pay people to buy them. Makes perfect sense.
patient » Oct 11, 2009 at 11:50 pm
I’m starting to think that it would be good if the credit is extended just so that the utter uselessness and waste of it all is exposed when prices contiue to fall due to the relentless forcelosures and unemployment that will continue, tax credit or not. Sometimes it’s worth a loss to expose corrupt, incompetent thieves.
Ray Pepper » Oct 12, 2009 at 7:51 am
Extend it only? I say double it!
Lets get some fuel on this fire!
Kary L. Krismer » Oct 12, 2009 at 8:19 am
Usually I don’t like what he says, but this time I’m not so sure I see a lot to agree or disagree with in the excerpted portion. Yes deficits are generally bad, but there are exceptions (which are much rarer than the actual incidents of deficits). And due to the collateral effects he mentions in the second paragraph, stabilization of the housing market would be a good thing (I wouldn’t necessarily agree with the comments about appreciation). And even the third paragraph I could agree with, but only if you’re just focusing on the collateral damage.
I know potential buyers would like lower prices (just as potential sellers would like higher prices), but at some point you need to factor in the effect on various entities like F&F, the FHA, the PMI entities and the banks, etc. So stabilization would be good in that regard.
That said, I still don’t like the idea of an extension of the credit longer than 3-4 months tops, and that’s only due to seasonal factors, but it does somewhat relate to his “over-correction” comment. I won’t say the market has over-corrected, but over-correction of any market is possible, and having the tax credit expire in November could lead to an over-correction. Basically my herding theory.
Overall though, I can’t really say that the excerpt says that much. And I don’t care enough about what he says to look up the rest.
b » Oct 12, 2009 at 9:07 am
The government needs to step in and stop “overcorrection” from occurring in any asset class, as it is very bad and destabilizing to current owners of those assets. I expect my check soon.
Lake Hills Renter » Oct 12, 2009 at 9:34 am
I’m still waiting for my Beanie Babies check.
per_se » Oct 12, 2009 at 9:56 am
By Kary L. Krismer @ 9:
Kary,
I have to disagree with your assessment that it would be an “over-correction”. If the tax credit is increasing demand for housing and in effect propping up home prices then the removal of that demand would bring the market to it’s actual equilibrium. the word you are looking for is home prices would return to their non-subsidized prices not over-corrected. I think that’s what we are talking about here.
When prices were increasing heavily the attitude of the industry was laissez-faire, the market rules. Now when the market is in a downturn we need intervention. I don’t agree with letting markets run free with not controls but the real estate market get an extraordinary amount of subsidy by tax payers, tax credit for mortgages, capital gains subsidy when you sell your home, artificially lowered interest rates, government intervention with freddie and fannie, and the multitude of government programs and laws that favor home ownership. The industry is far from not getting its fair share of help. Granted we value home ownership but there has to be some limit to how far you go to subsidize it, and not in the least because doing more may actually end up having the opposite effect.
Indy » Oct 12, 2009 at 10:08 am
I can’t imagine that anyone actually finds it surprising that Dr. Yun would make such ridiculous claims. The best argument to use against someone who has any interest whatsoever in preserving a reputation as a credible Economist would be merely to politely ask what dollar-amount of the credit is “too much”.
From 0 to $10K, the question may seem more debatable, but when you start raising the number to $50K, or $100K, or $500K, clearly, at some point, everyone will get pulled into concluding that “no, wait, something seems absurdly wrong with that – this can’t make sense.”
And indeed it doesn’t. For an Economist to make solid claims about the social costs and benefits of credits – he should be able to defend a particular number (or narrow range) and explain his method of reasoning as to why more would be counterproductive.
But we have not been presented with any empirical evidence that the cost of these credits has done nearly as much social good as they cost us (actually, our descendants). All the evidence I’ve seen is that this program has such a small multiplier that it is hardly distinguishable from a straight government transfer payment to sellers with some spillover commission profits for Realtors.
Desperate politicians rely on disastrous giveaways. Bread and circuses for everyone. There is nothing new under the sun.
anony » Oct 12, 2009 at 10:17 am
Did Lawrence Yun just say that house prices are falling and are likely to continue to fall without government intervention in the form of an extended homebuyer credit?
Kary L. Krismer » Oct 12, 2009 at 10:40 am
RE: per_se @ 12 – I’m not sure how you can disagree with that since no one knows that the effect will be of the credit expiring. In only said it could result in an over correction.
If the credit expires in November and the market has dropped 5% YOY next July, I don’t think anyone would call that an over correction. More (but not all) people would if it dropped 40%. Presumably there is some number you believe would be an over correction.
I’m just saying that if you believe markets move too far down before moving up, and too far up before moving down (something I believe), that the expiration of the credit at the wrong time of year could (emphasis could) lead to an over correction.
For those that don’t like the credit, that ship has sailed. The question is how to get rid of it. I don’t like November for seasonal and news release reasons. Maybe a better way to wind it down would be to have it reduced by $2,000 each month for four months?
Hector » Oct 12, 2009 at 10:49 am
Are houses the new corn?
per_se » Oct 12, 2009 at 11:14 am
RE: Kary L. Krismer @ 15 – If you feel that it’s a matter of group mentality or news cycles that will drive it I could make the exact opposite case for ending it in the spring. If you end it in the winter when prices typically go down then real estate brokers can blame any downward movement in prices on the season or as typically done, the weather. Now potential buyers have all winter to think about what a great bargain houses are and be ready to buy come spring and real estate agents can sing from the roof tops that people are buying again. If you let the credit expire in the spring vs the winter then beyond the added cost of dealing with the credit for another tax year you now lower demand at a time you would expect demand to be growing. So now you are defying expectations instead of in the former reinforcing expectations.
You can try and spin anytime of the year as being better but at the end of the day if you think that prices will over-correct downwards is it better to get that over with sooner and let buyers and sellers deal with the reality of the market. The sooner we get through the pain the sooner the market will recover. Additionally, I’d add that there are probably buyers, not eligible for the credit, waiting on the sidelines until it is over and we get to a more normalized market. I happen to be one of them. I won’t be buying a home right now because I’m not about to pay some Home Credit premium for a house when I know that it will evaporate as soon as the credit is over.
per_se » Oct 12, 2009 at 11:21 am
Here is a good article on huff post that talks about the delusion many buyers/sellers are in over home prices:
http://www.huffingtonpost.com/henry-blodget/americans-are-still-delus_b_317251.html
From a study by case-schiller, long term expectations for home appreciation are 11% a year. In the short term people are only hoping for a 2% increase.
11% a year!!! This is the delusion in the market and it needs to be snapped or it will be a long slow death.
Tim » Oct 12, 2009 at 11:42 am
Leverage Ratios for FHA (Sources, Bloomberg and HUD)-
2006 14:1
2009 50:1
when Bear Stearns went under it’s ratio was 33:1.
FHA commisioner David Stevens: “There will be no taxpayer bailout.” Barney Frank said that too about Fannie and Freddie.
Ira Sacharoff » Oct 12, 2009 at 11:46 am
By Hector @ 16:
No. It’s really difficult to turn a house into a tortilla.
AMS » Oct 12, 2009 at 12:08 pm
RE: Lake Hills Renter @ 11 – I know someone who’s waiting for his GM stock payout…
AMS » Oct 12, 2009 at 12:11 pm
RE: Ira Sacharoff @ 20 – However, given enough corn, you might be able to build a house. It’s all about building with alternative materials!
bubblebuyer » Oct 12, 2009 at 12:27 pm
The problem with America is that the $ amounts bandied about Washington these days are so huge, average Americans have no way to visualize the staggering debt they are forcing on their children and grand children. The $8k home buyer credit is actually one of the lowest cost handouts and arguably one of the more effective “stimulus” efforts.
The problem is that this and all the other bailouts, are programs paid for with money we don’t have. America is in a death spiral. We don’t contribute much to the world other than having a huge appetite for low quality cheap garbage we buy from China and finance with them buying our debt. The Wall Street Journal had an excellent opinion piece today: 40% of all individual income tax payments go towards paying interest on our national debt. 40%!!!! This interest is about $383 billion annually – enough to fund Obamacare two times over and then some. This is based on today’s debt. Obama plans to double the deficit over the next 10 years. You would think most Americans would be outraged. You’d be wrong, possibly because 47% of Americans do not pay income taxes.
The story is not about the NAR, it is about politicians and presidents – republican or democrat, it makes no difference – destroying the economic viability of our country over the past 20 years. The irony is most Americans don’t give a "golly". At least until they lose their jobs and realize a consumer based economy does not produce jobs that pay living wages. Then they want their handouts.
Scotsman » Oct 12, 2009 at 12:38 pm
As an aside, it’s good to see the tone has turned here on Seattle Bubble, and is so different from even a year ago. People get it, they understand the past wasn’t sustainable and that the correction might be painful. There also seems to be some awareness that maybe D.C. doesn’t offer the correct solutions. Heartening!
AMS » Oct 12, 2009 at 1:00 pm
RE: Scotsman @ 24 – “it’s good to see the tone has turned here on Seattle Bubble, and is so different from even a year ago. People get it, they understand the past wasn’t sustainable and that the correction might be painful.”
Contrarian theory suggests that the opportunity is against the general sentiment, and as such, maybe now really is a good time to buy? Isn’t this exactly what Yun is suggesting? It seems he is suggesting that the general market sentiment has driven prices too low, and thus now is the time to buy. Of course when the market was high, he had the idea to buy because everyone else is doing it. I have never heard Yun say anything other than buy, buy, buy.
All that said, I think the general sentiment will continue to erode, so a contrarian would suggest that the buying opportunity is even better tomorrow.
cc12 » Oct 12, 2009 at 1:08 pm
RE: bubblebuyer @ 23 – well said. In fact, it could get a lot worse, not just from the projected additional deficits, but and if and when the cost of the debt service (i.e. treasury rates) increases.
Silver9 » Oct 12, 2009 at 1:09 pm
RE: per_se @ 12 – well said.
While I only read this excerpt, it troubles me that there is no mention of incomes. It is like home prices exist in a vacuum with only home prices to refer to. Yes it would be nice for home prices to return to 5% annual increase but the same can be said for incomes. The problem with home prices, even at these levels, is their relationship to the incomes required to pay those prices.
The fact that very few people actually pay their mortgages off (unlike a generation ago) is a sign that we have spending problems and it encourages a mismatch between house prices and the ability to pay those prices.
mukoh » Oct 12, 2009 at 1:25 pm
Anybody see Jim the Real Estate agent videos recently on Youtube? Its nuts $1m+ homes in california selling quick. Either stupidity or a lot of money out there that sat idle for a while.
Hector » Oct 12, 2009 at 1:43 pm
By Silver9 @ 27:
That’s the way of the new economy though, even today. Max out debt and pay the bare minimum. Why pay-off your home early when instead of investing in it, you plan on upgrading in 5 years? Why not get the new car every 2 to 5 years, and all the toys instead? I agree though, home prices are now baed on 2 income households. We’ve unfortunately, with the aid of our experts at the NAR, done it to ourselves.
Going back to Yun’s statement. The fundamental problem with his argument is that homes are an asset that MUST appreciate. It’s like the bursting of the bubble had no impact on him at all, but that could be because he’s more cheerleader than economist.
wreckingbull » Oct 12, 2009 at 2:44 pm
1. The Dairy Farmers of Washington just told me I need to drink more milk.
2. GM tells me I need to trade in my old car.
3. T-mobile tells me I need to talk more on my cellular phone.
When I hear this from Larry Yun, I just file it with #1,#2, and #3. It is worth a few chuckles though.
softwarengineer » Oct 12, 2009 at 2:49 pm
Maybe We Can Get Mr. Yun to Share Some of It With Us
It must be darn strong….LOL
Kary L. Krismer » Oct 12, 2009 at 2:55 pm
By Silver9 @ 27:
I wouldn’t necessarily attribute that to prices, as much as just to people not controlling their spending in other areas. You could, of course, overspend on a house and start a death spiral down. But I’ve seen a lot of instances where people bought in 2000 (or so) and have no equity because of repeated refinances over the years. Assuming they bought too much house in 2000 they would have tanked long before now.
Kary L. Krismer » Oct 12, 2009 at 2:57 pm
By mukoh @ 28:
Well two things. Those might have been 3 million dollar houses a few years ago, so they’re perceived as a bargain. Also, don’t underestimate the amount of wealth some people hold in this country. Those might be minor transactions for a lot of them.
Kary L. Krismer » Oct 12, 2009 at 3:00 pm
By wreckingbull @ 30:
Maybe NAR should dump Yun and hire hire Catherine Zeta-Jones? It would be like Billy Christal’s (sp?) joke that as a result of her commercials he owns 4 cell phones.
mukoh » Oct 12, 2009 at 3:07 pm
RE: Kary L. Krismer @ 33 – Kary, Watch the video, those homes were $1.7m a year ago. http://www.youtube.com/watch?v=p5BX1hEUVrg&feature=player_embedded
AMS » Oct 12, 2009 at 3:26 pm
RE: mukoh @ 35 – I am happy to report that I am not aboard the “Euphoria Express!” What happens when the “Euphoria Express” halts?
This should be called the “Foreclosure Express,” as that is probably what the buyers are really riding!
mukoh » Oct 12, 2009 at 3:27 pm
RE: AMS @ 36 – I am not either.
AMS » Oct 12, 2009 at 3:31 pm
RE: mukoh @ 37 – Let’s play the game, “Guess the fool.”
Maybe we are fools for not hopping aboard?
Where does all the money come from to ride this “Euphoria Express?”
In helping determine who’s the fool, let’s remember the old saying, “A fool and his money are soon parted.”
Kary L. Krismer » Oct 12, 2009 at 3:32 pm
By mukoh @ 35:
But how much were they three years ago? Their market has been heading down a lot longer than ours.
AMS » Oct 12, 2009 at 3:42 pm
RE: Kary L. Krismer @ 39 – Take a look at this:
http://www.housingtracker.net/asking-prices/san-diego-california
75th Percentile for San Diego:
2009-10-05 $849,000
Feb 2009 $663,000
CRAZY! (Yes, these are asking prices, and no, we don’t know changes in mix, and yes, there are other potential problems, but $663k to $849k?)
VermillionSky » Oct 12, 2009 at 5:39 pm
RE: AMS @ 22 –
forget a corn house. I want a corn palace!
http://en.wikipedia.org/wiki/Corn_Palace
David Losh » Oct 12, 2009 at 6:33 pm
I’ve made a couple of comments on the Active Rain site under the Lawrence Yun post. It is amazing how many agents are cheer leading.
One part of his post claims: Price-to-income ratio is now below the historical average. The monthly mortgage payment for a middle income person buying a middle priced home is well below its historical norm.
My thinking is that this has to do with the low interest rates. Another thing about those rates is that as rates go up prices will decline to keep the ratios in balance. If the pent up demand turns towards the lower prices that may mean those that bought today will be losing equity.
It sounds like we are in for more loan defaults.
shawn » Oct 13, 2009 at 12:16 am
RE: Scotsman @ 24 – the problem is that we are a tiny voice. I am guessing that maybe 2% of the population understands what bloggers here do. Maybe I am cynical? I remember after living in SF for a while I started thinking the world had become enlightened, then I traveled outside the city and realized I was living on an island, as we are here. I do hope this site does enlighten the masses, we know they need it.
economist » Oct 13, 2009 at 4:31 am
Well not too surprising, given…
24% of Americans are under 18
13% of Americans are over 65
1% of the rest are in prison
10% of the rest are unemployed
There are still quite a few stay at home moms
You get the idea
obelus » Oct 13, 2009 at 5:56 am
That stat about 47% not paying taxes was not individuals. It was Households not paying Federal taxes. 47% of households not contributing is huge.
Kary L. Krismer » Oct 13, 2009 at 8:26 am
People over 65 pay taxes.
wreckingbull » Oct 13, 2009 at 8:32 am
RE: Kary L. Krismer @ 46 -As do people under 18, although it seems I see fewer and fewer kids working summer/after school jobs. This is due to many reasons, one of which is that entry-level jobs are being snapped up by older workers.
Rent vs. Buy Comparisons: Have the excesses been removed? | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area. » Oct 14, 2009 at 6:01 am
[...] another rent vs. buy exercise to see if “all the excesses have already been removed” as some have claimed. Rather than delve into depth on a specific randomly-selected Seattle-area neighborhood, [...]