Federal Government Shifting Focus to Rentals

Sorry, this isn’t a Seattle-specific story, but it caught my attention this weekend as it seems like a major policy shift on the national level: President shifts focus to renting, not owning

The Obama administration, in a major shift on housing policy, is abandoning George W. Bush’s vision of creating an “ownership society” and instead plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units in American cities.

The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates.

Analysts say the approach takes a wrecking ball to Bush’s heavy emphasis on encouraging homeownership as a way to create national wealth and provide upward mobility for low- and working-class families, especially minorities. Housing and Urban Development Secretary Shaun Donovan’s recalibration of federal housing policy, they said, shows that the Obama White House has acknowledged that not everyone can or should own a home.

So far, so good. I’m not personally a big fan of most of Obama’s policies to date, but this is a concept I can get behind (in principle, at least). The federal government played no small part in the inflation of the bubble with policies that encouraged home ownership above all else, even well before the Bush administration.

One quote in the article really grated on me, however:

“I’ve always said the American dream should be a home – not homeownership,” said Representative Barney Frank, chairman of the House Financial Services Committee and one of the earliest critics of the Bush administration’s push to put mortgages in the hands of low- and moderate-income people.

Pardon me? I don’t think so.

Barney Frank in 2003:

So let me make it clear, I am a strong supporter of the role that Fannie Mae and Freddie Mac play in housing… I believe that we, as the Federal Government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals.

Barney Frank in 2005:

You’re not going to see the collapse that you see when people talk about a bubble and so those of us on our committee in particular will continue to push for home ownership.

So please, spare us the “I’ve always said” BS, Barney.

Hat tip: Market Ticker


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

63 comments:

  1. 1
    98115_Renter says:

    Your stats posts are always more useful than your opinion pieces, Tim.

  2. 2
    Kary L. Krismer says:

    1. I don’t think it was Bush that started the push to home ownership, unless maybe it was Bush 1.

    2. The federal government as been subsidizing low income apartments for years! This might be increasing that, but it’s not anything new.

  3. 3
    Slumlord says:

    I like Tim’s opinion pieces because he is upfront about them being opinion. To me, this is refreshing from most media. I don’t always agree with Tim, but he seems open to changing his mind and that makes me more willing to listen to what he says and change my own.

    Right now, the banks are in trouble. They have assets in the form of foreclosed properties that are worth less than they are reporting on their books. If they sell some foreclosures at a true market value, then they would need to mark down the book value of the rest. This would compel the banks to raise additional capital, and it is currently very difficult for banks to raise capital.

    The policy shift is a back door subsidy to banks. On the upside, this approach also happens to provide an asset to the community in the form of affordable housing. Banks are unwilling to sell at market rates and subsidized sales to affordable housing groups are the means to funnel federal dollars to them.

    I am not a fan of this new policy, but it is better than the outright giving away of tax dollars that was happening last fall and earlier this year. At least this form of subsidy gives something back to the public for our tax dollars.

  4. 4
    Joel says:

    I like this post just fine.

  5. 5
    Kary L. Krismer says:

    RE: Slumlord @ 3 – How does building new housing help banks? Seemingly that would make the housing situation worse for them since it would increase supply, reducing the value of their collateral.

  6. 6
    Kary L. Krismer says:

    There’s an explanation for this. Barney Frank is bi-polar. Sometimes he’s an idiot and sometimes he’s a genius.

  7. 7
    truthtold says:

    98115 – only dang limited (novice) view does not afford opinion when basting in data.

  8. 8
    Indy says:

    The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates.

    Well, who would normally do this? Isn’t this what banks do for builders, and what investors do for renters? Here is the federal government acting as lender, developer, owner, landlord, neighborhood and city planner, and price-controller. Private entities simply cannot compete with these government efforts, and, in my judgment, we have enough artificial distortion of the housing market as it is.

  9. 9
    Slumlord says:

    RE: Kary L. Krismer @ 5
    That is a good point. I think the intent is to provide immediate relief to banks by create a market for foreclosures at an inflated price. Your point about adding to the oversupply of housing is a longer-term issue (one that is, in my opinion, a very valid concern). So far, most of the federal bailouts and stimulus spending has gone to politically connected companies and industry sectors in crisis. This crisis-response approach is merely delaying, and probably magnifying, the longer-term challenges facing our society. Contributing to an existing oversupply of housing is merely a symptom.

  10. 10
    Lake Hills Renter says:

    I don’t see any reason the government needs to meddle in rentals any more than it should have meddled in ownership (which is none IMO). Just because government was part of the problem doesn’t mean they will be the solution. Looking at the track record, they will screw this up just as badly.

  11. 11
    Slumlord says:

    RE: Indy @ 8
    I agree that the private sector cannot compete, nor should they. Overpaying for land to build subsidized housing is a terrible investment and a waste of tax dollars. As Kary points out, it only makes the oversupply issue worse and I have been saying that the whole point is to help banks in crisis, not to help people find a decent place to live.

    Many banks, builders, and individuals have made terrible choices regarding real estate. Government delays only make the inevitable correction worse and create new problems. Currently, the U.S. runs a massive trade deficit and that is possible only because other countries buy our treasury certificates. These certificates are what the federal government is using pay too much to buy foreclosed properties. Meanwhile, China is trading those treasuries for coalmines in Australia and oil fields in Africa. Which country will get a better return for their investment in the end?

    Our national distraction with granite countertops and band-aid politics is hollowing out the very things that allowed us to achieve the level of luxury to which we became addicted. The process of withdrawal will be excruciating, and problems in housing are just the start.

  12. 12
    The Tim says:

    By Lake Hills Renter @ 10:

    I don’t see any reason the government needs to meddle in rentals any more than it should have meddled in ownership (which is none IMO). Just because government was part of the problem doesn’t mean they will be the solution. Looking at the track record, they will screw this up just as badly.

    I generally agree. The reason I added the qualifier “in principle” to my general agreement with the shift is that I am assuming that the federal government will meddle no matter what. Given that assumption, I’d rather they focus on rentals than mess with the ownership side of things.

    Personally I think the federal government should be restricted in exactly the way the 10th Amendment states:

    The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

    And as far as the argument that the “general welfare clause” essentially gives Congress carte blanche to do whatever they want, I tend to agree with James Madison:

    With respect to the words “general welfare,” I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators.

    Sadly, there is basically zero chance that the federal government will ever scale back to where Madison and other founders envisioned it to be. We’re stuck with the giant, meddling beast, for better or worse at this point.

  13. 13
    Anon. says:

    I’ve agreed with pretty much everything Tim has posted except this. Obama’s strategy is just plain wrong. We SHOULD be trying to push home ownership on everyone, especially underrepresented groups. The only stipulation is that we need to be pushing affordable home ownership, not ownership that enslaves you, but rather commits you. When people own a home, it feels like they own a small part of the county. They are invested in it. They want our country to succeed. I’d also be willing to bet that owners of homes are orders of magnitudes less likely to commit a crime than if they never invested in a home. Home ownership is American.

    This is what the country always had up until recently, and it’s what we need. People may not like Bush, but he was right about this.

  14. 14
    Slumlord says:

    RE: Anon. @ 13
    There was a time when the majority thought that owning slaves was American too. Home ownership works for some, but not for others, and depends greatly on what stage an individual is at in their life.

    I agree that Obama’s approach is wrong, and I cannot bring myself to dignify it with the word strategy. However, we disagree on the reasons for why Obama’s approach is wrong, and I have to say that a big part of the problem that Obama is trying, albeit ineffectively, to fix was created by the very Bush policies that you support.

  15. 15
    Justin Louie says:

    @Kary Krismer – I’m not too familiar with the implications of affordable renting vs. affordable owning. Somewhere IMHO, I feel creating renting would create worse slums and neighborhoods than those who own their property. Merely based in the idea of ownership has a stronger sense of justice and care towards the land than renting. Am I too far off in my thoughts?

    For this article, the shift is centered in the idea that we can’t keep lending money at the same flow (i wanted to use the word rate, but a different meaning than %) that we used to. Every time someone defaults on their loan now, the implications are heavier. And it happens a lot. Hence the words

    “shows that the Obama White House has acknowledged that not everyone can or should own a home.”

    I agree with the reasoning behind the shift. This opinion piece is great. Don’t let others get you down on letting your thoughts be known.

  16. 16
    Slumlord says:

    RE: The Tim @ 12
    A big part of why the federal government has grown has been the increase in trade. Article I, Section 8 gives Congress the power “To regulate Commerce with foreign Nations, and among the several States”. Commerce (Trade) between nations and among the states has grown enormously since Madison’s time; hence, there is a need to establish laws and bureaucracies to regulate it. There is certainly room for government to be more efficient and less intrusive, but saying that you want it to shrink to the level it was in the late 1700’s is to wish for the entire economy to collapse. Not even I am that pessimistic.

  17. 17
    Kary L. Krismer says:

    By Justin Louie @ 15:

    @Kary Krismer – I’m not too familiar with the implications of affordable renting vs. affordable owning. Somewhere IMHO, I feel creating renting would create worse slums and neighborhoods than those who own their property. Merely based in the idea of ownership has a stronger sense of justice and care towards the land than renting. Am I too far off in my thoughts?

    A lot of low income housing is actually mixed use, such that some of the units are not low income.

    As to your other point, I would disagree. A lot of the people that were pushed towards ownership simply didn’t know how to maintain property. There’s a possibility they couldn’t afford to maintain it, but some simple cleanliness issues I frequently see indicate to me that’s not the whole story. This is counter to what I used to think. I used to think that landlords were bad for neighborhoods, but I now think that in general landlords have more of an interest in maintaining their property than a lot of owners.

  18. 18
    The Tim says:

    By Slumlord @ 16:

    There is certainly room for government to be more efficient and less intrusive, but saying that you want it to shrink to the level it was in the late 1700’s is to wish for the entire economy to collapse. Not even I am that pessimistic.

    Not at all. I don’t begrudge the government the right to legitimately regulate international and interstate trade. I just don’t see how the Constitution allows for the federal government to meddle in things like housing. What does affordable housing (rented or owned) have to do with trade? Nothing.

    But again, I recognize that there is absolutely no way we are going to go back to the days when the federal government was actually limited by the the letter of the Constitution. I just like to vent once in a while.

  19. 19
    pegasus says:

    Just Uncle Sam taking the crooks out of harms way and placing the burden on the tax payers. The banks are hiding about 600,000 homes in their shadow banking system to avoid taking loses on homes that should be foreclosed and the losses written off. If they did that they would all be bankrupt as they should be. Bet Uncle Sammy pays more than fair value when he sops up the overhanging liquidations with our money. This will take awhile:

    http://www.economicpopulist.org/content/coming-foreclosure-wave

  20. 20
    Lake Hills Renter says:

    How cool is it that we can have Constitution, Founding Father and original intent discussions amid our housing and economics discussions here without people throwing chairs at each other. Awesome.

  21. 21
    deejayoh says:

    By Anon. @ 13:

    I’ve agreed with pretty much everything Tim has posted except this. Obama’s strategy is just plain wrong. We SHOULD be trying to push home ownership on everyone, especially underrepresented groups. The only stipulation is that we need to be pushing affordable home ownership, not ownership that enslaves you, but rather commits you. When people own a home, it feels like they own a small part of the county. They are invested in it. They want our country to succeed. I’d also be willing to bet that owners of homes are orders of magnitudes less likely to commit a crime than if they never invested in a home. Home ownership is American.

    This is what the country always had up until recently, and it’s what we need. People may not like Bush, but he was right about this.

    I don’t think we can have both broader home ownership and affordability. There is a simple issue of supply and demand. One of the biggest drivers of price increases was the growth of % of people who owned homes. We went from ~60% to ~65% home ownership. Thats 9% increase, plus a few more points for organic population growth. That shift in demand from rental–>owned housing means shortages, means increased prices.

  22. 22
    Slumlord says:

    RE: The Tim @ 18
    The housing market and health of the banking industry have close ties. Many banks operate across state lines and the bigger ones internationally. This means that, housing is tied to trade, although indirectly. The common name for the part of the Constitution that I cited is the “Interstate Commerce Clause” (ICC), and the ICC is the justification for all sorts of expansion of federal activity. (Note that I am reporting that this is the justification used; I do not necessarily agree with the principle of this approach, but several Supreme Court decisions have found it legally valid.)

    Vent away. I agree with most of your view and generally find Seattle Bubble refreshing. I too use it as a place to vent. (I wish I could do so under my own name, but my employer would likely have severe objections to me doing so.)

  23. 23
    Kary L. Krismer says:

    RE: The Tim @ 18 – I wouldn’t go as far as you, but going more local, when King County is looking at cutting costs, I wouldn’t look at eliminating things that existed 50 years ago, like parks. I’d look at things that were added in the last 20 years that were on some politician’s wish list.

  24. 24
    Markor says:

    RE: 98115_Renter @ 1

    I like hearing well-thought-out opinions, even when I disagree with them.

  25. 25
    The Tim says:

    By Slumlord @ 22:

    The common name for the part of the Constitution that I cited is the “Interstate Commerce Clause” (ICC), and the ICC is the justification for all sorts of expansion of federal activity. (Note that I am reporting that this is the justification used; I do not necessarily agree with the principle of this approach, but several Supreme Court decisions have found it legally valid.)

    It’s a tough call between the “interstate commerce clause” and the “general welfare clause” as to which portion of our Constitution has been the most abused through history to facilitate unnecessary and overreaching expansions of the federal government.

  26. 26
    Slumlord says:

    RE: The Tim @ 25
    They are only unnecessary and overreaching if you are ‘just’ an ordinary citizen. If you happen to be an ambitious politician who wants funding for a reelection bid or a lucrative position after you leave your post, such activities are perfectly necessary and completely normal.

  27. 27

    RE: 98115_Renter @ 1

    I beg to differ

    I think Tim’s opinions are spelled out in clarity and detail, whether I agree with him or not [I generally agree with him…LOL], he provides more than a “I just don’t like your politics comment” with no backup as to why.

    I would add to Tim’s wonderful opinion stated that when/if the government [or banks for that matter] get in the landlord business, who’s going to pay for tennant damages? Low incomes are allowed in rentals managed by the government and “We the People” end up remodeling the notorious trashed houses they leave behind, so a private landowner benefits [in that case].

    It may be far more cost effective to us taxpayers to simply bulldoze them down and create more parks…LOL

  28. 28
    The Kid says:

    I’ve been hearing, from this site and other news sources, alot of this “well home ownership just isn’t that important” hogwash, and I would like to address that here breifly. Home ownership is important, because when we’re talking about home ownership what we’re really talking about (barring condos) is LAND ownership. Placing land ownership in the hands of only a priviliged few is something we have had in the past. We had a word for it. It was called Feudalism, and it SUCKED. We have pushed our society to the brink of returning to a feudalistic state by increasing the costs of land, and hence home ownership to the point that very few people will ever actually own what they have nominally purchased anyway, should they even qualify for the outrageous principal and interest rates. Depriving US citizens of the ability to purchase their own home and justifying it as somehow ok needs to be reconsidered. This isn’t about a financial investment, or who will care for the property the best, this is about the basic character of our nation. Think about it.

    The Kid

  29. 29
    Slumlord says:

    RE: The Kid @ 28
    I agree with the main part of what you are saying. Too much wealth has been concentrated in the hands of a few. The rest is details.

    The effect of most programs to encourage homeownership was to help banks and the financial industry more than ordinary citizens. Enslaving someone to a mortgage they cannot afford is not doing that person any favors.

    In my opinion, the way to help the majority of Americans is to let home prices fall to the point where an average income is enough to purchase an average income. Government subsidies to banks, disguised as promoting home ownership, distort the market and hurt more people than they help.

  30. 30
    mydquin says:

    Stick to market analysis, Tim. You cheapen the website with political opinion.

    That said, government support for home ownership was never the problem. Extending home ownership is an admirable goal because owners have greater incentives to protect & develop their local communities. For that matter, neither were many of the things that get blamed, including unconventional mortgages that can be quite useful under certain circumstances.

    The real problem was fraud by the credit ratings agencies. Macroeconomics 101 teaches that readily available, accurate information is a founding assumption of healthy markets. Without fraudulent ratings, government programs and unconventional mortgages never would have been misused in the first place. If you want honest opinions, listen to knowledgeable people with no skin in the game (e.g., Michael Milken). They confirm this view. So let’s stop the politically loaded BS.

  31. 31
    Indy says:

    By Kary L. Krismer @ 23:

    RE: The Tim @ 18 – I wouldn’t go as far as you, but going more local, when King County is looking at cutting costs, I wouldn’t look at eliminating things that existed 50 years ago, like parks. I’d look at things that were added in the last 20 years that were on some politician’s wish list.

    Amen brother. An elderly neighbor once said to me, “You know, when I was a young man, and this community was much poorer than we are now, we paid for the police, the parks, the schools, the roads, and almost all the services we have now, and at good quality, on less than half the local tax rates we have today, when we’re constantly being told that our area can’t afford these things anymore without yet more taxes. It just seems we’re not getting as good a deal on government these days.”

  32. 32
    S-Crow says:

    RE: mydquin @ 30

    The problems were created by those creating the garbage loan products that were then sold to the public through their natural conduits in the real estate industry. There has to be a “product” for the ratings agencies to oversee. It seems to me your notion centering on the ratings agencies is like a crack addict going to the ER after they have abused or OD’d. If the rating agencies found that the garbage loan products were in fact “garbage,” it would have done very little to fix the patient after the fact: ie, US Economy.

    Home ownership has a lot of social and community benefits. But, it has been abused into oblivion by the idea that you can move completely away from it’s core value, it’s use, to that of an “exchange” value to make lots of money very quickly on an upward trajectory that does not fall.

  33. 33
    Scotsman says:

    RE: Kary L. Krismer @ 6

    The last evidence of his genius was back in …??? At this point in his career he’s just a corrupt thug.

  34. 34
    Scotsman says:

    It’s impossible to have a comprehensive discussion about housing without involving politics given the government’s involvement at all levels from purchasing and financing to land use restrictions, building codes, etc. And while those who have bought into the Seattle ideal of “always a happy consensus” may find it “uncomfortable,” I applaude Tim’s willingness to take on the entirety of the issue, not just the data cataloging. It needs to be discussed along with everything else.

    We never should have gotten to this point, where our economy and housing are so distorted by special interests and pandering politicians that all suffer. We need to get back to a more basic, federalist system where the states rule and the feds provide a basic over-arching structure that facilitates and protects the interaction of the states and their populations, but not much more. That will only happen when the feds go bust and their checks bounce, forcing a re-evaluation of basic priorities. Such a cleansing may be a decade or so out, but it’s coming.

  35. 35
    Kary L. Krismer says:

    RE: Scotsman @ 33 – It was fairly recently he showed some genius–this year. Unfortunately I don’t remember what it was pertaining to. Before that I thought him just a complete idiot.

  36. 36
    Anon. says:

    RE: Slumlord @ 14

    You’re just parroting what you hear all the idiotic movie starts/actors say. You have no basis. Based on many logical arguments that I have heard, the left is just as much to blame as the right. If Bush had said that he didn’t want to encourage lower income groups and minorities to own homes he would have been called a bigot.

  37. 37
    wreckingbull says:

    Any one catch this very related WSJ article this weekend? I enjoyed the read. The article pretty much comes to the same conclusion as many of you here. The government has done far more damage than good with their housing-related policies. They need to lay off.

    http://online.wsj.com/article/SB10001424052970204409904574350432677038184.html

  38. 38
    Lake Hills Landlord says:

    RE: S-Crow @ 32

    I usually agree with you S-Crow, but I think you are wrong about this. I can sell fools gold all day long at the market determined price for fools gold without committing fraud or unbalancing markets. If I sell fools gold as real gold and find an “appraiser” to agree with my assessment, only then I am committing fraud and potentially unbalancing the market for real gold.

    Similarly if exotic mortgages and mortgages to people with no ability to make good on their payments were marketed as such (by the underwriters and ratings agencies) and priced accordingly, the system-wide fraud would have been impossible. Some people would have still purchased such junk and perhaps even made money doing so, but you wouldn’t have had pension funds, mutual funds, and every other sector of society buying it as a “safe” investment class.

    At least that is my understanding of the problem.

  39. 39
    David Losh says:

    A client called me from Aberdeen this afternoon excited about a house, with a view, for $152K, in Aberdeen. I pointed out i was going to buy a triplex in Aberdeen for $35K in about 2001. Let’s see, house $152K, triplex $35K, what could have happened in such a short amount of time. He and I agreed to make a cash offer at $75K and I still think that’s too much.

    Home prices went up based on mortgages income. People bought sold and traded paper so it was a safe investment. Now that people are going into foreclosure the money stopped churning. Those investors who bought the Notes who are stuck with property of declining value need rental income to recoup some losses.

    The Constitution provides:

    establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare,

    There are times, like these, when the People need to be protected. Bankers have always been villains and that is true today. A point I make repeatedly is that the President:

    shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient

    Obama has used this power where, in my opinion, Bush hid from it. At some point, with all the economic advisers around him, Bush must have seen something went terribly wrong. I for one took his promotion of home ownership as a sign there was a grander plan. My thought was that the alliances made globally would extend to our economy. I was wrong.

    In that way I feel that Bush lied to us. I think he, and every President has the power, if not the duty, to publicly give to Congress, which is us by representation, Information of the State of the Union. We were headed for a global economic melt down and Bush hid the information, in my opinion.

  40. 40
    Scotsman says:

    RE: Lake Hills Landlord @ 38

    So, to continue the analogy in your first paragraph- what we have now is a government taxing (taking from) those who in many cases didn’t even participate in the buying or selling of fool’s gold in order to make whole (through restitution and other methods) the poor folks who did buy the fake stuff. Oh, and at the same time the government diverts, in a sort of back-door fashion, even more tax payer money to the very folks who perpetrated the fraud in the first place? Then they blame it all on the opposition party that controls nothing- not the presidency, the senate, or the house. Yeah, it all makes perfect sense!

    And we think any of these people should be involved in the solution? Or that BF is a genius?

    Pull the other finger, hombre!

  41. 41
    Markor says:

    RE: David Losh @ 39

    In that way I feel that Bush lied to us. … We were headed for a global economic melt down and Bush hid the information, in my opinion.

    Welcome to the club! Many of us feel it was no coincidence that Bush’s policies and wars led to his wealthiest supporters becoming fabulously wealthier, at least temporarily.

  42. 42
    Jonness says:

    By Kary L. Krismer @ 35:

    RE: Scotsman @ 33 – It was fairly recently he showed some genius–this year. Unfortunately I don’t remember what it was pertaining to. Before that I thought him just a complete idiot.

    I find it extremely interesting how varied the opinions of this person are. I haven’t paid attention to him long-term. I only began to notice him during the economic crisis. I was struck by how retarded this person appeared to be and how inappropriate it is for a person with such an obviously low IQ to be in such a high position of authority and power (OK, perhaps not quite as retarded as Bush II). I’m not saying that in anger or to get back at a particular political party. That’s really how the guy comes across to me. This is the first time I’ve discussed him with other people; thus, I’m a little surprised to learn he has done intelligent things in the past.

  43. 43
    Markor says:

    Subsidies do more harm than good, so I disagree with this rental plan. A friend of a friend speculated big time in housing construction in another city. He was up a $million in 2006 but then lost it all. He just got major elective surgery done on his child, free thanks to free state insurance for the poor. While I’m happy for his kid (it was a good surgery to have), I wonder more and more why I bother working.

  44. 44
    Rojo says:

    RE: David Losh @ 39

    It is amusing to hear that – 35K for a triplex? What are talking about 3 planks of wood on a tree and the tree canopy as the roof?

    What are you guys talking about. Even if things get worse, you still can’t build a decent house for less 130-150/sf.

    Aberdeen or Seattle or Blaine, the cost of raw materials doesn’t change much. The labor might change a little but not a whole lot.

    Question for you guys
    Where does the replacement cost come into this picture? As long as the area is still desirable (I am not talk detroit), can the prices go below replacement cost?

    I have seen foreclosures selling close to replacement cost – how much lower can they get before people realize and start buying in hordes?

  45. 45

    RE: Scotsman @ 33

    Barney Frank might be a corrupt thug, but nobody on earth sounds more like Elmer Fudd.

  46. 46
    Rack says:

    By Ira Sacharoff @ 45:

    RE: Scotsman @ 33

    Barney Frank might be a corrupt thug, but nobody on earth sounds more like Elmer Fudd.

    I loved him as the sheriff on Andy Griffith.

  47. 47
    Rack says:

    By Rojo @ 44:

    RE: David Losh @ 39

    What are you guys talking about. Even if things get worse, you still can’t build a decent house for less 130-150/sf.

    During the bubble, $100 a sqft can build you a really nice house. That is if you know what you are doing. This of course does not include the property.

    Now it’s quite a bit less, lumber dropped 30%, and subcontractors are begging for work.

  48. 48
    Rack says:

    By David Losh @ 39:

    A client called me from Aberdeen this afternoon excited about a house, with a view, for $152K, in Aberdeen. I pointed out i was going to buy a triplex in Aberdeen for $35K in about 2001. Let’s see, house $152K, triplex $35K, what could have happened in such a short amount of time. He and I agreed to make a cash offer at $75K and I still think that’s too much.

    http://www.redfin.com/WA/Aberdeen/704-Terrace-Ave-98520/home/14785766

    that one?

  49. 49
    Mike2 says:

    By Rojo @ 44:

    Question for you guys
    Where does the replacement cost come into this picture? As long as the area is still desirable (I am not talk detroit), can the prices go below replacement cost?

    I have seen foreclosures selling close to replacement cost – how much lower can they get before people realize and start buying in hordes?

    Replacement cost only matters in markets at equilibrium. If there was overbuilding during the bubble, (based on bubble economics), prices should drop below replacement cost. Some homes never should have been built, so the true value is less than the cost of construction.

  50. 50
    S-Crow says:

    RE: Lake Hills Landlord @ 38

    You bring up a very good point about the pensions and others who’s investments relied upon ratings agencies for guidance. That’s just another reason why this whole system just fell under it’s own weight of fraud and absurdness.

    I wish I could have video taped of some of the signings I did with buyers, sellers, agents and loan officers present and the comments that people made over the last few years. It would provide an incredible insight into why I was so concerned about the market and why I have been incredibly angry with the industry in which I work. That is not a testimony that we work with fraudulent people, far from it, but moreso an insight into the warped market psychology that Dr. Shiller talked about when he was here in Seattle speaking at my old college at Seattle Pacific University.

    I recently spoke with an executive at Frontier Bank Headquarters in Everett a week ago about some unrelated business and we struck up a conversation about the culture of real estate. He told me that when he was out doing errands and went into an open house on the prior Sunday, the agent was really pushing the zero down programs. He said he was just dumbstruck about how pervasive the industry is in trying to get darn near anyone to buy; even today that program is pushed.

    From day one, on this blog and others, I’ve said that these zero down programs were going to make buyers renters again and from my vantage point it was going to be one of the most destructive products ever offered. It was responsible for so much of the artificial appreciation we experienced.

  51. 51
    rent for now says:

    RE: mydquin @ 30

    The real problem was one Mr. Alan Greenspan.

  52. 52
    The Real Hugh Dominic says:

    RE: Ira Sacharoff @ 45
    Sounding like Elmer Fudd goes a long way in my book.

  53. 53
    Scotsman says:

    Replacement cost? With close to 20 million vacant homes in this country supply so exceeds demand that replacement cost isn’t even a consideration. And with the government talking about subsidizing even more inventory (to again help out their banker friends) it will be some time before replacement costs set any kind of a floor for pricing.

    What this country needs is immediate tax cuts at all levels- federal, state and local, a FICA holiday, no gas taxes, etc. so that consumers (historically 70% of the economy) can have more money in their hands NOW to spend and pay off debt. But that isn’t going to happen. Instead we’ll see more taxes, more inefficiency, more stimulus distortions and the slow strangulation of what little life is left.

  54. 54
    Herman says:

    Naw, what this country needs is extreme currency inflation to wipe out our debts.

  55. 55
    Markor says:

    RE: Scotsman @ 53

    What this country needs is immediate tax cuts at all levels- federal, state and local, a FICA holiday, no gas taxes, etc. so that consumers (historically 70% of the economy) can have more money in their hands NOW to spend and pay off debt.

    Future taxpayers should suffer even more so people today can buy even more junk they don’t need? Better for the gov’t to increase taxes to reduce national debt growth and eventually pay it off. We haven’t even paid for the Vietnam War yet.

  56. 56
    David Losh says:

    RE: Rack @ 48

    yeah that one. What’s the deal with that and how did Aberdeen get so expensive?

  57. 57
    David Losh says:

    RE: Rack @ 47

    I use $80 per sq ft, but I don’t build and it’s irrelevant to an existing structure. The seller had a lot of property. This one needed a little work, but a very nice six unit was $95K so I think that was about right.

    What’s the vacancy factor like in Aberdeen today?

  58. 58
    Markor says:

    RE: S-Crow @ 50

    You bring up a very good point about the pensions and others who’s investments relied upon ratings agencies for guidance. That’s just another reason why this whole system just fell under it’s own weight of fraud and absurdness.

    I think the ratings scam will keep repeating. After all it happened in the 1990s too. One root cause of the problem is that fund managers make huge bonuses when they win yet keep a high base salary when they lose. Then their incentive is to make risky bets. They express outrage about the faulty ratings even though they profited immensely from them. They’ll scrape by on their $million salaries until the coast is clear and the game can begin anew.

  59. 59
    Alan says:

    RE: Kary L. Krismer @ 5

    How does building new housing help banks? Seemingly that would make the housing situation worse for them since it would increase supply, reducing the value of their collateral.

    Subsidized housing raises prices for non-subsidized housing. It increases supply, but it also increases demand (because the government dollar make the investment more attractive than it would be in the free market.)

  60. 60
    Rack says:

    By David Losh @ 57:

    RE: Rack @ 47

    I use $80 per sq ft, but I don’t build and it’s irrelevant to an existing structure. The seller had a lot of property. This one needed a little work, but a very nice six unit was $95K so I think that was about right.

    What’s the vacancy factor like in Aberdeen today?

    Aberdeen has always been boom/bust depending on where the timber industry is at the time.

  61. 61
    The Kid says:

    RE: Slumlord @ 29 – Couldn’t agree more, but lets talk about what “affordable” really means? Does it mean that you can get easy financing to buy a home at 60% of your take home pay, or does it mean that the average family has a chance of actually purchasing the property rather than simply paying a mortgage for the rest of their lives? There has been some mention of “payment buyers” before, and frankly, the reason most people are payment buyers are because they cannot afford to be anything but payment buyers. Hell, alot of people seem to think that even the basic concept of ever paying off your mortgage and not having a house payment to be borderline crazy. We pushed it to the point that nobody could even afford basics without a line of credit and a monthly payment. The american people are broke. No more money, no more assets. This absurd focus on consumer confidence is a total waste of time because it’s based on this idea that people are capable of spending just not willing to spend because they are scared. The concept that people are not capable of spending hasn’t really even sunk in yet.

  62. 62
    Markor says:

    RE: The Kid @ 61

    This absurd focus on consumer confidence is a total waste of time because it’s based on this idea that people are capable of spending just not willing to spend because they are scared. The concept that people are not capable of spending hasn’t really even sunk in yet.

    Good point. There’s a big chunk of unemployed folk destined to never again be employed at their former wage. They’ll never again spend as much as they did before, and they’ll be shedding assets (including houses) for years to come. Seems you’re noting that consumer confidence is not a tail that wags the dog.

  63. 63
    Pete says:

    Barney Frank, 2002: “I am in favor of trying to help lower income people get the advantages of homeownership…But almost by definition, the large majority of poor people are going to need rental housing. And we will never alleviate the terrible housing crisis that affects so many people in this country if we do not do a much better job of building decent, affordable rental housing.”

    Barney Frank, 2005: “Homeownership is an important part of our policy, but it is not the entire housing policy of the Federal Government, nor is it the entire housing need of the Nation. Some people will never own. There will be people who choose not to own; there are people who for economic circumstances will not be able to own. And there is no conflict between promoting homeownership and recognizing that decent, affordable rental housing will also be very important indefinitely for tens and tens of millions of Americans.”

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