Originally Posted By Mr X "We're the government, and we're here to help!" <a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=a8JBKPbJkWac&refer=home" target="_blank">http://www.bloomberg.com/apps/ news?pid=20601087&sid=a8JBKPbJkWac&refer=home</a> How stupid. And it's going to do NOTHING but prolong the already crisis level problem that his administration helped to create. He should have taken measures BEFORE the bubble burst, but yes by all means do help bail out the custodian with the stated income no money down loan who's living in a mansion...cause that guy really deserves the help! Of course, the fallout from this idiotic move won't be felt til Bush is long gone. <---rolls eyes p.s. funny thing is, this is going to help me make a ton of cash on my investments tomorrow...but it still pisses me off.
Originally Posted By Mr X A blogger friend of mine summed up perfectly what this horrible move by Bush will do in the long run... "so they keep the payments the same as they are now with govt sponsored rates. The values of the homes will continue to shrink , keeping folks equity upside down and refinancing from these govt programs will be near impossible. Equity will not exist for years and years if ever. Selling the home will pose another set of problems unless the loan is transferable. The cost of the program will be paid for those with good credit and/or a penalty for renting."
Originally Posted By Mr X No comment, Doug? Guess you're waiting for the GOP pundits to hit the airwaves and tell you what you're supposed to think of this latest development.
Originally Posted By DouglasDubh <Guess you're waiting for the GOP pundits to hit the airwaves and tell you what you're supposed to think of this latest development.> No, I was busy getting demonized for failing to endorse the legal recognition of gay marriage. Anyway, it's not the worse thing he could have done, and it's certainly not as stupid as what many Democrats suggested. And I don't agree with you that his administration helped create this problem, or with your friend that it will make things worse. But I'd always prefer to let the markets work.
Originally Posted By Kar2oonMan I don't think it's a bad move by the president at all. To let the housing market crash entirely would be disasterous. >>Equity will not exist for years and years if ever.<< Yeah, yeah, yeah. This sort of doom & gloom is predicted with regularity. Over time, it never pans out that way. The same stuff was said in the 1970's when houses were selling for the stratespheric price of $30,000 for a brand new tract home. Pessimists never saw it coming that that same tract home would sell for close to a million bucks in some markets 30 years later.
Originally Posted By Mr X **Pessimists never saw it coming that that same tract home would sell for close to a million bucks in some markets 30 years later.** Well, call me a pessimist then because in reality it never should have. The income to value right now is COMPLETELY off the charts, but easy credit "saved" the day since noone could afford to by, which is now why strawberry pickers can live in mansions. And now the government will bail those poor folks out. Sorry K2M, but you and I really differ on this one. **To let the housing market crash entirely would be disasterous.** It's already disasterous. Here's a list of ONE HUNDRED FIFTY SIX dead or dying companies, all of which were prosperous and making money just a few months ago (some a few WEEKS ago like Countrywide)... <a href="http://ml-implode.com" target="_blank">http://ml-implode.com</a> To let the housing market BUBBLE the way it did without proper regulations (this from a libertarian, mind you), was Bush's disaster. The only thing to do now is to let everything run it's course so housing prices will return to historical norms. Anything else is ONLY prolonging the pain. And now that there isn't any more easy credit to be had, believe you me K2M the market is gonna slow even more...it is certainly in a recession at the moment, threatening to slip into a housing DEPRESSION if the government tries to interfere.
Originally Posted By Mr X Well, call me a pessimist then because in reality it never should have inflated as much as it has. The income to loan cost right now is COMPLETELY off the charts (California is ground zero), but easy credit "saved" the day since noone could afford to buy any property otherwise, but it got SO easy that strawberry pickers could like about their $200,000 per year income and live in a mansion. Now Bush wants to save their mansion. Sorry, I had to edit that...it didn't come out nearly as clearly as I'd hoped.
Originally Posted By Kar2oonMan >>The income to value right now is COMPLETELY off the charts, but easy credit "saved" the day since noone could afford to by, which is now why strawberry pickers can live in mansions.<< Well, you keep using that most extreme example, but in reality what you have is people buying in middle class neighborhoods. Largely, it was predatory lending practices and a bit of speculation by subprime mortgage lenders and some buyers betting that home prices would never fall. >>Well, call me a pessimist then because in reality it never should have.<< The prices over the past 30 (nearly 40) years have risen dramatically in housing not because of subprime lending, but because that's what the home markets would bear. The prices have gone up and down, but overall, they've gone nowhere but up, up, up. We're going to have to agree to disagree, but I think that no matter what, most people are generally going to want to own a home rather than rent. And as long as that's true, it will always be a case of supply and demand. Some up and down blips but overall, upward pricing. Keep in mind that from a societal and government standpoint, we WANT people to become homeowners. It provides stability to communities, tax revenue, and spurs retail growth as people trot down to home improvment, garden centers, etc. on the weekends. I wish I'd been able to buy an additional home everytime someone declared "That's it! Prices are as high as they'll ever be! We've reached the limit! Nowhere to go but down now!" Heck, people spend 30 grand on a basic CAR now without batting an eye.
Originally Posted By Mr X **Largely, it was predatory lending practices and a bit of speculation by subprime mortgage lenders and some buyers betting that home prices would never fall.** Wrong. That was but a tiny percentage of the issue here. But it's intersting how you spout the soundbites like a pro (interesting in the sense that media controls what people think...not a slight on you personally). Angelo Mozillo, the CEO of Countrywide, said pretty much WORD FOR WORD what you just said...a few months ago. Countrywide's share prices have been cut in half since then (oh, and he's been insider selling his butt off to the tune of millions of dollars every few days). Predatory lending and speculation were only the tip of the iceberg, but serve to excuse the greater problem...that home prices have skewed far beyond the reach of those with normal incomes. Do you disagree?
Originally Posted By Mr X **The prices over the past 30 (nearly 40) years have risen dramatically in housing not because of subprime lending, but because that's what the home markets would bear.** In the past 2 years it has risen beyond the ability of conventional loan standards to function. Thus, the bubble and the easy credit. Sure, homes will be worth more in the future. But right now we're in a pretty severe housing recession. Noone can dispute that. That, coupled with RIDICULOUS and greedy and dangerous loan practices (no docs, no money down, teaser rates for a couple of years on the ARMS), are the reason we're seeing titans as large as Bear Sterns starting to come crashing down... I just don't hope your retirement account isn't filled with some of the toxins...people have been waking up to some very disturbing differences in their pension accounts recently (I'd go on, but it's a subject I think most don't care about...yet). One word, CDO. Look it up...scary stuff. **most people are generally going to want to own a home rather than rent** You can't always get what you want (well, last year you could, I guess)...not everyone is qualified to take on a gigantic debt. I'm sorry, but it doesn't matter what they'd RATHER do...some people must rent. They simply do not have the income, the collateral, or the credit worthiness. Who the heck ever said everyone "deserves" to own a home? Is that in the constitution or something? **Keep in mind that from a societal and government standpoint, we WANT people to become homeowners. It provides stability to communities, tax revenue, and spurs retail growth as people trot down to home improvment, garden centers, etc. on the weekends.** Not everyone. Qualified homeowners, sure. But that doesn't mean everyone...except in 2006. **I wish I'd been able to buy an additional home everytime someone declared "That's it! Prices are as high as they'll ever be! We've reached the limit! Nowhere to go but down now!"** Please don't get the wrong idea and think I'm building a bunker somewhere to prepare for the end of the economy. Of course, prices will rebound. Not soon, though. Not for years imho...they've been on the decline for over a year already, and we've only started to see the shockwaves (why else would Bush and Bernanke be worried?). I'll be in the market for property sometime before 2010 I think...I'll let you know exactly when, if we're still on speaking terms at that time. ;p The point I think that you are missing is the fact that if home prices become way out of range compared to wages (I forget the formula, but it's been a standard for a CENTURY now and it works well), it can not last. People simply can not afford to buy property, and that SHOULD last til the prices settle down or the wages rise... The easy credit skewed that whole formula, and you can't tell me that 150 companies going bankrupt in a few months isn't evidence enough of THAT, can you? If you think you can, then we can talk again in a year or so when hundreds of thousands of forclosures have occured. (I'd bet money on that...as much as 1 U.S. dollar in fact...what do you say, Mortimer?)
Originally Posted By Kar2oonMan >>The point I think that you are missing is the fact that if home prices become way out of range compared to wages (I forget the formula, but it's been a standard for a CENTURY now and it works well), it can not last.<< No disagreement with that from me, nor am I trying to diminish that this is a serious crisis. That'd be nuts. I'm just saying that in the LONG RUN, over time, real estate will continue to be a solid investment for people. There will always be foreclosures, because there will always be people who get in too deep -- either from an unexpected job loss to things like too-easy credit -- always has been. I disagree with the idea that helping people on the edges keep their homes is not preferable to letting all these folks crash and burn in a foreclosure. That's what the president is attempting. It doesn't really help any of us to continue pounding down the market (and the economy in general) with any more foreclosures if there's a way to avoid that. Keep in mind, too, that I live in the SF Bay Area -- and home prices here have exceeded incomes for ages. I think the old formula was something like 25-30% of income to go to mortgage payment/rent? In this area, generally speaking, it hasn't been that way in at least 20 years, so that perhaps skews my view of this. >>Please don't get the wrong idea and think I'm building a bunker somewhere to prepare for the end of the economy.<< I don't think that. Renting one, maybe. But I know you wouldn't buy a bunker in this market. ; D
Originally Posted By Sport Goofy << I'm just saying that in the LONG RUN, over time, real estate will continue to be a solid investment for people. >> A realistic calculation of housing costs (including cost of the mortgage, maintenance, property taxes) vs. price appreciation over the past 50 years reveals that homeowners merely keep up with inflation in terms of their "investment." Anyone who believes that being a homeowner is a good investment, along the same lines as investing in a business or fixed income security, needs to more closely examine the return on investment. In today's market, where the cost of entry into the real estate markets is much higher than in the past, the return on investment promises to be even lower than historical averages. Anyone who believes that they are going to be set for life as a result of their real estate purchases, needs to re-examine that fantasy in the context of a country where incomes are not growing faster than inflation, population growth is slowing, and a government debt time bomb threatens economic growth prospects for the foreseeable future. There are certainly advantages to home ownership, but using the thesis that home prices appreciate and are a good "investment," is fallacy that has been perpetuated by greedy real estate agents and mortgage lenders. Everyone in the market for a home needs to do their due diligence to determine the risk/reward factor of that major purchase. I recently sold my primary residence and gained 200% on my initial investment after only 3 years of ownership. I am not blinded by this singular data point of good luck in a bizarre housing market. When I sought out my next home, I calculated the risk vs. reward with respect to buying and renting. In the current market environment, I found that I am earning more money and increasing my personal cash flow by putting the cash I extracted from my home in a fixed income investment and renting a home than I would have benefited from dumping my housing windfall into another home.
Originally Posted By Sport Goofy << I disagree with the idea that helping people on the edges keep their homes is not preferable to letting all these folks crash and burn in a foreclosure. That's what the president is attempting. >> The president is attempting to avoid an inevitable recession by dumping more government money into the economy -- money that the government doesn't have to spend. That has been a consistent theme of this government -- start the treasury printing presses and put as much money into the economy as possible, whether it is through ill-advised tax cuts, defense spending, or government bailouts of the private sector. Unfortunately, the underlying ills of the economy are not solved by the treasury's printing press. At some point, the bills are coming due, and we'll all end up paying dearly for the excesses we've been borrowing money to pay for. If our government used the same standards as business to balance its books, bankruptcy would have been declared already. It only gets worse with the entitlement time bomb on the horizon for Social Security and Medicare. I hope everyone enjoyed the party while it lasted. Of course, the President will be insulated in his comfy ranch home in Crawford, TX while the rest of the country suffers the aftermath of his foolish fiscal policies from the past 6.5 years.
Originally Posted By fkurucz <<Well, you keep using that most extreme example, but in reality what you have is people buying in middle class neighborhoods. Largely, it was predatory lending practices and a bit of speculation by subprime mortgage lenders and some buyers betting that home prices would never fall.>> While those latter factors you mention do matter, the truth is that average families took out those toxic subprime loans because there was no way in Hades they could have qualified for a conventional loan with the current price to income rations. Even here in "affordable Colorado" the median home price is 5x the median income, which is way, way too high. When I read about 500K starters houses in places like California or the DC area, I can only wonder "what were they thinking?" The only way the average family was able to buy an average house here in "affordable Colorado" was to take out a sub-prime mortgage with a artificially low
Originally Posted By fkurucz <<Predatory lending and speculation were only the tip of the iceberg, but serve to excuse the greater problem...that home prices have skewed far beyond the reach of those with normal incomes.>> Absolutely. I have been offered jobs in SoCal that pay in the low 6 figures, and I have always refused them. When asked why, I tell them that I can't afford to buy in SoCal the kind of house I am used to living in with the salary they are offering me. I have priced them and I would have to spend close to $1,000,000 to get a house like the one we have now. Even with a 100K down, we are talking about $6,000 per month just for P&I. Add anothr $1000 for taxes and insurance and we are talking over $80,000 per year. Sure, I could buy some tiny fixer upper and reduce those expenses to 40K per year, but why would I want to do that?
Originally Posted By Kar2oonMan >>why would I want to do that?<< Take a look at how much those l'il fixer uppers are going for. Take a look at how much they appreciate compared to where you live now. So, you stay with a lower salary in a market where the houses are cheaper... it;'s all relative.
Originally Posted By wonderingalice In mere human terms... Over the past three years I've often admitted feeling guilty for selling my condo - purchased in 2000 and sold in 2004 at the start of the 'boom' for almost double what I paid for it - to a young woman who had to take out two loans for it. Not sure how that happened since the appraisal came in at the asking price, but she ended up having to finance the final $30,000 at an ugly 12%. (I say 'ugly,' but I'm one of those folks whose first home was purchased in 1981 at 13% - after a 2% buy-down by the builder. Ugh.) Anyway, I hope she's hanging in there. The 'value' of the condo has gone up since she purchased it, but that doesn't mean anything unless she decides to sell and someone chooses to buy. I'm beyond grateful that our modest, but nice home will be paid for in about three years and we'll be certain of having a roof over our heads as we head into our AARP years. Do I sometimes drool over model homes in new neighborhoods? Sure. But when it comes down to it, he and I are both financially conservative. We don't want to be house-poor for the sake of a bigger kitchen and more closet space. Keeping up with the Jones' becomes less and less important was we get older, ya know? It would behoove a lot of people to realize that at a younger age.
Originally Posted By Sport Goofy << Keeping up with the Jones' becomes less and less important was we get older, ya know? It would behoove a lot of people to realize that at a younger age. >> We had a similar period of time in early 20th Century. It resulted in the Great Depression. A severe economic crisis that makes it hard to put food on a table behooves people to realize a lot of things. My grandfather never forgot the Depression, and he constantly talked about the lessons learned there. Sadly, the generation that learned those lessons the hard way is with us in too few numbers, and we'll probably have to endure their suffering again.
