[Winstonm]

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“It will give millions of families resigned to financial ruin a chance to rebuild,” Obama said in remarks prepared for delivery at 10:15 a.m. in Mesa, Arizona.  “By bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

President Obama has fallen into the trap of listening to advisers whose main constituency is the banking industry - this must be so else he would understand that regardless of what anyone attempts, home prices will fall to historical norms and must do so. Until home prices stabalize, there can be no recovery.

Home prices by all historical norms are still too high. Shoring up prices of housing will not restore anything to anyone other than the banks who made bad loans on overvalued property and will have to write down billions more in bad loans.

When starter homes become affordable the entire home building cycle can restart. Anything that delays the fall in home prices delays the eventual recovery.

[kenrexford]

Brilliant, eh?

Actually, there is some merit to the approach. Here's why.

Say my house is currently valued at $150K. Suppose that it was inflated from what should be a value of $100. Now, kick in the Obama plan. With money just thrown around, dollars lose value. So, my $100 bill will be worth about $67 very soon. If my $100 drops to a real value of $67, inflation will kick in. If inflation kicks in to compensate for this devaluation of the dollar, my house will now be worth $150K again, assuming that my house, as a real asset, maintains its relative value.

Brilliant!

It is kind of like gold. If I buy $100 worth of gold, and the $100 bill become worth $67, my gold is no worth $150. I made money!!!

We could all get rich this way. If the dollar were worth, say, a penny, my $150K home, even devalued to $100K, would suddenly be worth $10,000,000!!! I'd be a multi-millionaire in no time.

[Winstonm]

Problem with your example Ken is it is an existing sale. What about entry-level buyers, which the housing market must have else all everyone is doing is making lateral moves and housing stagnates?

The problem with entry-level buyers is one of two problems: either house prices are still to high or wages are too low. Keeping house prices elevated without compensating in income is a no-win, no-solution deal - it is designed only to help the banks.

Another way to put this is who is on the hook financially - the idiot that loaned $150K on a house that is only worth $67 or the guy who lives in the house, can affored the payments, and has a roof over his head?

[PassedOut]

Winstonm, on Feb 18 2009, 02:04 PM, said:

When starter homes become affordable the entire home building cycle can restart.  Anything that delays the fall in home prices delays the eventual recovery.

I don't like it either, but it's not clear to me what the right solution is. We've got the houses and people who need to live in those houses.

When I owned rental properties, I did sign up for the program (at the time) where the government subsidized the rent for poor families. Those renters were great, kept the places spic and span and stayed long term.

Doesn't seem like such a stretch for the government to help home owners who can't find jobs and would otherwise be out on the street. I do realize that many of them should have known better, should have acted more wisely. On the other hand, if the government can bail out rich bankers (who most certainly should have known better), why shouldn't the government help poor homeowners?

[Al_U_Card]

The last time a balloon burst, trying to blow more air into it just didn't serve any useful purpose....

[jdonn]

Winstonm, on Feb 18 2009, 02:04 PM, said:

Shoring up prices of housing will not restore anything to anyone other than the banks who made bad loans on overvalued property and will have to write down billions more in bad loans.

Bringing down the foreclosure rate keeps more people from being homeless. I see nothing wrong with that goal (granted that's not what he said - I think he just said something that sounds good, but I agree with your disagreement of that statement, I think.)

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When starter homes become affordable the entire home building cycle can restart.

I'm not sure why the building cycle should restart. I read that there are something like 2 million perfectly good homes that are unoccupied due to foreclosure. Why would we be building more right now?

[luke warm]

jdonn, on Feb 18 2009, 04:11 PM, said:

Quote

When starter homes become affordable the entire home building cycle can restart.

I'm not sure why the building cycle should restart. I read that there are something like 2 million perfectly good homes that are unoccupied due to foreclosure. Why would we be building more right now?

what happened to the people who were in them?

[jdonn]

luke warm, on Feb 18 2009, 05:53 PM, said:

jdonn, on Feb 18 2009, 04:11 PM, said:

Quote

When starter homes become affordable the entire home building cycle can restart.

I'm not sure why the building cycle should restart. I read that there are something like 2 million perfectly good homes that are unoccupied due to foreclosure. Why would we be building more right now?

what happened to the people who were in them?

Do you mean why are they no longer in their houses (they couldn't afford to make their payments, often but not always due to job loss) or do you mean where are they literally (relatives houses, living in their cars, homeless shelters)?

Either way, what's the difference. Lots of people need a place to live right now, and there are lots of empty houses. I simply used those two facts to argue that we don't have much reason to be building lots more houses right now.

[PassedOut]

luke warm, on Feb 18 2009, 05:53 PM, said:

what happened to the people who were in them?

And in some cases, the foreclosed homes were built on spec and never occupied.

[kenrexford]

My first post was a joke, by the way.

If I have a bike worth $100 and five baseball cards worth $100 each, I could sell all of this and have $600. But, if the baseball cards are burned in a fire, I only have $100 worth of stuff.

If there is only $600 in the world, then the price of the bike will go up to $600, purely because the asset value in comparison to the dollars in existence is readjusted.

If, however, $500 worth of "dollars" that existed in the world was in the form of some sort of accounting magic dollars, then perhaps that $500 could go "poof" and the remaining $100 would in fact still only cover the bike.

Looking backwards, if the baseball cards grew in value from $10 each to $100 each, then one could say that inflation was going on. The same things cost more. However, the inflation was muffled and not seen as to the bicycle because every dollar of inflation into the baseball card prices was equally met with a dollar of increase in either real dollars (not yet, because I never sold them) or hypothetical dollars. Those hypo dollars, if they really exist, could be in the form of increasing credit "dollars."

[Gerben42]

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The problem with entry-level buyers is one of two problems: either house prices are still to high or wages are too low.

Maybe the real problem is that too many people are being considered as entry-level buyers. Why should buying a house be affordable for everyone? It probably shouldn't.

Buying instead of renting is a luxury, which you can acquire either by saving money upfront to make the down payment, or by insuring yourself a very stable income. Many people bought houses although they shouldn't have.

Quote

Lots of people need a place to live right now, and there are lots of empty houses. I simply used those two facts to argue that we don't have much reason to be building lots more houses right now.

So maybe two families have to buy one house together? Or some rich guy buys the house and rents it to someone?

If this really is the situation, the conclusion must be that the market contains lots of houses with the wrong properties. (Too big, too small, too expensive, too far from work place, etc.)

[kenberg]

Situations vary, of course.
At one extreme a guy buys a house at going prices. He loses his job through no fault of his own in the falling economy,and finds himself with a mortgage far exceeding the value of his house. I hope we can help this guy.
At the other end, there are the guys who bought a couple of extra houses hoping to flip them in a couple of years and now can't sell them. Tough luck, but I once held WorldCom stock. ***** happens.
There are a lot of cases that fall between and sorting it all out seems challenging. In addition, this is not just about helping our fellow man but also, probably primarily, about getting the economy on some sort of sound footing.
A lot of people have done a lot of things that have not, in retrospect, looked wise. It's true that many of these things looked stupid to me at the time but then, as I said, I once owned WorldCom stock so my crystal ball is a little hazy.

[barmar]

Why should buying a house be a luxury? Why should it be cheaper to rent than to buy?

If someone buys a house and then rents it out, isn't he going to set the rent to be at least the cost of owning and maintaining the house, so he breaks even or makes a profit? If someone can afford the rent, wouldn't they be just as able to afford the mortgage?

Apartment buildings are a little different, due to economies of scale, although condominium ownership takes that into account.

The only real difference is that ownership is a long-term commitment, while renters usually have relatively short-term leases. If a renter loses their job and can't afford the rent, they move to a cheaper rental when the lease is up. If an owner can't afford the mortgage, they have to try to find someone to buy the home. And if the market has dropped, they'll incur a significant loss on the sale.

So I guess rich people can be assumed to have a better cushion to weather downturns like this. Although in many cases, they end up buying much more expensive homes. Don't most people tend to buy as much as they think they can afford? Then when the bailout puts severe limits on CEO salaries and bonuses, aren't these folks in just as much trouble? The only way to really be safe is to live modestly compared to what you can afford, so that you have plenty of savings as a cushion. That's not common in any segment of US society.

[PassedOut]

barmar, on Feb 19 2009, 11:22 AM, said:

If someone buys a house and then rents it out, isn't he going to set the rent to be at least the cost of owning and maintaining the house, so he breaks even or makes a profit?

Definitely.

My own rule was that I never bought a rental property unless I calculated a 15% yearly profit on my investment (down payment, initial fixup costs, legal costs, and so on). So the rent I projected would cover maintenance, mortgage, insurance, and all other expenses for the property, plus my profit. Otherwise, why not just keep the money in the bank and avoid the hassle?

Brokers were always trying to sell me properties that I was supposed to "feed" for awhile on the expectation that the value would increase as I increased the rent, but I never did that. Better deals would always come around, if I kept looking.

(The only time I ever lost big money in rental property was in one of the limited partnerships I joined with 7 other guys on a huge apartment complex in Atlanta. The managing partners could not get the occupancy up where we needed it to be, and we all lost our investments. I learned from that experience.)

[Winstonm]

jdonn, on Feb 18 2009, 04:11 PM, said:

Winstonm, on Feb 18 2009, 02:04 PM, said:

Shoring up prices of housing will not restore anything to anyone other than the banks who made bad loans on overvalued property and will have to write down billions more in bad loans.

Bringing down the foreclosure rate keeps more people from being homeless. I see nothing wrong with that goal (granted that's not what he said - I think he just said something that sounds good, but I agree with your disagreement of that statement, I think.)

Quote

When starter homes become affordable the entire home building cycle can restart.

I'm not sure why the building cycle should restart. I read that there are something like 2 million perfectly good homes that are unoccupied due to foreclosure. Why would we be building more right now?

Eventually, the business of building and selling homes needs to restart. The imbalance of unsold houses to buyers is high and needs to be cleared before homes supply/demand can equalize.

The problem is not to keep people in homes that they never should have bought because the price was too high or their wages were insufficient - which is why targeting home owners and home prices is the wrong tact.

The problem occured because the U.S. held an auction that lasted for about 5 years where all the bidders were given unlimited amounts of counterfeit money with which to bid for houses - to protect the values caused by that auction is to legitimize the process and the prices - and that is not about helping the buyers but helping the auctioneers.

Fruad has a price - we have to pay that price and only then can we get on with normal business.

[jdonn]

Winstonm, on Feb 19 2009, 11:56 AM, said:

Eventually, the business of building and selling homes needs to restart.  The imbalance of unsold houses to buyers is high and needs to be cleared before homes supply/demand can equalize. 

The problem is not to keep people in homes that they never should have bought because the price was too high or their wages were insufficient - which is why targeting home owners and home prices is the wrong tact.

The problem occured because the U.S. held an auction that lasted for about 5 years where all the bidders were given unlimited amounts of counterfeit money with which to bid for houses - to protect the values caused by that auction is to legitimize the process and the prices - and that is not about helping the buyers but helping the auctioneers.

Fruad has a price - we have to pay that price and only then can we get on with normal business.

Your post makes little sense to me. The second sentence of the first paragraph argues against everything else you are saying. And the second paragraph would make more sense if you said 'the solution is not..' instead of 'the problem is not...', but in that case I don't see how you are relating it to the third paragraph.

But given what I can discern, most of what you said is fine if your goal is 100% economic efficiency and 0% worrying about millions of homeless people. However, my goal is something a lot closer to the reverse of that.

Frankly, I find it rather abhorrent that your view seems to be people who lost their homes are all guilty of something and have to pay for the fraud perpetrated by the entire system by having no place to live.

Question: If someone bought a house they could afford with their (supposedly stable at the time) current job, then they lost their job and could no longer afford the house, then what exactly have they done wrong?

[luke warm]

jdonn, on Feb 18 2009, 06:02 PM, said:

luke warm, on Feb 18 2009, 05:53 PM, said:

jdonn, on Feb 18 2009, 04:11 PM, said:

Quote

When starter homes become affordable the entire home building cycle can restart.

I'm not sure why the building cycle should restart. I read that there are something like 2 million perfectly good homes that are unoccupied due to foreclosure. Why would we be building more right now?

what happened to the people who were in them?

Do you mean why are they no longer in their houses (they couldn't afford to make their payments, often but not always due to job loss) or do you mean where are they literally (relatives houses, living in their cars, homeless shelters)?

Either way, what's the difference. Lots of people need a place to live right now, and there are lots of empty houses. I simply used those two facts to argue that we don't have much reason to be building lots more houses right now.

well we do have many homeless, so i guess it would be a good idea to move them into the empty houses.. if any of the homeless are so because they lost a home, and if that house is now empty, we could let them move back in

[Winstonm]

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But given what I can discern, most of what you said is fine if your goal is 100% economic efficiency and 0% worrying about millions of homeless people. However, my goal is something a lot closer to the reverse of that.

Don't make the mistake of equating homeless with shelterless. The fact that people lose their homes and have to rent does not put them out on the street. What puts them out on the street is loss of jobs. The economy is what provides jobs. So to worry about an economy that can provide jobs is to worry about millions of homeless people.

Quote

Frankly, I find it rather abhorrent that your view seems to be people who lost their homes are all guilty of something and have to pay for the fraud perpetrated by the entire system by having no place to live.

I cannot fathom how you come to that conclusion. I have said over and over that the reasons for protecting prices are wrong - protecting home prices is about protecting the banks who lent the money, not the people in the homes. People in homes have to worry about monthly payments, not the value of their home. Only if they need to sell is the real value of importance.

Again, losing a house for which you put $0 dollars down payment and having to move into an apartment is not really abhorrent - what is abhorrent is using tax dollars to support the home price so the banker won't lose as much money as he should for lending too much on an overvalued property.

Quote

Question: If someone bought a house they could afford with their (supposedly stable at the time) current job, then they lost their job and could no longer afford the house, then what exactly have they done wrong?

Nothing. I never said they did anything wrong. However, people losing homes due to lost jobs is not what caused the present credit crisis and housing slump.

[H_KARLUK]

It will not make a lot of noise. Many disfunctional things will be removed by such programs.
One may expect to stabilize any price. Hmm, th prices aren't dictated by markets all around th world ?
So can anyone has right to claim that parallel Th Doctors cut, burn, torture th sick, then demand of 'em undeserved fees ?
Did not Thomas Jefferson - {American 3rd US President (1801-09)author of the Declaration of Independence,1762-1826)}quote “The natural progress of things is for liberty to yield and government to gain ground.” ?

[Winstonm]

This on Yahoo News right after I posted above:

Quote

WASHINGTON – As the economy continues to struggle, the public is growing increasingly concerned about losing jobs, not having enough money to pay the bills and seeing their retirement accounts shrink, according to an Associated Press-GfK poll.

Nearly half of those surveyed said they worry about becoming unemployed — almost double the percentage at this time last year.

The poll released Wednesday also found public support dipped slightly in the past month for the $787 billion package of tax cuts and government spending President Barack Obama signed into law this week on the promise that it will save or create 3.5 million jobs and re-ignite the economy.

I do not see expressed concerns about the falling value of home prices.