patrick.net

"If you're underwater through no fault of your own and can't refinance, this plan changes that," Obama said in a speech in Falls Church, Va. On Wednesday.

Oh great, thanks Obama. The people who have school loans and 2+ kids and car loans got a massive house loan at over 4 times their annual salary and while living month-to-month, the bread earner lost their job that required no specialized education. Awesome. No fault of their own of course. No freaking accountability for anyone anymore. Spend and spend and when you hit a bump in the road, cry to the government that things are unfair and everyone else is getting bailed out so you should too.

Despite what the guy with a picture says, the banks are NOT going to be allowed to make bad mortgage loans and sell them as securities.
1. US govt policy is against it.
2. the suckers who "invested" in them lost money. there will be no buyers ever again.

Other things will be the next bubble, but it's not gonna be real estate.

This is a nice way to clear out questionable titles too. All in all a good, populist way to help banks and stick the bill to tax payers. Cause you know for some of these folks saving some $400-500 a month isnt enough to keep them in a home thats of questionable afforability.

The thing that pisses me off is that we still have no price discovery. I know I'm preaching to the choir but that was the first thing I thought of when I heard Obama bring this up.

bgamall4 says

Once the big private equity guys get involved, it will be much different than it is now.

How deep is that well?

Is there enough REAL private equity interest to mop up millions of homes?

I've asked this same question in other places.

To me it smacks of "the foreigners will swoop in and prop things up!" which was the preferred Bay Arean BS a couple years back.

bgamall4 says

You still don't get it do you. The ponzi was set up by the banksters. They through securitization were at fault for the housing bubble. The responsibility for one getting too much house has always rested with the bankers, the UNDERWRITERS. But when they are banksters they don't give a crap.

It's common knowledge the banks are at fault. I just don't think the homeowners that can't pay their loans should all be saved. If you sign the deal with the devil for a house you shouldn't have bought, you need to man up and take responsibility for the consequences.

bgamall4 says

No, you are wrong. The IMF recently came out for a rekindling of the securitization of loans and Wells Fargo says they must be all guaranteed by the government. The millenials who are tired of renting will likely jump at an easy money loan, and won't listen to their parents.

clambo is correct. The government will not guarantee future poorly underwritten loans.

bgamall4 says

You read about how private equity is set to invade the housing market.

So Mitt Romney is going to take over the housing market? So now we know why he said that the govt. should not stop foreclosures. He and hi cronies want to buy up all the foreclosures for pennies on the dollar.

clambo says

House prices are going down, it's gravity. The bubble will deflate after it has popped.

The ramifications of another large scale crash from current prices would be far too devastating to our economy for the government not to interfere. Think about it...

Lowering home prices much further from here will eventually just put downward pressure on incomes..... If i'm an employer and I know it only costs you $100K for a really nice 4 bed/2bath home with a pool in Los Angeles... Why would I ever give you a raise? And entry level college grad making $30K a year could easily afford a sweet home at $100K...

Higher cost of living is what pushes wages higher... Rooting for lower home prices, you might as well root for a pay cut.

There is no easy solution to the mess we've gotten ourselves into... Lower home prices will cause all sorts of unexpected societal problems that include practically bankrupting a generation of 25-35 somethings who bought in the past decade... and have the largest student loan debt in history.

A generation of renters? Maybe.. What will happen when the current generation reaches retirement and they spent all their retirement trying to save an underwater home... and still lost their home... and now the government.. (the taxpayers) have to support them for the rest of their lives.

It's far too naive to think lower home prices is the cure. I'm thankfully in a decent position that if my home value dropped in half from the current level... I'd have some options... (as long as I kept my job). But would I cut back all spending elsewhere... ? hell yeah.. I'd save because I know if i had to sell I'd have to take a loss and need cash in the bank to do so. A generation of current owners hoarding cash and just staying home watching TV isn't gonna spur our economy.. And that's what is happening now to those that bought in 2006.. but can still afford their mortgage.

Until home prices stop dropping... People are not going to go out to eat.. or spend money freely. They are going to pay down debt.. and hoard cash. The government doesn't want this... so they will do whatever they can to improve the housing market... Or atleast prevent another large scale crash... Even if it means a $20K hand out to new homebuyers... larger mortgage interest credit... debt forgiveness...

If home price drops continue to accelerate.. Look for all of these options to be put on the table post-election.

tatupu70 says

clambo is correct. The government will not guarantee future poorly underwritten loans.

Sure they will, if the campaign contributors want them too. They'll just back them up with a taxpayer guarantee.

StoutFiles says

If you sign the deal with the devil for a house you shouldn't have bought, you need to man up and take responsibility for the consequences.

Banksters first.

Los Angeles Owner says

he ramifications of another large scale crash from current prices would be far too devastating to our economy for the government not to interfere. Think about it...

Lowering home prices much further from here will eventually just put downward pressure on incomes..... If i'm an employer and I know it only costs you $100K for a really nice 4 bed/2bath home with a pool in Los Angeles... Why would I ever give you a raise? And entry level college grad making $30K a year could easily afford a sweet home at $100K...

Higher cost of living is what pushes wages higher... Rooting for lower home prices, you might as well root for a pay cut.

There is no easy solution to the mess we've gotten ourselves into... Lower home prices will cause all sorts of unexpected societal problems that include practically bankrupting a generation of 25-35 somethings who bought in the past decade... and have the largest student loan debt in history.

Prices became disconnected with incomes in the bubble, all that anyone is really asking is that they fall back in line with incomes without being propped up artificially. Incomes haven't statistically grown much over the past decade, but housing prices increased significantly. The correction has already happened in some places, I don't think another correction in some more local markets is going to have the broad impact you are describing. I think the doomsday scenario you paint is exaggerated.

Median income of an area is a very misleading indicator of what property values should be!

for instance... http://projects.latimes.com/mapping-la/neighborhoods/income/median/neighborhood/list/

Median income in Santa Monica, CA is only $69K... yet look at median income in Porter Ranch.. (north of Northridge on the outskirts of the san fernando valley) is $121K. Now Porter Ranch is a nice area... but based on median income home prices should be way more expensive than in Santa Monica.

Median income is bunk for any areas with large rental markets/apartment complexes.

You have a lot of low income renters packed like sardines in studio apartments lowering overall incomes for areas.

bgamall4 says

Ha. That is what you think. You read about how private equity is set to invade the housing market. Well, this is a world wide premeditated plan and it will impact housing prices both on the upside and on the downside. Read this and weep
http://www.hic-net.org/articles.php?pid=1724
Understand that this is something that was working in Europe in the housing boom. But now private equity will swoop down and take over foreclosures in a huge way in the US. Private equity is hot money speculation!

I'm sorry. It just makes no sense at all. Why would private equity want to buy up poorly underwritten loans? In the past, people were caught up in the real estate only goes up syndrome. Not so anymore. Doing it now would be throwing money out the window. Why would private equity want to knowingly throw money out the window??

futuresmc says

Sure they will, if the campaign contributors want them too. They'll just back them up with a taxpayer guarantee.

I know it's funny to say that, but it's ridiculous. Bailouts are NOT politically popular. Most Americans are selfish and resent that someone else got help and they didn't.

futuresmc says

StoutFiles says

If you sign the deal with the devil for a house you shouldn't have bought, you need to man up and take responsibility for the consequences.

Banksters first.

Well the government has already decided the banks won't be held accountable. So if it's either we punish the irresponsible home owners or the intelligent savers, I choose the former.

bgamall4 says

Not loans. Foreclosed properties, for pennies on the dollar. That will give these big firms massive clout in any easy money bubble down the road.

OK--my problem is with your theory that there will be an easy money bubble down the road. I see zero chance of that happening.

bgamall4 says

If securitization is kick started again, there will be easy money. Will there be liar loans? I don't know. But once a bank can send off loans to investors, next time with a government guarantee, anything can happen. It is in the hands of the regulators.

Securitization doesn't work if nobody will buy the securities. Investors won't buy crap loans. The government won't guarantee crap loans. The regulators won't have to do a thing because nobody will try to reinstitute the poor underwriting standards again.

I think Rep Bachus is greatly oversimplifying things. As politicians generally do.

StillLooking says

THis is just nuts. How can anybody buy a house unless the market hits bottom? How is there a market without price discovery?

A good reason to vote against Obama...

LA Owner, sorry.
Housing values going down is gravity. Nothing and no one will be able to stop it. The reason is they went up in an asset bubble.
If house prices keep falling, which they will, the result will be meaningless on the labor market and wages.
Wages and labor reflect the supply and demand of the services of the labor, and the prices employers want to pay them.
If the house prices and rents fall, the employees of In n out Burger will not be getting paid less. The two are completely unrelated.
There is a labor market, and a real estate market.
Real estate is a bubble that cannot be reinflated because no one will lend money to those who are unable to pay.
The 20% down payment disqualifies those people who do not have significant cash saved up.
Fannie and Freddie are constantly LOSING money and they have to come begging to Congress to bail them out. Congress is in no mood to keep writing them a blank check.
Fannie and Freddie originate the mortgages that they keep losing money on.

clambo says

If house prices keep falling, which they will, the result will be meaningless on the labor market and wages.

Wrong. As house prices lose money, people lose money. When people lose money, they buy less. When people buy less, businesses produce less. Finally, when businesses produce less, people get laid off. And when unemployment goes up, wages go down.

tatupu70 says

As house prices lose money, people lose money. When people lose money, they buy less. When people buy less, businesses produce less.

OR:

As house prices fall, new buyers will have less of thier money tied up paying for a place to live. That frees up more money for eating out, new cars, new appliances, vacations, and so on. The money that does not go to bank interest can instead fuel the non-FIRE economy. Employment goes up.

HeadSet says

As house prices fall, new buyers will have less of thier money tied up paying for a place to live. That frees up more money for eating out, new cars, new appliances, vacations, and so on. The money that does not go to bank interest can instead fuel the non-FIRE economy. Employment goes up.

Eventually that might be the case, but that only works if new buyers are able to buy their place for less than their rent. A lot of people will be losing money and a lot of people will be losing jobs before that happens.

I'm not saying we need to keep housing artificially high. I'm just saying that falling housing prices do cause pressure on employment and wages.

tatupu70 says

As house prices lose money, people lose money.

No, they lose the ability to borrow money against their home. But as HeadSet said above, lower housing costs are a net benefit to the economy and a really necessary price adjustment.

The Rent Is Too Damn High.

Realtors Are Untrustworthy says

LOW PRICES accelerates the velocity of money, this increases pool of discretionary income which increases discretionary spending.

Sure, if you could magically lower prices while simultaneously giving every current homeowner a check for their downpayment that they just lost.

Low prices are good. No argument for me.

But the process of getting from high prices to low prices is very, very bad. And very painful.

bgamall4 says

That has not happened so far. But over time it could happen. But then, if people are saving money buying, demand will increase and voila, another possible bubble.

Gary Anderson strategicdefaultbooks.com

Unless other key industries get their paws on it. For instance I'm paying 75% more for my son's health insurance than a couple years ago. My cellular company would love my family to spend 50% more to add web browsing.

Or there's a shift in saving habits influenced by media and popular culture. It used to be that lots of people smoked tobacco in movies, restaurants, and at the back of aircraft. Now that's perceived as dirty and it doesn't happen as much. Dave Ramsey and Suze Orman seem to have quite a following for their messages on more savings and less debt.

bgamall4 says

As house prices fall, new buyers will have less of thier money tied up paying for a place to live.

Actually, the exact opposite has happened. Despite falling in price, housing is LESS affordable today to most people than during the bubble. How is that possible? Simple: Because incomes have fallen more than home prices have.

Unfortunately, I don't think most people out there are as intuitive as us. I know so many people that are still caught up with needing to buy rather than wait for a bottom. Most people think it's the bottom now and believe the sales pitch. Most sellers believe it too. 1000 sq ft, 100 yr old shed in Pasadena is asking for $800k. 2 blocks over, $1.4 MILL for a new 2500 sqft condo with $500 HOA and no guest parking. They all say we can wait it out cuz someone will buy it. And they have. I don't get it. While I rent an 1100 sqft townhome with guest parking 1 block away for $1750 with a pool and don't have to pay for water or trash.

bgamall4 says

But then, if people are saving money buying, demand will increase and voila, another possible bubble

Prices falling from bubble highs do not set the stage for a new bubble. Left alone (without subsidies or artificial easy money) the supply/demand dynamic will set a new equilibrium price. The equilibrium price may overshoot a bit on the way down and thus rise a bit afterward, but the eventual equilibrium will not rise back to bubble highs. A return to bubble highs would require the madness of HAMP, principle forgiveness, subsidies for homedebtors, gov buying and buldozing homes, or other attempts to create a housing floor.

HousingWatcher says

Actually, the exact opposite has happened. Despite falling in price, housing is LESS affordable today to most people than during the bubble. How is that possible? Simple: Because incomes have fallen more than home prices have.

So much wrong with that statement... Median incomes have fallen a few thousand dollars... while interest rates have fallen 3+% and home prices have fallen 40%...

A median income of $80K x 3 = $240K affordable home
A median income of $75K x 3 = $225K affordable home

Interest rates have more than made up for the drop in incomes.. atleast in terms of monthly nut.

The biggest problem is lack of job security, anxiety, group think, fear, bad credit, tightest lending standards in the past 30 years, media constantly calling bottoms that never materialize for 5 straight years...

Even most bubble bloggers predicted a bottom in 2011-2012... back in 2006. Now they've all extended that to 2020 or later... That's what's keeping people from buying a home.

Los Angeles Owner says

Median income of an area is a very misleading indicator of what property values should be!

for instance... http://projects.latimes.com/mapping-la/neighborhoods/income/median/neighborhood/list/

Median income in Santa Monica, CA is only $69K... yet look at median income in Porter Ranch.. (north of Northridge on the outskirts of the san fernando valley) is $121K. Now Porter Ranch is a nice area... but based on median income home prices should be way more expensive than in Santa Monica.

Median income is bunk for any areas with large rental markets/apartment complexes.

You have a lot of low income renters packed like sardines in studio apartments lowering overall incomes for areas.

Anyone have a better way to estimate what home prices SHOULD BE in Santa Monica, CA for instance? When median income states 69K a year in reports listed above... And other areas like Porter Ranch, CA list median income of $121K yet have FAR FAR lower home prices per sq foot...

How can anyone say median income is an accurate indicator of home prices?

bgamall4 says

May I remind both you that there have been 4 housing bubbles in the UK in 40 years. That is one every 10 years. The UK is the mentor of Wall Street

What is your definition of a bubble?

Bellingham Bill says

No, they lose the ability to borrow money against their home. But as HeadSet said above, lower housing costs are a net benefit to the economy and a really necessary price adjustment.

I have to disagree with that one. When prices fall, you lose money. I don't buy into the--you don't lose any money until you sell argument. If people have an asset that they paid 500K in 2006 that is worth 300K now, they will feel like they lost money. Guaranteed.

Again--lower prices are good. Falling prices are not.

Head set and housing watcher have a clue. The people who are not mortgage debt slaves are those who are now where GDP is actually growing. Hint: NOT in the USA or sclerotic Eurozone countries.
My friends in Mexico all do not have a mortgage! They built their houses paying cash to guys to slowly build them. Funny thing is down there the places are all concrete and you see rebar sticking up towards the sky. This is so they can build another floor on top someday. My friends all did this, it was interesting to visit each year and see new rooms.
ONE guy I know has a mortgage, but he's the exception. He is also the highest paid guy and he works for a government institute that takes good care of him.
The others have not enough cash to buy new CARS either. They rarely have credit card debt either.
So, a guy in Mexico making $2000/month has probably more disposable income as a guy up here with $5000/month income. Property tax for example was $70. I imagine the situation is similar in places like Brazil, Colombia, Peru, etc.
The no or low personal debt is also seen in the other developing countries. They can buy an iPad with cash after saving up a couple of months.
Falling prices being good or bad is irrelevant, it's like gravity. It's neither good bad nor indifferent. "Gravity sucks but it's the law."
I also know of many places where the house prices zoomed very high and fell very hard while income changed very little over that time.

clambo says

Funny thing is down there the places are all concrete and you see rebar sticking up towards the sky.

I saw this in Sicily (Italy) also. The reason, I was told, is that unfinished homes are not taxed. Homes stayed "unfinished" forever.

bgmall--

No, that didn't help. I was just curious what your definition of bubble was--what % rise in real asset price over what time period.

clambo says

ONLY when banks started opening the floods of easy money to anyone breathing to buy houses did the value of houses rise anywhere above inflation.

on the otherhand we also saw consumers with unrealistic expectations of future appreciation.

Low rates and easy credit was in some way a response to the irrational thinking by many.

http://www.d__GPqOVNbE

During prior boom-bust, resulting in recession the FED also reduced rates as RE prices also decline. Both went down in tandem.

bgamall4 says

This may help you. The most powerful was the UK Big Bang of 1986, of Thatcherism, that set the table for the Blair and the massive bubble based on liar loans, which in England were called self certified loans. Isn't that nice?

You want to add Germany to that .. but did they NOT have Liar loans as they absorbed former East Germany in 1991. All it did was fuel speculation by West Germans.

A bubble is a bubble by any cause created. Of course there was easy money and plenty of speculation.. created by the Govt.

bgamall4 says

Any significant price rise over the rate of inflation in a short time. If you learned from Patrick you would know that. :)

Even as vague as that definition is, I would disagree with it. Bubbles are extraordinary events. Prices rise and fall routinely.

Obama works for Wall Street. He has 10 Goldman Sachs former employees on his White House Staff. It seems some people are fans on here and I can't believe it. Government provides new loan to buyer who is 50% upside down on million dollar home that should probably be worth $250K. Bad bank is going to lose $500K after they foreclose on bad loan. Thanks to gov they get paid in full when gov refinances the loan that is not refi-able in a free market. Bad bank walks away paid in full for bad loan and is no longer bankrupt thanks to stealing money from tax payers. THE END

bgamall4 says

No politician believes in price discovery. And the Republicans likely want another bubble even more than most Democrats, so they won't want price discovery either since you cannot have price discovery in a bubble.

Gary Anderson strategicdefaultbooks.com

Seriously? Who is this guy? Republicans and Dems are the same. Wall Street employees for the most part. Ron Paul is the only one who actually voted to let the big banks fail. The only real Republican we have.