Artificial Housing Respiration

Government-sponsored housing inflation is locking the next generation out of homeownership.

No major newspaper seriously questions the truism that foreclosures destroy neighborhoods. No news network doubts that “troubled borrowers” are overwhelmingly good Americans who have been set back by a job loss or medical emergency. And what kind of anti-American Shylock would claim that you shouldn’t give bad borrowers government-backed loan modifications, cutting their mortgage payments by 20 percent?

The interesting new wrinkle on those old, false arguments is that real estate interventionists no longer pretend they have any real goal other than keeping house prices inflated. Even a year ago, the arguments for rescuing real estate prices were phrased in broad, spillover-style metaphors—“meltdown,” “implosion”—that suggested a concern for the common bystander. Today, the argument is a lot plainer: We need to keep existing homeowners (or home borrowers) from experiencing any further decline in closing prices. When I ask Rep. Brad Sherman (D-Calif.) to explain his support for extending exorbitant Federal Housing Administration loan guarantees even while the real estate market continues to cool, he replies, “The economy of Los Angeles would tank if prices fell another 50 percent.” Here’s how Rep. Barney Frank (D-Mass.), in an October interview with The New York Times, justified his support for the agency’s shoddy lending standards: “I don’t think it’s a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast.” Economy.com front man Mark Zandi puts it even more bluntly. The housing market, he says, “is showing improvement only because it is on government life support.”

Life support is expensive. When that troubled borrower gets a 20 percent haircut, his bank has to take a loss, and the bank is compensated for the loss by you, through the $50 billion Home Affordable Modification Program. The Treasury Department has paid more than $100 billion to allow the failed government-sponsored enterprises Fannie Mae and Freddie Mac to keep on guaranteeing questionable loans. Fannie and Freddie, in turn, have been expanding rather than reducing their loan portfolios—the opposite of what you’re supposed to do when you’ve got an unmanageable debt load.

Sherman is sponsoring legislation that will let the government keep increasing its debt exposure, and on more expensive houses. As an economic emergency measure, Congress raised the limit for the Federal Housing Administration’s guarantees in high-cost areas to $729,750 in 2007, up from $625,500. With 20 percent down, that’s essentially a $1 million home being funded by a government subsidy for the wealthy. When I raise this point with Sherman, he replies (inaccurately), “Well, you don’t live in Southern California.”

Interestingly, Sherman opposed the Troubled Asset Relief Program and has taken a fairly courageous stand against the Obama Treasury Department’s proposed resolution authority for banks, in both cases out of principled opposition to the too-big-to-fail trend in finance. Yet he sees no contradiction between those stances and his goal of encouraging banks to take on more and bigger taxpayer-guaranteed mortgage loads. Unfortunately, the evidence is clear: Since 2008 the big four banks—Wells Fargo, Citibank, Bank of America, and JPMorgan Chase—have not only grown bigger (they now control 60 percent of American bank business) but have done so by expanding their mortgage portfolios (with $800 billion in first mortgages, 8 percent of the national total).

It’s easy to see why interested parties such as the National Association of Realtors would support interventions such as those above and the $8,000 Home Buyer Tax Credit. (It’s notable, however, that sales data in the three years since the beginning of the real estate collapse strongly suggest that a low asking price is by far the most important factor in whether a house sells.) What’s not as clear is why so many other interventionists are convinced that re-inflating the real estate bubble serves the common good. Frank, Sherman, and others maintain that their efforts are a matter of constituent service. “If you’re talking about international economic theory, that’s a separate matter,” says Sherman. “But there is no practical argument that [underwriting $1 million homes] is not in the interest of the district I represent.”

I guess that depends on what the meaning of interest is. If foreclosures really destroyed neighborhoods, we’d expect to see some evidence in, for example, crime rates, which continue to decline around the country. The Washington Post, in a 2008 story on foreclosure-heavy Fairfax County, Virginia, pronounced, “As Foreclosed Homes Empty, Crime Arrives.” Yet a year later, year-to-year quarterly statistics from the county’s police department show crime down 1.8 percent, with double-digit drops in murder, rape, and robbery.

Meanwhile, according to the Federal Housing Finance Agency, “unemployment” and “illness” account for just 9 percent and 6 percent, respectively, of overall defaults. “Excessive obligations”—which in English means you bought more house than you could afford—causes twice as many defaults as unemployment. And the shockingly high rate of re- defaults on modified loans—more than 60 percent in some classes— argues strongly against loan modification as a public interest.

More to the point, keeping real estate inflated is not an abstract public choice experiment, in which the benefits are concentrated and the costs distributed. The policy has a very discernable victim class: would-be home buyers, whose interests are served not by tax credits or massive debt commitments but by lower asking prices. Perversely, foreclosures are the highest they’ve ever been in American history, yet it’s harder than ever to buy a house. According to the National Association of Realtors, the median down payment by first-time buyers, even after a three-year, debt-driven economic shock, is just 4 percent. One-third of homes are still being purchased with no money down. As we learned (or thought we learned) in 2006, numbers like these are a recipe for cascading misfortunes. Renters should be angrier than ever.

Imagine a yard sale outside the biggest, fanciest house in town. You get there early, eager to buy cool stuff cheap. But every time you see something you like, a police officer comes along with a Sharpie, crosses out the price, and writes in another number that’s two or three times higher. Scale that up a bit, and you have the Obama housing plan.

Tim Cavanaugh (bigtimcavanaugh@gmail.com) is a contributing editor at reason.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Old Mexican||

    Another photo of Barney Frank??

    ** HURL!! **

  • Old Mexican||

    No major newspaper seriously questions the truism that foreclosures destroy neighborhoods. No news network doubts that “troubled borrowers” are overwhelmingly good Americans who have been set back by a job loss or medical emergency.

    Hmmm, if I had a penny for all those talking heads that hoped for "anything" to be done to stop the foreclosures in order to "return to the path of recovery", I would be a very rich scrap-copper broker.

  • LarryA||

    What all the bozos in D.C. and unfortunately too many homeowners and realtors don't understand is that a house is worth $0 until someone can afford to buy it.

  • ||

    "What all the bozos in D.C. and unfortunately too many homeowners and realtors don't understand is that a house is worth $0 until someone can afford to buy it."

    And thus all command economies are doomed to fail, predicated as they are on objective valuations.

    That a house can be worth less than the sum total of its wood, it's copper, and its concrete is an arrow in the neck of the neo-Keynesian academics and political marketdroids, let alone that idea that it can be worthless. Apparently their preconceptions effectively blind their cognition when they look at places like Detroit.

  • Guy||

    In Dickens' time, everbody owned a house. In the U.S. Everything started to go down hill with the GI Bill. Shit, before the government ruined the motication in old geezers by handing them Social Security checks, most seniors owned their own houses. Now, because of the government dole, they're begging on the streets, which used to be paved with gold before the government poured cement on 'em. Bring back the old days!

  • ||

    home ownership was going up before the government decided to give it a shove.

    If you really believe giving people loans they cannot afford is HELPING them, why aren't you out giving away your money to low income buyers?

  • American Delight||

    I for one am tired of subsidizing owners that got in over their heads. Actually, I shouldn't call them "owners" until they actually OWN their home. Until then they're either borrowers making timely payments or they're just plain squatters.

  • Guy||

    Yeah! What the fuck's wrong with flop houses and tents? Losers aren't winners.

  • ||

    Hey now. Let's not call people losers. We're in the Days Of Hope And Glory now, Guy, inaugurated by The Hopester himself. So get with the program:

    There are no losers.

    Just winners with no winnings.

  • Piltdown Man||

    Especially the "owners" who owe way more than they originally paid for the house thanks to cash-out refinancing.

  • JB||

    As a renter, I am beyond tired.

    I am really fucking pissed off.

  • ¢||

    “Well, you don’t live in Southern California.”

    Here's why, scrote-neck:

    In an isolated little ghost town there, my grandpa's house's tax assessment value increased to over 1000% of its purchase price between his buying it in the mid '40s and his death in the early '90s. Over that whole period, the house didn't change by one fucking brick, and the town didn't change, except that its population decreased by about 100% of its residents under retirement age. Because no one could afford to buy a fucking house there.

    Grandpa ¢'s was a nice house, the best in town and the biggest, but not deep into seven figures nice, or even close. My house is pretty much the same as his was, in the dead center of a much bigger city, and it cost me about $650,000. I have the same house somewhere else is because I couldn't afford to inherit one in SoCal.

  • ||

    Grandpa cent should have gotten a living trust and if you are going to be passing anything onto any baby cents, you should get one too.

    Legal loopholes to keep the tax assessor at bay still exist, but who knows for how long...

  • ||

    Imagine a yard sale outside the biggest, fanciest house in town. You get there early, eager to buy cool stuff cheap. But every time you see something you like, a police officer comes along with a Sharpie, crosses out the price, and writes in another number that’s two or three times higher. Scale that up a bit, and you have the Obama housing plan.

    +5 Insightful

  • MNG||

    Don't libertarians make similar arguments about college education, that the government's "aid" is making the price go up so bad many people won't be able to go?

    Yet assloads more people realistically have a chance to and go to college since government got in on subsidizing it than when you had to hope for private or church charity...

  • ||

    Government guaranteed college loans. What could possibly go wrong?

    According to new numbers from the U.S. Department of Education, default rates for federally guaranteed student loans are expected to reach 6.9% for fiscal year 2007. That's up from 4.6% two years earlier and would be the highest rate since 1998.

    Why do you bring up one fucked up federal loan program to defend another?

  • MNG||

    Because of how much success it has had. College is more accessible than ever.

  • ||

    The distinction is what people are going to college for these days vs. the pre-gov't loan days. Back in the days, people went to college largely to learn specific trades, namely engineering, medicine, or law. Those are fields that require higher education and that reep specific rewards. Nowadays, we have a system that encourages high school graduates to enter into college simply because that's the next thing. They mire themselves in steep debt that they'll pay for over the following 20-30 years in order to get a degree in cultural anthropology, ethnic studies, or communications after dicking around for 3 years uncertain of their major or direction. As the pool of college students has increased, the relevance, education value, and general indication of critical thinking that a college degree used to represent has all but diminished with the exception of a few select courses of study.

  • Hank||

    Word. Not to mention colleges exist for publishing research studies. Get published, get tenured. Stick your whiney indebted education up your arse. A college education for the most part is a watered down worthless piece of crap that gets your foot in the door for your new government job. Unless you shell out a little mo' for that graduate degree. Get bureaucrats out of public k-12, have parents take some.... what you call it...responsibility for their children, and focus on teaching children how to teach themselves, and you might not have the idiotic electorate we have today. No, I am only kidding - hope and change yo.

  • OMG||

    +1

  • Marc||

    Remember when housing was more accessible than ever, and yet housing was more expensive than ever?

  • ||

    Because of how much success it has had. College is more accessible than ever.

    --spoken by a self-described doctorate in political science thus proving again that, point in fact, lowering the standards helps no one.

  • MNG||

    Look, briareus, I know you want to see my dick, but man, I'm not going to show it to you...

  • ||

    Your penis is unimportant to everyone but yourself, and you are a waste of diploma printer-paper.

  • OMG||

    When I decided to go to law school, the amount of student aid I could get (including government subsidized loans) was rather limited. This was due to the fact that my mother owned a house of substantial value. As a result, even though I had not talked to my mom in several years, was in my late 20's (and on my own for well over 14 years) and had very little money, the gov't decided that I had the means to do it on my own.

    So, I did the calculations, decided that my future earning potential with the degree was worth a loan and the risk and took out a private loan.

    It's called life - if the decision is the right one, go out and get a loan or save up the money. Why the hell does the government have to pay for everything?

  • ||

    "It's called life - if the decision is the right one, go out and get a loan or save up the money. Why the hell does the government have to pay for everything?"

    Because no one should have to pay the consequences of their actions, OMG. Because everyone's a victim. And Because every victim needs a Big Brother to stand as their sentinel.

    Somebody has to pay for it, and that somebody should be you. Why? Because you are part of the system of oppression (that same system that is victimizing you).

    Alpha Omega, baby. Government cradle to grave.

  • ||

    Can't speak for everywhere, but the public universities in KY tend to raise tuition in near lockstep with the Kentucky tuitition assitance increases.

    KY HS graduates get an instate tuition grant based on final GPA, each year it's increased and each year in state tuition increases nearly the same.

  • Paul||

    And then up went the prices because of this large pool of free money that appeared. Then as prices went up, politicians cried about the cost of an education, and promised more subsidies. The pool of free money got larger, and so went the prices...

    The point being is yes, MNG, we can keep putting people in houses by simply expanding home ownership help ever higher. See? Nothing wrong, more people than ever own their own home!

    Regardling the college analogue, there are also plenty of reasonable arguments that assloads of people don't need to go to colledge, but we've kind of rigged our system so it's college or ditch digging.

    I believe there's an equally reasonable argument that assloads of people don't need to own their own home.

  • MNG||

    I think a society with a higher percentage of its members college educated and owning their homes is better than one with a lower percentage. Silly me.

  • Paul||

    But that's the simplistic view. And what got us to where we are.

    So in your view, it's either an expensive 4-year college education for everyone or digging ditches. Nothing inbetween? No quality two-year trade programs for high paying jobs?

    As for home ownership, is it possible, just possible that everyone isn't in a position to own their own property? That someone, somewhere might have an income or lifestyle that might lend itself to renting?

  • MNG||

    Of course I think there should be things between college and ditch-digging and yes some people should not have or need a house. But that's not what I said. I said "more college educated people and more people owning the homes they live in are good things."

  • Marc||

    Seriously, why are these good things?

  • ||

    The single most successful person I know since childhood has no post-high-school education. A while back he wrote a check for a Lamborghini, just to see what they are about. Lives where he wants, does what he wants, and is not tied to accumulating things or opening ever larger homes. Possessions pass through his hands like water; few more confidently peaceful men have I ever met.

    Having a degree and owning a house matters most to people like MNG who have a degree and own a house and are forced by their cojones problem to constantly prove their worth through externalities.

  • MNG||

    I think education is good. Milton Friedman once said that one good argument he saw for public schools is that an educated society in theory should be less easily duped into bad rule. There are many inherently good things about education imo.

    Owning a home is a good thing to most people. Why does anyone like ownership of anything over rental?

  • ||

    "Owning a home is a good thing to most people. Why does anyone like ownership of anything over rental?"

    Beg the question often?

    You are not qualified to speak for anyone but yourself (and I suppose for whatever runt groinfruit is swinging from your drapes).

  • MNG||

    Bri, again, if you want to see my penis so bad as this you are going about it the wrong way...

  • Bob||

    MNG: Hey, look at this plate of mashed potatoes!

  • Sean W. Malone||

    Friedman ALSO pointed out (regularly) that subsidies for college were one of the biggest redistributions of money directly from the poor (who are still paying all manner of taxes - directly, such as on gas & cigarettes, and indirectly through higher rental prices to cover their landlord's property taxes) to the middle class & wealthy who are primarily *going* to these colleges.

  • MNG||

    Funny as Friedman got his academic break at a subsidized state university...

  • AmericanBlasphemy||

    DRINK!

  • Sean W. Malone||

    And if that wasn't literally the only option for economists and people who do the kinds of things Friedman did, that would be a mediocre point. Awesome.

  • robc||

    To loosely quote Dave Ramsey, home ownership can be a blessing or a curse. It isnt inherently a good thing (thats me, not him, but saying the same thing).

    Using his standards (which are tighter than mine but still a good idea), home ownership is only a good thing IF:

    1. you have no other consumer debt
    2. you have saved a reasonable downpayment (not necessarily 20% - this is one area I am stricter than him, I dont think you should EVER buy a house without 20% down)
    3. a 15 year fixed rate mortgage is less than 25% of your take home pay.
    4. you are single or you have been married more than 1 year (this is his rule, dont buy a house in first year of marriage, as a single guy, I cant comment on this, but seems like a good point).

  • ||

    Sure they're good things, but at what cost? Is it worth it to have a degree and be the nominal owner of a house, if it means taking on debt that you can't afford?

  • ||

    Why?

    And why should someone who is not college educated and doesn't own his own home be forced to pay somebody else's ticket?

  • MNG||

    I don't think they should.

    Most people who are not college educated and cannot own a home are in a position to benefit from these types of programs rather than having to pay for them. Libertarians often call these people losers and tell them to stop whining. As a liberal I would simply point out that its highly doubtful that you are funding too many people's college educations or home buying, so relax.

  • ||

    As a liberal I would simply point out that its highly doubtful that you are funding too many people's college educations or home buying, so relax.

    That I am funding a single one against my will is one too many.

    But thanks for being the strutting egoist by telling us how to live and operate.

  • ||

    We know we funded too many people's home buying, it was called an economic crisis only last year. Giving people loans they cannot afford is not being nice or helping them. When the government or FHA does it it's called "help", when another bank does it it's called "predatory lending".

    Either way giving someone a loan they can't afford is bad news. Yet instead of learning our lesson, we are still trying to give tax breaks so people can buy high priced homes, and propping up home prices so they don't come back down.

  • Tim Cavanaugh||

    I think a society with a higher percentage of its members college educated and owning their homes is better than one with a lower percentage. Silly me.

    Inconveniently for you Americans own less of their homes than at any time in the last 60 years.

  • ||

    So in your world, a house-poor person in a house that is on the ragged edge of being foreclosed on, who has a college education that they aren't applying, living paycheck to paycheck, is better off than someone renting a house they can afford, who got relevant education, and has a higher standard of living and a buttload more cash in the bank?

    And you're also assuming that if the government hadn't intervened, that college attendence and home ownership would be below current levels. Care to prove that questionable assertion that correlation equals causation?

  • EJ||

    virtually no other industrial nation subsidized home mortgages and most other industrial nations have home ownership rates similar to ours

  • EJ||

    and as a renter who will probably want to by a home someday, it really pisses me off that my tax dollars are being used to drive home prices up just so it costs me even mosre money... renters get fucked over twice.

  • ||

    The good side of being a renter is that you have much more leverage in renegotiating rents: If your landlord is resolute on her/his price point, you can simply move for lower cost.
    I pay quite a bit less rent now than I paid a short while ago. An owner is stuck with his albatross.

  • MNG||

    Oh shit, you rent your abode. You really are a loser!

  • ||

    This is great. MNG said "Oh shit, you rent your abode. You really are a loser!"

    That I rent is a considered and intentional mode of action. Why? Because it enables me more freedom to grow wealthy. Simply, it works for me.

    Why Rent? To Get Richer!

    "The average real return for houses over long periods might surprise you: It's zero."


    And that's why I view houses for exactly what they are: Consumables.

    Now, while that SmartMoney writer recommends going into stocks, I have a particular aversion to following stocks and a fondness for precious metals, so that's the route I have taken. It's worked very well for me.

    Metals have been rising, and not just because of dollar weakness, gold has been rising against all major currencies. The reason why is because gold is not just a hedge against inflation AND deflation, it is now being purchased as a hedge against worldwide governmental mismanagement of the fiat mechanism itself.

    If you think the average house (with a 17M overhang I think the Census reported) is going to get any better in a worldwide loss of confidence in paper economies, you're fucking dreaming.

    Even funnier, the stock market has had a losing decade.

    The stock market is trading right where it was nine years ago. Stocks, long touted as the best investment for the long term, have been one of the worst investments over the nine-year period, trounced even by lowly Treasury bonds.

    Fucking hilarious.

  • ||

    If you think the average house (with a 17M overhang I think the Census reported) is going to get any better in a worldwide loss of confidence in paper economies, you're fucking dreaming.

    Actually, if you believed hyperinflation was really on the way, one of the best things you could do would be to borrow as much money to buy as much house as possible. Mortgage borrowers were big (relative) winners in Weimar Germany.

    All the debt that policies like the ones MNG supports helped created is why we will have deflation in the near term instead.

  • lukas||

    Mortgage borrowers were big (relative) winners in Weimar Germany.

    Yeah, except... that provided justification for taxing them big time after the inflation was over. The state giveth, and the state taketh away.

  • ||

    "Actually, if you believed hyperinflation was really on the way, one of the best things you could do would be to borrow as much money to buy as much house as possible."

    Indeed. And hyperinflation does look to be an outcome, but I definitely agree not the near term outcome. I am seeing unrelenting deflation near term and into the medium term. I've been making my moves on that assumption and they've been effective. Deflation is the time to pay down debts, not take on new debt.

    Believe me, when I see the tables turn, I will assume debt as early as I can and as deep as I can, for it will then cost little to service it.

  • MNG||

    Oh work hard and smart and make the money and stop your crying for Pete's sake...

  • Hank||

    Depends on the quality of that education, now don't it. Look at W, he was Harvard educated and at the same time the most stupid president MSNBC ever had to report on, besides Palin. Is she not President? She's sure is on "the place for politics." Speeking of... Big O is also Harvard educated, but the smartest person in the world. He is going to fundamentally transform America, just like those tards "the framers" intended. Ben, Thomas, George and the boys were idiots. After Obama, with a big assist from the geniuses in Congress, destroys the economy and the dollar in particular, it will be cool if everyone has trillion dollar bills. I think if everyone had a trillion dollar bill it would just be better. Don't ya think.

  • Hank||

    damn - speaking and she. note to self - read before drinking and posting.

  • ||

    Fixed:

    I think a society with a higher percentage of its members college educated struggling to pay off student loans and owning their homes owing the bank or the government twice what their home is worth is better than one with a lower percentage. Silly me.

  • MNG||

    Yes Graphite, all the people who have college educations and homes thanks to programs promoting accessibility only got one thing from them: debt.

    Oh wait, many of them got an education people would die for (remember those black folks down at U or Mississippi who risked their lives for one?), an education that can enhance their lives as citizens, as human beings etc., while also raising them up to another class (salary of avg. college grad vs. avg. non. grad, go google). And the homeowner gets a house to live, that he can make his own decisions about, security and yes, status.

    Yes, I think a society in which more of these goods are enjoyed by more people is a good one. Silly me.

  • ||

    If they saw what's happening in colleges now, some of them might reconsider risking their lives for it. Things like black people segregating themselves instead being forced into segregation. I'm sure James Meredith would be so proud.

  • ||

    The days of "status" being conferred on homeowners are coming to an end. They were an artifact of the real estate bubble which made mortgage borrowers look like geniuses flush with paper equity. Not to mention that it's an incredibly stupid reason to make a financial decision like owning a house.

    In a few years you will hear people say at parties, "I own a place over in that neighborhood." "Oh really? I'm so sorry."

  • ||

    Not with what they're teaching in college nowadays.

  • Sean W. Malone||

    And assloads of people are burdened with thousands upon thousands of dollars worth of debt that they have little to no chance of paying back within 20 years for an education that has become over-inflated and degrees that are largely meaningless as a benchmark of knowledge... Employers are starting to figure that out too.

  • ||

    But, because we want so many people to go to college, and we've made it so accessible, students are now receiving college credit for what used to be high school level work. (I taught high school a good long time, and am now a graduate student.) So many graduates are getting degrees that are pretty meaningless. We have created grade and degree inflation. Teachers buy masters degrees from paper mills for salary increases, but their students test scores deteriorate.

  • ||

    Don't libertarians make similar arguments about college education, that the government's "aid" is making the price go up so bad many people won't be able to go?

    Government involvement in higher education has been disastrous for students. It used to be possible to put yourself through school with part-time and summer jobs, and graduate debt-free.

    Enter the school loan programs, and now you can get your vastly more expensive degree by going into hock for tens of thousands of dollars per year.

    By de-coupling the cost from the customer, the schools have little if any need to limit their pricing. It's the very same thing that happened when health "insurance" morphed from a risk-mitigation plan into an all-you-can-eat medical services plan.

    -jcr

  • ||

    College and university attendance is no more accessible today than it was 100 years ago.

    "Accessibility" is mere rhetoric.

    In fact, the real price of higher education has increased substantially.

    Prior to GSLs and Pell grants, persons could borrow money from universities at rates of 1 to 3% APR.

    Yet, because tuition prices were so low, a soda jerk could pay off his four-year tuition through summertime work.

  • Dello||

    I'm actually lookin' to sell, so I'm in favor of sky-high (though artificial) housing prices for the at least 6 months or so.

    Where do I mail my libertarian membership card back to?

  • Paul||

    I take it you're not looking to buy back into the same market?

  • Ebeneezer Scrooge||

    I had a snide remark for this but the Spam Demon could not digest it.

  • Ebeneezer Scrooge||

    Although I note, it true libertarian fashion it was a third party Spam Demon.

  • Dello||

    Leaving the country, while we still can...

  • Ebeneezer Scrooge||

    Uh huh. And going to which of the many thousands of paradises out there to choose from?

  • Dello||

    Costa Rica. We already own a house there on about 25 acres (10 hectares), and it's a hell of a lot cheaper than here.

  • ||

    Sell the house for whatever it will fetch and convert it to precious metals. The value of the house is only going to degrade; precious metals show an inverse trend.

  • MNG||

    Says the guy who can't afford to buy a house to live in.

    Dude, take your financial advice from someone else...

  • ||

    Ha, can't afford a house to live in? I specifically avoided the bubble, Jacko, and I'm not buying until we bottom, and we are not there yet. The house that I spocked out for reference is now down 45% and falling. I'll buy it from whoever is defaulting on it when the time comes.

    As for the precious metals, I've been investing in them for over a decade, and in this climate of economic wipeout, where the SP500 itself has lost all gains for the last decade, I am way, way, way UP.

    Complain all you want, MNG. That house is an albatross around your neck, and you will support every reflation action that comes along, regardless of how much it strengthens the hangover.

  • MNG||

    "I specifically avoided the bubble"

    Yeah right, I guess whatever keeps you humming as yoou clean the bathrooms at the plant...

    "That house is an albatross around your neck"

    Nah, I live in my house. It's probably lost value lately, but I don't think about that because I didn't buy it to sell it, I bought it to live in. I have no plans to sell my house for decades, by then who knows what the market will be?

  • ||

    It is an albatross, and its going to wither, as all consumables do, until you are forced to either move from it or start paying for upkeep or renovation, because a house is a consumable.

    I know these things because I have a lot of time to mop the hallways in the basement of the plant.

  • Sean W. Malone||

    Incidentally - you ever play Robert Kiyosaki's "Cashflow 101" game? It's a great & very fun game so I definitely recommend it, but what's amusing about it is that simply because of the difference in debt/interest to income ratios, it's much easier to win (which essentially means getting super rich) if your starting point is something blue collar like being a janitor or whatever, than starting out as a lawyer.

    Had I known and fully understood all this at 16, I might have made different collegiate decisions...... Though, I personally still got a lot of value from my masters degree and the experience surrounding it. I'm not happy about the debt though.

  • Dello||

    Don't need to sell it, as the land is income producing (at an actually higher rate than precious metals are going up). I have a friend in Costa who is nearly 90% in gold, but he has to sell some to have money. Our land produces income every year, and then we still own it at the end.

    I see what you're saying, but it just doesn't apply to our circumstance.

  • ||

    Dello, that's a very desirable circumstance you've got there. Well done.

  • Ebeneezer Scrooge||

    try snide remark again.

    John, he didn't say he wanted prices inflated forever. Just long enough for him to sell out. He'll reapply for his libertarian membership after that.

    Don't you understand plain pure rational self interest?

  • Dello||

    Actually, I won't. I'll still fight for libertarian principals whenever I can, but won't pretend that there would be any place for me in a libertarian society.

  • Ebeneezer Scrooge||

    In a libertarian society there's room for everyone. We'll tolerate anything.

    It is your right to be utterly insufferably intolerable.

  • Sean W. Malone||

    Need any employees down there in Costa Rica? That's definitely my go-to "escape" country right now.

  • ||

    Don't be an employee.

    You're a contractor. ;)

  • Sean W. Malone||

    Well I am an independent contractor now... But I don't mind being an employee necessarily, given the proper terms & conditions.

  • ||

    I've yet to hear a good answer to a question I've been asking since the Fannie and Freddie fiasco went public.

    What is so bad about cheaper houses?

  • ||

    What is so bad about cheaper houses?

    Those of us who saw that bubble forming and didn't get caught in that shit now have to hear constant shrieking from the dullards who fell in with the greedherd and screwed themselves.

    That is the only bad thing about cheaper houses.

  • MNG||

    J sub D
    I guess the argument is that to the extent that for many people their house represents their greatest asset, then to the extent the value of that asset goes down they will be hurt. Of course if you are looking to get a house low housing prices are great. I think this is kind of Tim's point, that this amounts to the government helping the first group and screwing the second...

  • ||

    Not a good answer. You buy a house to live in. If it's an "investment" why doesn't the government treat it like Enron stock?

  • Paul||

    They do. If you live in your house for less than two years, you pay capital gains taxes on it when you sell.

    I know a nice super-liberal couple who bought a fixer-upper house during the price peak to flip it, "moved into it" for two years so they could sell it sans capital gains taxes on it, and the house became ready to sell just as the market tanked. I know not what happened to it. I'm almost afraid to ask them. My guess is, they support artificially inflated home prices, too.

  • ||

    My guess is, they support artificially inflated home prices, too.

    It is near certainty. From your slight description of them, they think and act with the herd. The amusing hypocrisy is of course their maneuver to avoid the capital gains tax, when as super-liberal types they should be volunteering to pay it. Or more.

  • MNG||

    I said it was most people's biggest asset not an investement. I do realize that some people treat it as an investment, or that maybe they are the same thing lots of times...

  • ||

    The point of having assets is not to have a bigger number on your net worth figure. The point of having assets is to live better. The point of production is consumption. And cheaper houses mean people can live better for less work.

  • ||

    And cheaper houses mean people can live better for less work.

    Correct, because a house is a consumable and should be looked at as one.

    In such view, the less a house costs the better, and a house should never wisely be someone's largest asset. That position should more wisely be reserved for land property itself.

    I laugh when I drive by the huge ugly shitwood houses stacked on the little plots of uselessly zoned land, and I know their prices will largely correct downward (as well they should).

  • robc||

    Houses truly are consumables. They drop in value just like cars (only slower) without lots of work/money to keep them up (also like cars).

    Land, on the other hand....

    (my house is on .15 acres, oops)

  • ||

    0.15 acre > 0.0 acre

  • ||

    Asset means "enough". It's a thing that can get sold to pay down or off a debt.

    Dummies confuse assets with capital. Capital can be an asset but an asset is never capital.

  • Sean W. Malone||

    Also... An asset is (or at least should be) only something which generates money. Businesses, capital goods, machinery, investments - all assets. House: Consumable.

  • ||

    Capital can generate sales.

    An asset is anything of ownership that can fetch a street price to get sold to reduce or pay off debt.

    Assets only generate money when sold to pay off debts.

    Capital can be an asset but an asset never can be capital.

  • ||

    So, reducio ad absurdum time: if due to some marvelous new technology involving construction robots and material fabricators, the cost of constructing a house plummeted to about $1, MNG thinks that would be a bad thing and that many people would be worse off?

    Broke many windows lately?

  • ||

    The cost of a house in an ideal pacific island location can approach zero, and with a high quality of life. I suppose that since those people are lacking college student loans and large houses, they are being oppressed or deprived somehow.

    At least to professional absurdists like MNG.

  • ||

    Ummm, as someone who lives in one of those ideal pacific island houses, I can attest that they can be fucking expensive.

  • ||

    I wish I could edit my comments. As soon as I posted it I read it like that too. I should have used the word 'housing', because I was picturing sleeping on the beach and having a thatch roof hut.

  • MNG||

    Prole
    I don't think I said lower house prices were a bad thing...What I said is "I guess the argument is that to the extent that for many people their house represents their greatest asset, then to the extent the value of that asset goes down they will be hurt. Of course if you are looking to get a house low housing prices are great." We know you're pretty bad at logic, but I thought you had reading down by now...

  • ||

    I'm fine at reading. What you're implying is that no one should never get hurt, no matter how much they overpay for an asset. I'm trying to point out the underlying fallacy in your logic, the rainbow unicorn land where no one ever suffers the consequences of their mistakes.

  • MNG||

    When people base their argument on "what you are implying" it's going to be a long conversation...Now you're debating the guy in your head. You don't need me for that conversation...

  • anonymous||

    Like this?

  • ||

    Cool.

    That rekindles my desire to build the prototyper my friends and I have been discussing.

    Thanks for the link.

  • Paul||

    You know I'm reminded of a situation that happened here in Seattle during the 90's, where some old apartment building I had been living in was bought by some property manangement company who proceeded to jack the rental rates up... way up. It actually caused a bit of a stir and started an editorial war in the Seattle Times. This apartment building didn't have your typical 19-year-olds who were in a band as residents, it actually had a number of older residents who had been renting there for 20 years.

    The CEO of the property management company wrote an editorial in the Times defending the resident displacements about how renting was supposed to be short term, eventully leading to home ownership. This was, of course, in response to residents who had lived there for two decades and planned to live out the rest of their lives there.

    There was a response editorial by one of the couples who had lived in the building for years replete with indignation were about feeling forced into homeownership. At the time I shrugged the whole thing off. But in the current situation in this country, it has entirely new implications that never hit me at the time.

  • ||

    The property management companies like the ones you're talking about are the real beneficiaries of the government's propping largesse, much more so than any individual homeowners.

  • minimalist||

    Propping up bubble markets aside, I would generally prefer the government to stay out of housing altogether. It would be nice to see the mortgage interest deduction go away, but as Americans have this weird "entitlement" view of home ownership, I guess that's highly unrealistic.

  • ||

    I'm not going to comment on the content of this article, because near as I can see people either see the homeowner bailout as self-evident moral bankruptcy or not, and no one is changing their minds either way. I do, however, feel compelled to comment that having ads for "$0 down government loans" and "Mortgage Assistance" attached to this piece is pretty funny. Good work GoogleAds - way to identify your target market.

  • SKR||

    When I ask Rep. Brad Sherman (D-Calif.) to explain his support for extending exorbitant Federal Housing Administration loan guarantees even while the real estate market continues to cool, he replies, “The economy of Los Angeles would tank if prices fell another 50 percent.”

    The housing market in LA is in such dire straits, that's why I keep getting outbid by people willing to plunk down 400k CASH for a house in LA. Sherman you're a fucking douche.

  • Tim Cavanaugh||

    You know, SKR, it's an activity that challenges even my blood-oath bearishness to go out and do a lookyloo in Southern California. The Valley, Orange County, Hollywood: Wherever you go you see knuckleheads wot seem to be able to buy houses. Godspeed to them, I guess, but at this point I smell a rat everywhere I go. Which I guess means I'm the rat.

  • MNG||

    Oh stop your crying, learn some valuable skills and convince someone to pay you the kind of money to outbid these people.

  • ||

    What sort of valuable skill? Like being a poseur doctorate of political science who degrades comment threads with the shitty reasoning of an ivory tower statist?

  • MNG||

    I'm not sure the origin of your obssessive envy/hate of my educational achievements, but if you need to know it has allowed me to have a job that pays me a salary that I find gets me most things I want in life.

    And I don't have to mop the floors anywhere...

  • fortyouncer||

    Jesus Christ, how much does the guy have to earn in order to be an acceptable citizen to you? He should stop crying because he can't plunk down 400K cash to buy a home? Or to take a loan for that amount? That would mean he should be earning 100K to 120K a year. That's about twice the median household income in los angeles aint it? I think he's got a decent reason there to be angry.

    What SKR is saying in true in my experience also, as I've been searching for a home. There is lots of money out there and always multiple bids.

    But I'm just a middle class working slob myself (not up to MNG standards at all) and can only dream of not having to live behind bars (on my windows and doors - not jail).

    Anyway fuck Brad Sherman.

    Also, keeping in people in their homes is a bad thing when that house is underwater, and likely to remain that way. Foreclosure is a good thing and the right move for many people! It's better if they get out now and rent, saving money, instead of throwing money down that housing hole.

  • ||

    "Also, keeping in people in their homes is a bad thing when that house is underwater, and likely to remain that way. Foreclosure is a good thing and the right move for many people!"

    Foreclosure and bankruptcy are relief valves that allow the system to correct.

    People see a feature, fail to understand it, call it a bug, and then call for government to fix it. They see jingle mail and foreclosures as terrible signs of economic distress. But you don't fix your plumbing by blocking up your pipes.

  • JB||

    The fuckbag troll gets paid to suck dick all day so he thinks everyone should have a job like him.

  • MNG||

    JB
    It's little suprise to me that you can't afford a house. That's for stable grown-ups with big peoples jobs. I've always imagined you have a place like Travis Bickle, and a mind to match!

  • JB||

    You are an here all day so please don't tell me how important your job that you don't do is.

    I couldn't easily afford a house if I didn't have fuckers like demanding X% of my income at gun point.

  • SKR||

    oh right I forgot to mention that the house might be on the market for a week tops and have 20-30 bids on it. Sherman you're a fucking douche.

  • MNG||

    If you already own a house then high housing prices are a good thing because this asset is worth more. If you are a loser who cannot afford a house even in this current climate where you can get mortgages from dancing women on the internet then yes these high housing prices are a bad thing. I said as much from the beginning. Like most things its good for some, bad for others.

    What I did say is that it's goofy to say that in making home ownership more accessible to more people that more people will get priced out, both in terms of college and housing more people find that more accessible than ever before.

  • ||

    Home "owners" are the real losers. When this epic deflationary depression is over with, I'm betting anyone who bought a house anywhere after 1995 will be sitting on losses. There was so much bad credit shoved to losers like you by Fannie Mae, Freddie Mac, and the banks that a dramatic price collapse is inevitable, the puny interventions of Congress notwithstanding.

    You don't own your house until you send the last mortgage check to the bank. Are you a homeowner or a mortgage debt slave?

  • MNG||

    If your house cost 250,000, and you've paid 175,000, and it is now worth 225,000, which is my case, then I own it. My house would have to fall in value to under 75,000 (the amount I still owe) for me to worry about it, and that'll only happen under some 2012 situation.

  • ||

    "and it is now worth 225,000, which is my case, then I own it. My house would have to fall in value to under 75,000 (the amount I still owe)"

    I knew you were daft but this is stupefying daftness.

    You DO NOT OWN IT if you STILL OWE 75K.

  • ||

    Tell me, MNG, if you were to have a HELOC, is that money yours?

  • ||

    You can only realize that $175,000 in equity by selling the house. The banks don't send you a "get out of debt free card" once your principal balance falls below the price you could sell it for. And there's always the tricky part where homeowners go to try and actually sell their places and find out that there's an often-significant gap with what they believe the home is worth and what the market believes.

  • ||

    BTW, what comes first, 2012 or your last mortgage payment?

  • robc||

    If you already own a house then high housing prices are a good thing because this asset is worth more.

    Bullshit. It causes my taxes to go up.

  • ||

    Buying a house, unless you have the cash to buy it outright, means taking a highly leveraged position that can wipe you out if you lose your job. I'm not particularly risk-averse, but when I take a financial risk, I take it on deals where I can hedge my position on very short notice.

    -jcr

  • sean||

    Preach on, brother!

  • Ebeneezer Scrooge||

    But I still don't get it. Why isn't Uncle Sam directly inflating the shit out our currency in order to solve this problem?

    Devaluing currency on the international market is one thing. Inflating it amongst we the peasant people is something else and in spite of those who claim I'm nuts, I don't see it happening yet.

    I have clear memories of what it was like in the late 1970's and early 1980's. What we have today is not serious, across-the-board inflation. But I'm willing to bet that Uncle Sam can turn it on when he wants to.

  • ||

    Devaluing currency on the international market is one thing. Inflating it amongst we the peasant people is something else and in spite of those who claim I'm nuts, I don't see it happening yet.

    It's not. There's a brief reflationary bubble going on driven by 0% loans financing speculative flows into all asset classes. And when that inevitably pops, the borrowers will once again learn that a super-low interest rate isn't worth a damn thing when the asset you financed it with was overpriced in the first place.

  • Tim Cavanaugh||

    Why isn't Uncle Sam directly inflating the shit out our currency in order to solve this problem?

    Conflicting goals: They have inflated the shit out of our currency, but their first priority is to save the "financial system," so the Fed is paying banks interest to maintain deposits. As a result banks aren't lending and we're not seeing the money.

    Also, there are limits to what they can do. It still has not fully sunk in just how inflated real estate was. In principle government could create enough money to keep it that way, but in practice there are limits to how much money even The One can print. Could Geithner print a pile of money so heavy he can't lift it himself?

  • ||

    "In principle government could create enough money to keep it that way, but in practice there are limits to how much money even The One can print."

    Indeed, sir.

    Look at the yield curve just in the last week. Tells you everything you need to know about limits in practice.

  • Ebeneezer Scrooge||

    Thanks Tim. I had a feeling there were conflicting goals in there somewhere but had no idea what it was about.

  • Beezard||

    I live in Maryland. Been renting for almost a decade thanks to $200,000 townhouses, waiting for the bubble to burst. So all of this state and federal protect the "homeowner" malarky seems like a big 'fuck you, peasant.' to me.

    But even my progressive liberal uncle (who was smart enough to move out of Maryland) warned me: 'Government is recession proof'.

  • monolith||

    Is MNG being deliberately argumentative or is his just doing it as a joke?

    Surely he must realise that these policies actually hurt the genuinely poor?
    Or does he really consider people who work full time on low wages and who haven’t been left money or lied on mortgage applications as “losers”

  • MNG||

    I don't consider a grown adult who has made decisions in his life such that he or she cannot afford to buy a home a "success" that's for sure.

  • monolith||

    as a "liberal" shouldn't those be the type of people that you want to help?
    poor working class people?

    or should they subsidise the richer "more succcessful" people who can't affird to keep up their mortgage payments?

  • ||

    I believe you are on the cusp of realizing an important fact about MNG:

    He's bollocks.

  • John Markley||

    monolith,

    I find that liberal behavior and rhetoric makes far more sense if you operate on the assumption that most hardcore liberals actually despise the poor and the working class. They "care" about the poor and disadvantaged the way a bank robber cares about the ski mask he wears while the heist is in progress.

  • ||

    Fixed:

    "I don't consider a grown adult who has made decisions in his life such that he or she cannot afford to buy a home borrow huge gobs of money to buy an asset and hope that it goes up in price a "success" that's for sure."

    Hasn't it occurred to you that there are also lots of people who have the money for a down payment, but have thought better of plunking it down on an overpriced asset to which they will be tied for the life of the loan? Why not just keep the money in cash (still undervalued relative to real estate, stocks, commodities, etc.) and pick something up for a song when overleveraged borrowers are puking up all these assets?

    You can see a lot of "everyone else does it, so I should do it too" financial thinking in MNG's posts. Clearly a man who doesn't even own one share of South Sea Company stock is a huge failure!

  • ||

    "Hasn't it occurred to you that there are also lots of people who have the money for a down payment, but have thought better of plunking it down on an overpriced asset to which they will be tied for the life of the loan?"

    No, it hasn't occurred to him. It is of course how I operate currently.

    "Why not just keep the money in cash (still undervalued relative to real estate, stocks, commodities, etc.) and pick something up for a song when overleveraged borrowers are puking up all these assets?"

    That's the plan. Stomp debt during deflation, stay liquid, delay any debt assumption until more inflationary days.

    "You can see a lot of "everyone else does it, so I should do it too" financial thinking in MNG's posts."

    Greedherd groupthink. You obviously saw what he said about 'owning' a house he still owes seventy five thousand dollars on; clearly evident of the typical lack of monetary education now prevalent across our society. I hear people saying things like "They closed my HELOC! That was MY MONEY!!!" and then they throw a tantrum when I briskly remind them that No, it was not their money at all. The emission of fiat into circulation as evidence of debt (all paper dollars are loaned into existence) has apparently got people believing that a debt is money and money they borrow is their money. Foolery.

    "Clearly a man who doesn't even own one share of South Sea Company stock is a huge failure!"

    I can calculate the movements of my precious metals portfolio, but I cannot calculate the madness of men like MNG!

  • ||

    How about those of us who can afford it, and choose not to? I've been renting all my life because I can rent a nicer place than I can afford to buy.

    Meanwhile, keeping most of my net worth in AAPL shares has done rather better for me than buying a house would have.

    -jcr

  • Enemy Of The Revolution||

    A few years ago I sold a house. The amount by which I profited was greater than the sum total of mortgage payments that had made in the eight years that I had lived there. Great use of the housing bubble, right?

    Not really. I bought another house with an inflated price. Now I'm selling that one and fully expecting to get a lot less than I paid. Not a problem though, since my previous windfall paid down a lot of the principal. So I'm about where I would have been without the housing bubble.

    The point is that I could have done something stupid like buy a lamborghini or travel the world or take out a home equity loan for a new garage or something. But plenty of people did things like that, and they are the some of the ones begging to keep home prices inflated.

    And in the man time, potential buyers have had to wait on the sidelines....

  • ||

    And why should someone who is not college educated and doesn't own his own home anyone be forced to pay somebody else's ticket?

    MNG? Care to take a shot?

  • ||

    Oh, and Barney Frank caption contest:

    Then he gwabbed my eaws like this, and OMG! I've nevew felt so . . . dominated!

  • ||

    I saw a full-page ad from B of A in the paper Sunday, bragging about the $1 billion it has donated to community organizing groups (read, Acorn or its successors). That billion is our money, and IMHO the reason Mr. Obama keeps buying B of A's mortgage portfolio. One hand washes the other.

    They're on the other side.

  • ||

    I have been paying my mortgages on time since 1986. Where the f@%k is my $8000 dollar redistribution check?

    F@$&^*g Congress. We need to throw every one of them out!!!

  • ||

    Here’s how Rep. Barney Frank (D-Mass.), in an October interview with The New York Times, justified his support for the agency’s shoddy lending standards: “I don’t think it’s a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast.”

    I doubt this idiot would be saying that if it were just his money being dumped down a rathole.

    This guy needs to be strung up by his nads and then caned.

  • ||

    I am not sure that Rep. Barney Frank meant what he actually said. Bad loans DO happen and they are used to set the market price for consumers.

    Any lending company leverages good and bad data on customers to determine who and how much to lend. Housing did nothing different.

  • abercrombie milano||

    My only point is that if you take the Bible straight, as I'm sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane. Even some cursory knowledge of Hebrew and doing some mathematics and logic will tell you that you really won't get the full deal by just doing regular skill english reading for those books. In other words, there's more to the books of the Bible than most will ever grasp. I'm not concerned that Mr. Crumb will go to hell or anything crazy like that! It's just that he, like many types of religionists, seems to take it literally, take it straight...the Bible's books were not written by straight laced divinity students in 3 piece suits who white wash religious beliefs as if God made them with clothes on...the Bible's books were written by people with very different mindsets

  • 50 Inch Flat Screen Tv||

    I differ with most guys here; I started reading this blog post I couldn't stop, although it wasn't just what I had been searching for, was still a fantastic read though. I will instantly get your blog feed to keep in touch of coming updates.

  • nfl jerseys||

    fesf

  • SheepskinUGG boots||

    you can grab the active participation of metal rouge Alpine Sheepskin Ugg Boots Classic. If not, you can aces Ugg Boots Online Store ? boots tenuous. we are in a suitable range to ensure that while the colors can be met in

  • SheepskinUGG boots||

    There is access to an abundance of classes, while in the United States Ugg Sheepskin Boots . outside about every man or woman can only aces the ideal start according to their favor. No access to the dim accurately struck the active color. in fact if Ugg Boots On Sale that admiration

  • SheepskinUGG boots||

    These Sheepskin Boots Sale boots are made, while in the skin of sheep, which are actually the album in the winter of Australia. constantly speaks, is capable of anything, a generous agreement added compared with the world.Women Uggs Access to the precise height for keeping warm.

  • Nicolas||

    Great article ! Too long but good. :) Thanks

    Galerie web

  • Referencement local||

    Don't hesitate to go to referencement local to get a real good store locator !

  • Referencement local||

    Don't hesitate to go to referencement local to get a real good store locator !

  • nike shox||

    is good

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement