Government failure

House Prices Plummet Everywhere Except Detroit, DC

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Americans who have withdrawn from the real estate market while waiting for prices to drop were rewarded again in 2011, as the Case-Shiller home price index decreased between 1.1 percent and 1.2 percent across the index's 10- and 20-City Composites. House prices have now been falling for half a decade. 

Here's to even longer cumulative-decline bars in 2012 and 2013!

Note how Standard & Poor's report [pdf] uses pro-inflationary language to describe the decline in prices: "Miami saw no change in annual returns in October; while Atlanta, Detroit, Las Vegas, Los Angeles and Minneapolis saw their annual rates worsen," S&P writes [italics added]. 

Only Detroit, MI and Washington, DC posted increases in house prices this year, as seen in the chart to the right by Bill McBride of the Calculated Risk blog, which I recommend today and all days. I think the headline "House Prices fall to new post-bubble lows in October" leads the witness, however: Why should the 2006 bubble be a benchmark at all? Is there some reason to believe major-market prices, which were high relative to average annual salary in 2002 and 1999 and even 1991, were not hyperinflated in the last decade? 

As for Detroit and the District of Columbia, this Detroit Free Press story notes that Motown's annual gains occurred mostly in the first three quarters. The city's house prices began dropping again in October. Detroit real estate shed more than 45 percent of its putative value from the peak through 2010. Given the widely shared belief that politicians can manage economic outcomes, this year's turnaround is good news for Gov. Rick Snyder, who took office at the beginning of the year and obviously saved the Motor State's economy by nixing its film production tax credit

President Obama's economic mastery is even more evident in Washington, DC, where house prices have been climbing ever since he took office. 

Of course, we know that inflation of real estate prices is neither good news nor bad. The price of a house is one factor relative to others. I relate it to average annual salary, which has not kept pace with the inflation of home prices since the mid-1980s. From the early 1960s through the mid-1980s, median home price ranged from 2.8 times to 3.5 times higher than median household income. Since 1985, house prices have grown by a factor of almost four [pdf] while income [xls] has slightly more than doubled. As of 2009, which was supposedly the trough of the recession, median house prices were still 4.5 times higher than median household income

How have people been able to afford costlier houses without a matching increase in wherewithal? Through government-subsidized debt. Unfortunately, to maintain that system you'd need a subsidy so powerful that the borrower would not have to pay back the debt at all. So far nobody's been able to build one of those, though the Obama Administration has spent a lot of your money trying

In the reality of the marketplace, it's becoming harder for the Fed, HUD, the Treasury Department and the National Association of Realtors to pretend the 25-year real estate inflation was anything but a $15 trillion rip-off. Americans are reducing personal debt and avoiding buying houses that were, and remain, more expensive than they're worth. They're right to do so, as today's news demonstrates. If you're looking for a return to equilibrium, the continuing deflation is necessary. We're also fortunate that government efforts to head that off the correction have for the most part failed. But it will take more than five measly years to reach the bottom of a pile of garbage this deep. 

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  1. The President should simply issue an Executive Order quadrupling the price of every house.

    1. Followed by another Order prohibiting the sale of houses.

      1. Capitalism is Collectivist Social Engineering that destroys Non-State lifeways.

        American Capitalism COLLECTIVELY:

        1. Formed government to kill off Non-State natural inhabitants
        2. Aggressively invades and occupies the Land
        3. Collectively builds mass systems of roads
        4. Collectively builds mass systems of drainage systems
        5. Collectively builds mass systems of irrigation projects.

        And then, the mooching takers divvy up the loot amongst themselves, and call it…

        “Private” Property.

        Even Ayn Rand let it slip that the invasion and occupation was a violent taking of land.

        “[The Native Americans] didn’t have any rights to the land … Any white person who brought the element of civilization had the right to take over this continent.” ~Ayn Rand, US Military Academy at West Point, March 6, 1974

        Read that again: The right. To take.

        Wow, some honesty, finally! And there you have Capitalism, in plain words, un-whitewashed.

        Free-market bullshit = religo-economic propaganda. Deal with it.

        1. I wouldn’t be so disgustingly fat if I didn’t constantly take advantage of the food available through agricultural advances, and stopped spending my day parked in front of a tool I constantly denounce the use of.

  2. Yes, keep on falling. Somehow my fellow youth in the Occutard movement fail to see that falling housing prices benefit us.

    1. It benefits some, and is an extreme hardship to others. Nonetheless, I’m glad you enjoy it.

      1. If someone my age (25) or younger bought a house before the crash (when I was 20) I doubt they are poor enough for it to be an extreme hardship.

        I don’t enjoy it, but housing prices were and continue to be inflated. Those prices reducing to reflect their value (without subsidization) will allow me in a couple of years to enter the housing market without overpaying.

        1. I agree with you. However, people older than you, that have less work-life left to recover, do suffer. And usually, it’s the middle class.

          The poor or unemployed simply declare Chapter 7 Bankruptcy and, sometimes, make money on the deal by STRATEGICALLY DEFAULT.

          The Rich simply walk away. I know many people with the money to pay that simply STOP making the payments for YEARS. One guy even collected RENT for three years before Chase showed up to seize the house. And, Rich people just don’t need their credit.

          It’s the middle class guy that’s really screwed.

          But once again, I agree with you. And, even though these people are hurt financially, we really do need houses to trade at fair-market value. Not that inflated bullshit we had during the 2000s.

          1. Chase is the bad guy, not the “rich” guy who stopped making payments,

            1. Neither party is the BAD guy. In the eyes of the Borrower (my rich fried) and the bank. However, do you have any sympathy to the Investor that backs these loans or the TAX payer that will probably guarantee these loans in the end?

      2. It benefits some, and is an extreme hardship to others.

        It benefits all buyers. The only owners it imposes a hardship on are those who need to sell in order to move (generally, in order to take a job somewhere else).

        Owners who don’t need to move still have their house, and its current price is irrelevant to their day-to-day life and thus imposes no hardship.

        1. As long as their loan product doesn’t balloon like an ARM or an I/O, you are right. However, these sub-prime products may cause an increase in monthly payments.

          1. R C, tell me, what do you think of the ongoing MERS / mortgage fraud scandals? The mortgage servicing fraud scandals?

            Before X-mas, Marsha Coakley filed a lawsuit against JP MorganChase and several other banks as well as MERS, alleging, inter alia, violations of Massachusetts’ Consumer Protection Act, violation of several Massachusetts’ recording statutes and fraud.

            In your state, I believe that the Texas AG has sued American Home Mortgage Servicing, Inc., which is based in Texas.

            1. Without studying it in much detail, I believe that in a number of states the transfer of mortgages by MERS from the originator to secondary purchasers was invalid.

              In any state that requires a contemporaneous “wet ink” signature, I don’t see any way MERS transfers were valid. And that’s a number of states.

              We know from the various robo-signing “scandals” that attempts were made to “fix” these invalid transfers with post-facto transfers supported by fraudulent documentation.

              As a result, there are probably tens of thousands of mortgages (if not more) that have been invalidated, leaving the underlying note unsecured. Worse, the mortage pools, bonds, etc. based on those invalid mortgages are now completely fucked.

              Whether your state (or even my state) requires a contemporaneous wet ink transfer, I have no idea.

              1. ~Ron Paul

                1. Mr. Signed, would you please tell me why you mentioned Ron Paul?

                  Bodies of text should generally contain a subject, a noun and a verb. I can’t help but notice yours only contained a noun.

          2. As long as their loan product doesn’t balloon like an ARM or an I/O, you are right. However, these sub-prime products may cause an increase in monthly payments.

            That’s got nothing to do with the underlying value of the house, so any financial hardship resulting from these increases is not caused by the drop on housing prices.

            1. It does however make it difficult to impossible for many of these people to amortize the remaining principal. Not that I’m gonna cry for anyone who used their house as a credit card or was dumb enough to buy into the RE hysteria of 2004-2006.

            2. It’s related to the value of the house. The assumption of an ARM borrower is that the house will appreciate by the time of the rate reset, allowing them to refinance on better terms. Those borrowers are stuck.

        2. The only owners it imposes a hardship on are those who need to sell in order to move (generally, in order to take a job somewhere else).

          This is a highly underrated effect on the overall economy. I’d love to move to Texas right now to be able to get more jobs/make more money/etc, but I am unable as I’m stuck in this damned house until it recovers enough for me to sell at a break-even price.

          Never buying a house again. Ever.

          Also; never underestimate the opportunity costs associated with living at a permanent residence.

          1. “I am unable as I’m stuck in this damned house until it recovers enough for me to sell at a break-even price.”

            Nope.
            That’s a choice you’ve made.

            1. I know that Sevo. I’m disappointed in my choice. I was expressing dissatisfaction, not berating the bank for loaning me the money to buy a place that I wanted to buy.

          2. Rent out your current house, get a job and rent in a new town. Sell when you can afford to take the loss.

    2. Not benefiting any of our recently arrived construction amigos. Did the Occutards forego the lucrative fields of Cultural Studies and Womyn’s History for a double major in Spanish and Drywall Hanging?

      1. Fair enough, there are people my age who work construction. It would be better to say it benefits us as home buyers. Even those who work in the industry would benefit from that.

      2. The entire world would be better served I believe.

  3. Given that housing prices in Detroit run around $200, if it goes to $400, its time to break out the champaign (or the crack pipe).

    1. Boone’s farm, no champagne.

  4. This could have been avoided in, in 2008, before giving any bank $1 of TARP, force these institutions to change ALL sub-prime mortgages originating after 2001 to 30year FIXED at the rate the borrower was approved at.

    If banks were not willing to change these mortgages, I would have not given TARP.

    1. ** facepalm **

    2. I would not have given TARP. And I would not have fucked around with banking and housing in the first place.

    3. I think MOST people in this blog would have not given TARP money. However, I think the same thing that happened to the Real Estate Market for not bailing out the Lender would have resulted in the Capital Market.

      And, you know what? I think American Capitalism could have fallen apart as the Capital Markets depend on lending. And, you guys would have blamed the Government no matter what would have happened.

      I think it was best to Bail out the Banks. At least that’s what the CAPITALIST thought was right. I just wish someone would have looked out for the little guy as well. Oh well.

      1. I think American Capitalism could have fallen apart as the Capital Markets depend on lending.

        Sir, we had to destroy the capitalism to save the capitalism. Sir.

    4. “force these institutions to change ALL sub-prime mortgages”

      See “subsidy so powerful that the borrower would not have to pay back the debt at all” above.

      1. That’s not what I’m suggesting. I say, the borrower must pay back the load IN FULL with the original TEASER RATE.

        1. Makes sense. It isn’t like you should expect anyone to know a teaser rate isn’t permanent, or that their house value might not increase forever. They were victims!

          BARF!

          1. Well, Alice assures us the ‘average Joe’ has to be protected against the results of his desires!
            Letting ‘average Joe’ suffer the results is just, uh, well, gee….

            1. ~Ron Paul

              1. Mr. Signed, would you please tell me why you mentioned Ron Paul?

                Bodies of text should generally contain a subject, a noun and a verb. I can’t help but notice yours only contained a noun.

        2. Yeah, 1.9% interest rate is sustainable. Really.

          What are you going to do when every mortgage lender collapses due entirely to your teaser rate mandate?

    5. I wouldn’t have given TARP at all. And your proposal wouldn’t solve a thing. People were buying at such inflated prices that 30-years-same-as-cash is still unpayable.

      The 30-year mortgage is a stupid idea, meant strictly to inflate real estate prices. 15 is cutting it close.

      1. I agree that the 30year mortgage does NOTHING but inflate real estate prices.

        If people had to save up to buy a house (CAPITALISM) as oppose to merely take out the 30year mortgage (DEBTism), these houses wouldn’t cost as much.

        1. Good lord.

          Borrowing and paying interest and managing cash flow are part and parcel to capitalism.

        2. Got something against usury, eh? LOL

        3. nice made up term of “debtism.”

          Makes for real reasonable conversation when people start making shit up.

          1. Pretty sure vermin shit is Godesky, and it doesn’t take much of a search to realize his ‘theories’ are crack-pot to the point that no one seriously argues the matter with him. So he’s reduced to trolling sites which are loosely-moderated (having had his ass tossed from others).
            Further, if you check the reviews of the books he cites (as I did when he started the troll program), you’ll find they’re all of the polite ‘ah, yes, interesting view’-type usually given by those who are going to need a review of *their* upcoming screed.
            Sadly pathetic; almost enough to warrant some sympathy. Almost.
            But experience does show that feeding vermin results in vermin shit. So it’s not a good idea.

            1. See, you just have to know the correct buttons to press. Trolls can take being ignored and even mocked, and of course they love “real” debate. But when you start criticizing grammar, punctuation, etc. is when they really start losing interest.

              1. Well, vermin shit seems pretty immune to most techniques, much the same sort of mentally-warped self confidence as the guy on the street corner with the sandwich board. But, hey, give it a try.
                If it works, you’ll get props from me and others. His act is pretty tired.

                1. Da, comrade.

      2. “The 30-year mortgage is a stupid idea, meant strictly to inflate real estate prices. 15 is cutting it close.”

        Could be, but no one held a gun to my head to take mine out.

        1. …head to pay income taxes either, right?

          1. Mr. Your, what’s a “head to pay income taxes either, right?”

            1. …aka, “name.”

              1. Your method of posting messages is lame, faggot.

                1. “Your method of posting messages is lame, faggot.”

                  That would be the *best* that can be said.
                  This is someone whose life’s work is not even noticed, let alone laughed at, by those whom he hoped to engage.
                  He’s left with vid-games and trolling sites that don’t toss his ass.
                  And, pathetically, that seems to be the epitome of his capabilities.

    6. wow, its impressive how little you understand what happened.

  5. So where does Vegas put the over/under on PM links?

    1. Riggs will not fail us.

      1. How very delicious this will be.

        1. He tasks me! He tasks me, and I shall have him! I’ll chase him round the Steigerwald posts, and round the Evening Links, and round perdition’s flames before I give him up!

          1. You’ll have to chase him round a Welch post, too, cause there’s one of those in your way. It’s very cold in H&R.

      2. I’m too old for this shit.

  6. Given the widely shared belief that politicians can manage economic outcomes

    And Dawkins, et al believe the God delusion is the bane of humanity.

    1. Do I have to chose just one?

  7. “the borrower would not have to pay back the debt at all.”

    Now that’s the American Dream.

  8. change ALL sub-prime mortgages originating after 2001 to 30year FIXED at the rate the borrower was approved at.

    And a pony. Don’t forget the pony.

  9. As long as their loan product doesn’t balloon like an ARM or an I/O, you are right. However, these sub-prime products may cause an increase in monthly payments.

    As long as you’re out there wishing on a star, why don’t you go ahead and wish for a government run system of schools capable of teaching people to see what a bad idea that is for 99% of the home buying public?

  10. He looked a lot like Che Guevara,
    Drove a diesel van.
    Kept his gun in quiet seclusion,
    Such a humble man.
    The only survivor of the National People’s Gang.
    Panic in Detroit,
    I asked for an autograph,
    He wanted to stay home,
    I wish someone would phone.

    Panic in Detroit.

    He laughed at accidental sirens That broke the evening gloom.
    The police had warned of repercussions.

    They followed none too soon.
    A trickle of strangers were all that were left alive.
    Panic in Detroit,
    I asked for an autograph,
    He wanted to stay home,
    I wish someone would phone.

    Panic in Detroit.

    Putting on some clothes
    I made my way to school.
    And I found my teacher
    Crouching in his overalls

    I screamed and ran to smash my favorite slot machine.
    And jumped the silent cars that slept at traffic lights.

    Having scored a trillion dollars,
    Made a run back home.

    Found him slumped across the table,
    A gun and me alone.
    I ran to the window.
    Looked for a plane or two.

    Panic in Detroit.
    He’d left me an autograph.
    “Let me collect dust.”
    I wish someone would phone.

    Panic in Detroit.

    1. Panic in Detroit:
      Turning on lights in guv’mint
      Cockroaches scatter

  11. I’m going to sound like a liberal replying to this:

    It’s only human nature for people to take advantage of an opportunity to live in a fancier house. Yea, they were stupid to take a loan with a monthly payment of $800 for the first year to be followed with 29 years of $2800 per month.

    You are right. No school should have to teach this. It’s obvious. But you go up to the regular Joe and say he can have a McMansion… whatya gonna do?

    1. Not feel sorry for them when it turns out they couldn’t afford it and they have to move somewhere more within their means?

      1. I do feel sorry for them. However, there are many other people that I feel much more sorry for.

        It’s just that it is very hard to rent an apartment (a good place) with bad credit. And, I’ve this be a death-spiral for some that are not sophisticated enough to lie or to strategically default.

        i begged a couple to strategically default. They wouldn’t do it out of principal. I feel sorry for these people.

        1. “It’s just that it is very hard to rent an apartment (a good place) with bad credit.”

          Satire?
          I hope so.

          1. ~Ron Paul

            1. Mr. Signed, would you please tell me why you mentioned Ron Paul?

              Bodies of text should generally contain a subject, a noun and a verb. I can’t help but notice yours only contained a noun.

              1. ~Ron Paul

        2. Why do you feel sorry for someone who is learning the way most of us learn, the hard way? A house is simply a material object. I say this as a person who spent 18 months remodeling the house in which I live.

          If something goes wrong and I can’t afford the payments, I will lose it. Why shouldn’t I? When I purchased it and took out TWO mortgages, I had to sign my name a couple dozen times affirming the fact that I would pay the mortgages or lose the house. Why shouldn’t I live in a crappy rent house or an apartment if I fail to keep my word?

          1. ~Ron Paul

            1. Mr. Signed, would you please tell me why you mentioned Ron Paul?

              Bodies of text should generally contain a subject, a noun and a verb. I can’t help but notice yours only contained a noun.

              1. A meeting tonight. 10pm. If you can come.

                (Get it? then stfu)

                1. Ahaha, are you mad?

                  1. ~Stanley Ipkiss

        3. its very hard to do anything with bad credit (assuming you have no cash), but how does other people’s bad decisions become my problem? Rent a lower level place until you rebuild your credit asshole. Don’t put me on the hook for your idiotic decisions.

          1. But, but, but, that’s just so (something; shithead will tell us).

    2. > Moron can’t read terms of agreement.
      > Moron signs name anyways.

      Yeah, I don’t feel sorry one fucking bit.

    3. You are right. No school should have to teach this. It’s obvious. But you go up to the regular Joe and say he can have a McMansion… whatya gonna do?

      As someone who considers himself an “average joe”, if someone came up to me and told me I could have a McMansion for $800 the first year, followed by 29 years of $2800 per month, I’d tell them to get stuffed.

  12. Man this comments section never sounds more confused and ignorant than when talking about housing.

    And also hardly libertarian talking about what kinds of loans people and banks should be *allowed* to buy and sell from each other. Good griefl

    1. Pretty sure that’s just Rather’s sister.

    2. Nope.

      Thanks for playing.

      1. Ever buy a fucking joint?

        You lose.

        1. …oh right, there was a State!

          Sorry, Fletch, you were good in the movie. But not here.

    3. The confusion and ignorance stems from one person, who’s thinking with their heart instead of their brain.

    4. huh, you must be confusing our import liberals with the regular libertarian crowd.

      I’m all about exposing people to as much risk as they want, provided they’re aware I will let them suffer the full consequences of their idiocy.

  13. Buying houses is waaay overrated. As I stated above, buying a house severely restricts freedom of movement; something necessary for markets to operate efficiently. I guess it lets individual states jack up their tax rates a lot before suffering the effects of such actions, though.

    1. Gambol Lockdown.

    2. “As I stated above, buying a house severely restricts freedom of movement; something necessary for markets to operate efficiently.”

      I think you’re stretching here.
      Modern markets deliver most goods pretty cheaply; the exception being labor, and even that is now limited to physical service or manual labor.

    3. yep, but many people, like me, don’t need or really desire to move, so to us the market is perfectly efficient with our desires.

      And somebody has to own property, which I’d rather do than be dependent on someone else.

  14. Print more money! Inflate away!!!

  15. If house prices went any further down in Detroit, theyd be paying you to take them lol.

    http://www.privacy-surf.tk

  16. President Obama’s economic mastery is even more evident in Washington, DC, where house prices have been climbing ever since he took office.

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