Housing bubble

Feds Still Promote 'Cult of Home Ownership,' as Investors Drive Prices Up

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A couple of weeks ago, I noted that Fannie Mae and Freddie Mac are partially returning to their old tricks of promoting home ownership at all costs. By backing loans to "qualified first-time homebuyers" who put down as little as 3 percent of the value of a home, they're taking a step back toward the Clinton-era and Bush-era policies that led so directly to the mortgage meltdown.

Why would they do this?

Because government officials have long been hung up on the idea that home ownership is a good thing in itself, and that rising housing prices are a sign of increasing prosperity. Last year, President Obama went to Arizona (not quite ground zero for the last housing bubble, but close enough) to boast, "our housing market is beginning to heal. Home prices are rising at the fastest pace in seven years."

He added, "We've got to give more hardworking Americans the chance to buy their first home."

Well…That's not really happening. The Federal Reserve Bank of St. Louis reported yesterday that home ownership rates are dropping "in particular for first-time buyers or households headed by individuals age 35 and under."

That's not really a shocker when home prices are rising amidst presidential cheerleading—to the point where they're only 11 percent below the 2007 peak. If you raise the price on something, demand is likely to decline, especially when the bubble mentality of the last decade has evaporated (at least among the general public).

Notes the St. Louis Fed's Carlos Garriga, "housing demand and house prices have become disconnected since the financial crisis…This current episode could solidify the idea that it is possible to have housing booms driven entirely by investors."

So we may be back to the bubble, but this time without quite so many actual families' prosperity on the hook. With prices soaring back to the stratosphere, that declining home ownership rate is not only a natural reaction to the market, but very likely beneficial since it reduces exposure to the fallout when the new bubble pops.

Home ownership isn't inherently a good thing, anyway. It can be a good thing, but research suggests that it can also damage employment by reducing people's mobility. It can also be risky in other ways, argues Adam Posen of the Peterson Institute for International Economics, who objected to "the cult of home ownership" in a 2013 op-ed in the Financial Times:

in a free society, people who want to own homes and have the means should be able to purchase them, just as they would any other luxury item. But our governments do not need to subsidise that purchase. Increasing home ownership does not increase housing, least of all for the poor. Increasing home ownership in the US and Britain beyond what the free market would generate does, however, distort capital allocation, put a large share of household savings at unnecessary risk, impede mobility, and creates a powerful lobby for government transfers to the wealthy. And it creates housing bubbles to devastating effect.

So home prices are back up, this time driven by investors instead of families convinced by you-must-own-a-home happy talk. The federal government, Fannie Mae, and Freddie Mac are now doing their best to lure regular Americans back to the party.

Unless they've really thought through both the benefits and risks, Americans shouldn't take the bait.

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  1. Obvious bubble is obvious.

    1. Yeah but people (and most importantly banks) that fall for it should still get bailed out when it pops, right?

      1. Yes. It’s right there in the preamble to the Constitution: “We the people of the United States of America, in order to remove all risk from life and to protect people from the consequences of their own choices, do hereby ordain and establish this Constitution of the United States of America. Oh, by the way, FYTW.”

      2. I seem to recall discussion (I think about people like Cass Sunstein) that being free to make choices with negative consequences is not really being free at all? I think that applies here. Bailing banks and people out makes people free since it frees them from the negative consequences of their actions.

        1. ‘Freedom from want, freedom from fear’ as Franklin D Roosevelt put it. Basically totalitarianism without even a fig leaf.

    2. Obvious bubble is obvious.

      It’s never a bubble while it’s going on. This time is different. It always is.

        1. It will eventually hit 30k.

          1. Not in the way he meant. Bubbles and hidden inflation don’t count.

      1. Nah. If someone says, “This time is different.”, you know it’s a bubble.

  2. I want the bubble to stay high thru Spring, then crash.

    We are selling our house in spring, then renting while building. Although, I guess building prices arent (as) subject to the bubble, its land, and we will buy the lot before then, so, ummm, nevermind.

    1. I selfishly hoping that the next bubble peaks in about a year.

    2. I need it to stay bubble-ized until early fallish. Our condo association is working on a buyout with a developer. I don’t want a crash until all the papers are signed and the $$ is in escrow.

  3. If we are going to subsidize bad investments, home ownership is probably close to the top of the list.

    1. HOUSING ISNT AN INVESTMENT.

      Okay, it shouldnt be, its a depreciating asset, just like a car, only slower (both in depreciation and motion).

      And as its probably the largest purchase most people make in their lifetimes, its probably the worst thing to subsidize.

      College education being a close second.

      Cant we cause bubbles in something cheaper? Hell, the sugar subsidy is less damaging than the housing subsidy.

      1. It’s one of the frustrations we have in looking for a new house. We want some property, but unless I’m becoming Farmer or Rancher Libertate, that’s just more money sunk in a virtually nonperforming asset. Even assuming real estate price gains, for a residential property, what good is that unless I’m selling? And do the gains offset the costs of money and maintenance? I’d prefer something more liquid as an asset and/or cash generating.

        1. Im trying to convince my wife of as small a lot as possible. One, to reduce my mowing time, and b, for that reason.

          Ive already lost trying to convince her to buy the empty lot(s) about 3 blocks from the brewery. Its like their is something wrong about being right between fraternity row and the courthouse/jail.

          1. I’d love to have acres of wooded land to meander around, but it’s not even close to cheap, unless it’s a swamp. Then it’s cheap.

            I figure we could go as high as an acre without tying up more money than we can afford (because, of course, we also want a bigger house, being Americans and all), but even that seems a little extravagant.

            Obviously, land costs vary considerably by location.

            1. I want a slope from front to back of the lot. Due to the karst structure, most of the land around BG is very rocky and basements arent affordable. But on the slopey bits, walk out basements are common.

              But you have to make sure the slope isnt “edge of sinkhole”.

              1. We have sinkholes, oh, yes, we do. I actually visited an ancient one near Gainesville last month called the Devil’s Millhopper. It’s hard to buy property here without wondering about that limestone cave beneath you, slowly eroding.

              2. I’ve got a slope from front to back with a walkout basement. The kids love it since they can sled down the hill. Though mowing a hill can suck sometimes.

                1. Sled? On some sort of muck? Moss-sledding? What is this sledding?

                  1. What is this sledding?

                    Something we chumps who live above the 40th parallel send our kids out to do on the weekend.

                    1. That’s interesting. Here, we send them out to remove pythons from the water pipes.

              3. Isn’t all of BG potentially a sinkhole?

                I hear you can maybe get a good deal on some slightly damaged classic corvettes?

              4. It would be pretty awesome to have a basement that connected to a cave, though.

                1. Absolutely. Of course, the problem with Florida caves is that they usually are liquid-filled.

            2. Didn’t some guy in Florida’s house get suddenly swallowed by a sinkhole with him in it? Just watching TV there and all of a sudden he gets sucked into hell. Tragic but also made me laugh for some reason.

              Me, I’m renting for as long as I can, until I have a litter of offspring I have to keep somewhere. I can enjoy the public park without having to mow it, don’t have to park the bus I ride anywhere, and the smell of reefer from the college kids from the apartment next door really adds something to the atmosphere.

          2. Actually, IMO, if you can get acreage in an area that isn’t zoned already you could make out like a bandit.
            When development arrives, split it up into smaller lots and sell it to people building houses.

            Course, this is pretty much what the developers do, and I’m sure they are all over that and have their hooks in the local government to stop anyone else from doing it …

        2. Exactly. A home is great if you can pay it off so you can stop paying rent.
          But a house is very, very illiquid. At best, you can borrow against it at mortgage rates. But you can’t just decide to sell on a dime and invest in something else.

          1. Two words: eminent domain. Developers don’t need to ever actually buy land and pay market rates. They just need to budget a few dollars for palm-greasing, and they can get the land for pennies on the dollar of what it’s actually worth.

            1. Some may do that, but most do it more honestly. At least residential developers outside of urban areas.

              1. Up until about a year ago I was terrified about our condo (20 acres right next to a Metro station) being eminent domained by a greedy developer who would see that it’s cheaper to wheel & deal with the county council than it is to buy from the actual owners.

                Then the VA voters had the good sense to constitutionalize a strict eminent domain law, and the county allowed our property to be rezoned. Then I knew we were in the clear and could sell the property on our own terms.

      2. It’s nice to own land though.

        *Goes outside, peers over half acre*

        1. One thing I have thought about is trying to get an agricultural exemption so I can avoid property taxes. Maybe olive trees? Is it too wet here? Too warm?

          1. Beehives.
            Plus you can get federal subsidies for them.

            Look into it. Everyone’s doing it. There must be a reason.

            1. Bees are cool. And I like honey. Pro Libertate Honey. Yes, I like it.

          2. Where I live you can get “current use” status for a piece of land over 11 acres which gives you a very low tax rate. You don’t need any specific agricultural activity, you just can’t develop it. You can end up paying like $250 a year for land that would sell for $100k.

            1. That would work for me, because other than the homestead (and maybe a shed), I just want land to frolic on.

          3. I actually enjoy gardening vegetables and have a nano-farm in my backyard? please, tell me more about these agricultural exemptions!

          4. Does it matter if they actually grow? Just get the cheapest seeds you can find, sow ’em everywhere, then who gives a shit if anything sprouts? I mean, if a farmer has a really bad harvest, and nothing grows on some of his land, does he have to pay property tax that year?

        2. It is nice to own land (I have 2 acres, plus about 40 more surrounding me that I can more or less use as I like within reason). I bought a house pretty early on because I like to have land and privacy and build stuff, cut down trees, etc.
          As an investment, all I expect is for it to more or less hold it’s value.

      3. HOUSING ISNT AN INVESTMENT.

        I’m not so sure about that anymore.

        Consider these scenarios:

        1. You buy an (inflation-indexed, or better yet, HPI-indexed) bond and use the income to pay your rent for the next 30 years.
        2. You buy a house and live in it.

        With respect to calling something an “investment”, what is the essential difference between these two cases, if any? (They have somewhat different risks, depending on how the bond is structured, but then again so do equities and bonds.)

        1. Keep in mind that aside from the pricing risk, there is also considerable expense over time in home ownership. That reduces its value as an investment, too.

          1. Of course, but maintenance costs are factored into the rent. And there are tax advantages to home ownership not available to renters — the mortgage interest deduction, but also here, at least, your ‘homestead’ is taxed at a lower rate than commercial property (including rental property). And then there are other practical factors. In many areas there just aren’t any rental houses available in most single-family neighborhoods (or at least not any that you could be sure you’d be able to rent for more than a year or two). And neighborhoods that DO have a lot of rental properties? Probably not where you want to live — unless you have no other choice.

            The subsidization of home-ownership is arguably bad policy, but given that it IS the policy, there are reasons not to fight it.

            1. I dunno, do rent increases keep up with inflation and other expenses? Seems like they don’t for longer-term renters, because landlords (even commercial ones) don’t want to have to go to the expense of finding new tenants.

              1. There can be and tends to be a lot of turn-over with renters. I couldn’t sell my last house in St Louis area, so I’m a land-baron now.

                If I can get a long-term renter, I will not raise the rent to maintain with inflation, just to keep pace on repairs/upgrades and property taxes.

                As the owner, my fixed costs are based on what my mortgage payments are. My profits are based on minor increases in rent and the tax kick-backs I get from the home.

                My first renter covered my mortgage plus the fee I pay to a property manager. For those two years, my profit was entirely in tax savings.

                1. Right — but you’re an accidental landlord. For most people in your position, when conditions improve enough, they’ll put the place on the market, sell it, and it won’t be available as a rental any more.

          2. I’m not arguing that housing is a good or bad investment. I’m arguing that it is an investment.

            1. Ok, but by some measure almost anything is an investment. Even cars. Don’t ’68 corvettes sell for more today that they did 40 years ago? Granted, that’s exceptional, and that principle wouldn’t apply to Ford Focus, but still, in theory…

              I mean who knows, maybe some day beanbag chair will be regarded as antique furniture…

        2. Reasons housing is a bad investment:

          -Illiquid
          -Drain on cash
          -High transaction costs
          -Leveraged
          -Low returns
          -Immobile

          1. You know, speaking of mobility, it strikes me that someone should come up with a mobile home that has a useful life more akin to a house than a car.

            1. @ Pro Libertate
              This is why I’m intrigued with the “Tiny House” movement. People are selling their McMansions and downsizing to small, trailer-type homes. When employment opportunities in your area dry up, you can hitch your house to your truck and move on.

              1. People definitely should think about the wealth they tie up in their residences. If you’re over-invested in your home, you’re missing out on other investment opportunities with that sunk money (and the expense of maintaining a home).

                As far as mobility goes, until you reach a certain level in your career, the obvious answer is to rent or to buy a small home or condo.

                I think some sort of mobile, modular home that isn’t doomed to destruction in 10 or so years and that can be firmly affixed to the ground would be a useful development.

            2. Tangentially, I don’t understand why it’s so often illegal to live in your car. I mean, if you ca find somewhere to park free over night, why not?

          2. Immobility is a huge one and affects the entire labor market. There are places in this country like North Dakota and Texas where there are good jobs to be had and actually labor shortages in some fields. The problem is a lot of people can’t move to the jobs because they are upside down on their homes.

            1. I’d be cautious about saying that there are still good oil jobs to be had in this oil market. Maybe once the prices take off again the craze will start again, but right now a lot of the weaker companies seem to be downsizing.

              1. That is true. I was thinking a few months ago. Regardless, home ownership reduces labor mobility and that is a very bad thing.

            2. The problem is a lot of people can’t don’t want to move to the jobs because they are upside down on their homes.

              A lot of people believe they have a right to a job where they live.

              1. I can’t stand this notion!!! One hears it all the time, especially when talking about wages: ‘I deserve $63 an hour to hand out cheese burgers so I can pay my rent in Manhattan.” The hell they do, go move to fucking New Jersey already.

                God, does it piss me off, especially because I live reasonably well on a little over what you would make being a full time minimum wage worker and I still save over 20% of my income (I’m a grad student). And people say they can’t survive on less than $15 an hour. Of course you can’t if you’re dumb enough to live in San Francisco while poor.

          3. You’re also at the mercy of the local government and the differently intellectually abled people who vote it in. Where I used to live, the city council and neighborhood activists came up with a development plan that would, if not later repealed, have force-fed massive residential development to what was already called the weakest and most overbuilt housing market in America. Then they wondered why their housing values fell.

            1. People in my old city do similar things, then blame racism when the middle class white and asian people move out to the suburbs.

          4. Again, I’m not arguing that housing is a good or bad investment. I’m arguing that it is an investment.

      4. A colleague of my Pa’s at IBM bought a ton of acreage and planted trees on it early in his career. He had a nice chunk of change when he retired by selling all the lumber (in addition to his sweetass IBM pension).

        I like that idea, but I think it’s too late. How many years do you need to get maximum $ for lumber? 30? 40?

        1. A coworker’s friend did something similar. Bought land with walnut trees on it, and a few decades later used the lumber to pay for the kids’ college.

        2. Depends on what you are growing. Pines and softwoods grow a lot faster than hardwoods.

          I would guess that for your pricier “furniture” hardwoods, you’re probably looking at 40 – 50 years to get top dollar.

          But, you can cash out without harvesting. Sell the lot and trees as a package before they are ready to harvest.

      5. Okay, it shouldnt be, its a depreciating asset, just like a car, only slower (both in depreciation and motion).

        Some of us owned American-made cars in the ’70’s – some of them were slower than most houses and small apartment buildings.

        1. I drove a ’77 Buick Electra in High School.

          You could fit 14 in the back, 9 or so comfortably.

          1. So hurry up and bring your jukebox money!

    2. Don’t forget liberal arts degrees.

  4. The two GSEs cannot lure homebuyers even with a 3%,downpayment because lenders have been putback trillions in weak nonconforming loans since 2009. The banks were burned by lax lending standards once and learned their lesson.

    1. The lesson being that if they fuck up, big daddy government will ride in to the rescue. Privatize the profits, socialize the losses.

    2. The fact that GSEs buy such loans in the first place are a form of lax lending standards. Banks have little interest in being so lax unless the government is actively paying them to be lax, or threatening to sue them for discrimination if they aren’t lax enough, as per the Community Reinvestment Act.

  5. Well…That’s not really happening.

    #1 phrase used after a Lightworker declaration.

    Home ownership isn’t inherently a good thing, anyway. It can be a good thing, but research suggests that it can also damage employment by reducing people’s mobility.

    Or trap you in IL…

    1. The mistake was being in IL in the first place.

  6. It can be a good thing, but research suggests that it can also damage employment by reducing people’s mobility.

    Damaging employment is an unintended by-product of decreasing mobility, but decreasing mobility itsself is not a bug, it’s a feature.

    Government (and not just the IRS who wants to be able to easily lay hands on you) can pillage better if it has a static population to work with. It’s much better for central planning purposes if everybody stays where they’re at. It’s much harder to plan budgets and roads and schools and regulate activity if individuals can easily move away from your grasp.

    And really, don’t individuals exist for the benefit of the state?

    1. Government (and not just the IRS who wants to be able to easily lay hands on you) can pillage better if it has a static population to work with. It’s much better for central planning purposes if everybody stays where they’re at. It’s much harder to plan budgets and roads and schools and regulate activity if individuals can easily move away from your grasp.

      This may’ve been true three decades ago (I don’t think it was then either), but considering everyone over the age of seven carries a tracking device on their hip that allows the Governmnet to listen in on their plans (the one’s they don’t post up on the internet anyway); I think it’s a moot point.

      Certainly, the IRS likes for you to have a home, but it’s not like they shrug their shoulders and walk away if you come up as John Doe from parts unknown.

  7. From the POV of the meddlers, home ownership IS a good thing. It gets people invested in and tied to a particular area, which makes them much easier to manage. Yes, Fannie Mae and Freddie Mac are lousy ideas, but they are lousy ideas with legs. Bush wanted to rein them in, and was blocked by (as I understand it) pretty much the entire Democrat power structure and most of the Republican too.

    For the last several years I have been occasionally running into people angrily demanding “Why hasn’t there been a Federal investigation into the housing bubble!?!” and my answer has been “Because the housing bubble was created by bad politics, and the politicians are deadly afraid that an investigation would say this in a loud and impolitic manner.”

    1. It is also an enormous stealth tax for the state and local governments. Increased home ownership and easy mortgage money, by driving up the demand for houses, drives of the property tax assessment values and is a huge revenue boon for state and local governments.

      It is also a huge money maker for real estate agents who get paid on commission. And most of the property tax money goes to the schools. So you have an unholy alliance of real estate agents, the education mafia, and banks who make money from the increased demand for borrowing driving this entire thing.

      1. It always surprises me, though it shouldn’t, how far up the list of lobbyist contributions RE associations are.

        1. They are a big fucking deal as Joe Biden would say. They have a tremendous amount of cash and only demand a few votes on things that the public usually doesn’t hear about.

          1. I just heard something on the news about Florida lawmakers fighting over the higher tax revenues they’re getting with the bubble inflating again. Nah, no vested interest in this nonsense.

            1. I keep thinking it has to end. But maybe it won’t. Maybe our future is endless stagnation and over inflated asset prices that prevent anyone not already bought into the scheme from being anything but poor.

              1. So, like, The Hunger Games?

              2. Welcome to Japan!

                1. It’s hard not to suspect we’re on that same road.

      2. Everyone benefits but the homeowner. That’s democracy at work?

      3. It is also an enormous stealth tax for the state and local governments.

        Not in CA. By Prop 13, property tax increases are limited to 2% each year unless the house is sold.

        You can predict the results, I’m sure. Now the leftists are pushing to overturn it because of the lack of turnover in housing, how it benefits the wealthy (since the poor are more likely to be evicted and so low-end housing turns over quickly), and how young people can’t afford homes ? basically all the reasons libertarians oppose rent control.

        Plus the reduction in property taxes, which is what I think their real interest is.

    2. Bush never wanted to “rein them in” – it is a myth.

      The House passed a bill to do so (HR 1461) the GSE Reform Act and Bush killed it saying it would hurt subprime lending.

      You are repeating a wingnut myth.

      1. You have to take the meds or the voices won’t go away.

        http://www.theatlantic.com/bus…..is/249903/

      2. The Bush admin actually did try to tighten lending standards (it was complicit in the fiasco for awhile, but began to wise up, too little too late though) and Chris Dodd and Barney Frank (beloved Democrats you must know) shot them down. They also chastised the officials responsible for overseeing the GSE practices when they expressed concern over the laxity of their standards in purchasing mortgages because doing anything about it would make housing ‘less affordable.’

        In other words, for the housing crisis we owe a great deal to the SJW horse shit of Dodd and Frank.

  8. Typically Keynesian policy sells itself as propping up demand, which sounds good to all listeners who see themselves as consumers.

    “Hey, this is going to help me buy stuff!”

    But more and more it becomes obvious that Keynesianism is really aimed at maintaining high asset prices for the benefit of groups that don’t work.

    Groups at both ends of the economic spectrum – highly leveraged real estate tycoons and owners of financial instruments, every bit as much as pensioners.

    These are groups that can’t continue to exist economically if asset prices decline, because they’ve made all their plans based on the notion that they can use high asset prices and capital gains as a substitute for working income.

    These seemingly insensible government actions make sense in that context. High housing prices must be maintained, to support baby boomers in their retirement, and to protect the banks. High stock prices must be maintained, to support Wall Street firms and union pension funds.

    Deflation cannot be allowed to happen, because when broad deflations take place the ultimate winners are people who can sell their labor for cash. (Labor prices are stickier than other prices.) And people who can sell their labor for cash have to be sacrificed, politically, for the benefit of people living off of asset prices.

    1. Propping up housing prices is, in addition to everything else it is, a transfer from the young to the old. Young people don’t own houses and they won’t until they buy into the market. When housing prices go up, it means first time buyers, young people, have to pay more and existing owners, old people, get the profit.

      The housing bubble is really the worst generational transfer of wealth there is. It is worse than social security and medicare. At least young people get the benefit of not having to take care of their parents thanks to those programs. But young people get nothing out of the housing bubble. They just get to live in relative poverty as they pay up to 50% of their income on housing.

      Everyone wonders why the current generation is doing so much worse. Part of it is student loans for sure. But the bigger part is the outrageous price of housing. You can’t buy a decent house in a safe neighborhood anywhere outside of the smallest town in this country for less than $200 thousand and without at least five percent down. So a young person buying their first house is looking at ten thousand dollars cash plus even at current interest rates a six or seven hundred dollar a month payment. And thanks to the points and the real estate agents cut, will no no equity to start out and now will be bought into the housing bubble racket. It is fucking disgraceful.

      1. While I won’t argue your general point, there are parts of the country (the Houston area specifically) where you can get a decent house in a safe neighborhood for a LOT less than $200K. Granted, total payment (P&I + escrow) is just over $1100/month, but given what a 2 bedroom apartment is going for…I’ll take it.

    2. But more and more it becomes obvious that Keynesianism is really aimed at maintaining high asset prices for the benefit of groups that don’t work.

      Well, if you’re consuming goods yet not working, you’re adding to demand for goods and jobs but not reducing the demand for jobs by taking one yourself. We generally call that “the leisure class” and, in Keynes’ vision, it was bohemians like himself who would be part of the subsidized leisure class.

      1. That must be what Piketty means when he says ‘rent-seeking behavior’, right?

  9. Because government officials have long been hung up on the idea that home ownership is a good thing in itself, and that rising housing prices are a sign of increasing prosperity.

    How do they not see the brutal irony of that statement?

    Is there any other market where shit getting more expensive is seen as a sign of increasing prosperity? Or where shit getting more expensive is not seen as directly contradicting the goal of everyone having more of it?

    1. Is there any other market where shit getting more expensive is seen as a sign of increasing prosperity?

      The stock market, which is probably where part of the confusion about housing being an investment comes from.

      1. Agriculture?

    2. Oil?

      Any scarce resource that is difficult to replace or substitute for?

      1. Why exactly would HOUSES be difficult to replace or make more of?

        Other than local ordinances limiting development?

  10. People really do think they are entitled to continually rising home values. It’s always at the front of their thinking. Last year my school district had a battle of full day vs half-day kindergarten. One of the primary arguments given in favor of full day was it would make our area more attractive for home buyers and drive up property values. And I stress: It wasn’t just a reason given, it was by far one of the more frequently heard arguments.

    1. One of the primary arguments given in favor of full day was it would make our area more attractive for home buyers and drive up property values.

      Sheesh, make it all-day-and-all-night care, then.

      1. Sheesh, make it all-day-and-all-night care, then.

        I can think of a few different terms for putting your children out of your home in order to increase your fiscal holdings.

        None of them involve the word “care”.

        1. Do the words “salt mines” or “monocles” make an appearance?

        2. Who said anything about caring? The important part is increasing home values.

      2. Better yet, since all-day kindergarten presumably costs more, let the residents decide how much they’re willing to pay the school district (in direct proportion to each resident’s home value) for them to have all day kindergarten; if they’re willing to pay enough to cover additional costs of all-day, then great. Otherwise, they’re basically just robbing the state’s taxpayers.

    2. I want real estate prices to really tank so I can buy some more land near where I live.

      1. This is about where I am at too.

  11. people who want to own homes and have the means should be able to purchase them, just as they would any other luxury item. But our governments do not need to subsidise that purchase.

    Why do you hate people who want to own homes but do not have the means? WHY?!

  12. After 3% down, the list payment on the cheapest condo in my zipcode would be only 28% more than my rent. Tempting but my retiree landlord is more concerned with steady income than charging market rent. Can’t be the only one.

    1. I am in that exact same position. The other thing about renting is that every time a landlord has to get a new tenant he is rolling the dice he will get a bad one and end up completely screwed. Between the housing descrimination laws and the pro tenant laws in many states, renting a property is a very risky gambit. When the Central American shows up to rent and it is obvious he is lying and plans to move 20 people into the house and completely trash it out, you can’t tell him no without risking a HUD suit. And once he moves in, it will take months to evict him and by the time you do, you will be out months of rent and probably have to completely gut and renovate the house to fix the damage they do. This is an enormous problem in the Washington DC area. We have a huge Central American migrant community and there are people who know the laws and know how to abuse them. Rent out a house convincing the landlord you are a nice family and then turn it into a flop house for as many migrants as you can stuff in there for as long as you can keep the landlord from evicting you, which can be a long time.

      1. Unless the landlord is stupid enough to put something in writing, HUD lawsuits are cheaper than renting to minorities. Landlord 101.

        1. What they do is rent privately advertising as little as possible and when they get a good tenant don’t raise the rent and do everything to keep them.

          And you don’t need anything in writing to win a HUD suit. You just need an aggrieved party who was qualified and tried to rent the house and was denied.

          1. You just need an aggrieved party who was qualified and tried to rent the house and was denied.

            These are nuisance suits. Merit means nothing.

          2. I’m not a litigator, but can’t you just 10b-6 (or the state equivalent) these things pretty early on? I have a hard time believing that legal fees for defending nuisance suits would be more expensive than dealing with a months long eviction process and subsequent remodel.

            1. No. All I need to get past a 10b 6 is allegations that if true would cause me to win the case. I don’t even need proof for that. I just have to allege my client was a minority, he was qualified to rent, and you denied him because of his race. That is it.

              1. “..you denied him because of his race.” I assume the burden is on the landlord to prove that he didn’t deny the tenant because of their race?

                As I understand it this is the way it works in discrimination suits for businesses too. If you have ‘too few’ minority employees, you’re assumed to be a racist and you have to prove you rejected applications based on other factors like education and criminal record.

                Maybe one of these days the activists will sprout some neurons and instead start suing the education and prison systems for screwing up minorities’ chances of getting jobs and housing. Fat chance.

        2. HUD lawsuits are cheaper than renting to minorities

          Renting to “minorities” is always a losing proposition?

          1. Of course not. But there are additional costs to renting to (or hiring) minorities if they are harder to evict due to certain laws. Much the same as hiring minorities or women: you know you may have to fire them someday, like any employee, and you know the risk of a lawsuit is higher with those populations, the expected cost of employment is higher for them, so you may be less inclined to hire them in the first place than you otherwise would be. Another area where anti-discrimination measures encourage discrimination.

        3. Couldn’t a land lord require proof of employment for a certain amount of time and a certain income level? That should weed out most of the deadbeats without having to dodge discrimination suits.

          It is certainly a rational response to housing regulations to avoid renting to “minorities” (those aren’t scare quotes, I just think it is a wrong use of the word. I hate it when people refer to individuals as “minorities”, though I am occasionally guilty of it myself). But still a bit distasteful.

      2. you can’t tell him no without risking a HUD suit.

        Not completely true. You can tell him that you’re waiting until the end of the week/month or whatever to make a decision. Then choose the nice Caucasian family that you hope will pay the bills and not trash the place. My parents have been doing this for years and they’ve never been sued.

        1. True. But you have to hopefully have that couple lined up. And sometimes the nice Caucasian couple isn’t what they seem. You can also have the misfortune of renting to nasty rednecks who trash your house.

          1. Oh, I know. They’ve had many a squatter who pays the first month’s rent and then waits to be evicted. The whole process takes three months. By then the place is trashed and needs to be completely redone. To make matters worse, the city requires that all remodels are done to code. Since their building is a century old, that gets expensive fast. To make matters worse, small claims court is useless. Sure they can get a judgement, but collecting the debt costs more than it’s worth. I don’t know how they do it. I wouldn’t have the patience for that shit.

            1. Me either. I would end up in prison for shooting someone or beating them half to death with a tire iron. My nerves and my temper could not stand the thought of some deadbeat living rent free while trashing my house and there not being anything to do about it. I don’t have the kind of self control necessary not to take matters into my own hands in those circumstances. Your parents are better people than I am.

              1. This is why I like to have a few alcoholic rednecks with lady troubles who are always needing a place to crash as friends. Let the deadbeat tenants know they just got a new roommate for a while. Make sure he moves in with a full bottle of jack and remind him that cleaning his guns is a good wY to clear his mind.

              2. This is why I like to have a few alcoholic rednecks with lady troubles who are always needing a place to crash as friends. Let the deadbeat tenants know they just got a new roommate for a while. Make sure he moves in with a full bottle of jack and remind him that cleaning his guns is a good wY to clear his mind.

              3. This is why I like to have a few alcoholic rednecks with lady troubles who are always needing a place to crash as friends. Let the deadbeat tenants know they just got a new roommate for a while. Make sure he moves in with a full bottle of jack and remind him that cleaning his guns is a good wY to clear his mind.

            2. That’s why my parents eventually went with section 8 for the rental property they had. Too many people stiffed them on rent and trashed the house. With section 8 though, they got the rent on time every month and the government paid for repairs when the previous tenants destroyed the place.

              1. They went the Section 8 route for a while, but got tired of all the drug dealing and cops being called for noise complaints.

    2. Yep, even better for me. Outside the “recovered areas”–NYC/SF, essentially, a lot of these properties are fairly reasonable, though it really depends. Near me, foreclosure condos in Tampa’s Hyde Park/SoHo district can be under $100k for a 2-bed (and dropping), yet, weirdly, similar units in downtown St. Pete, on the other side of the bay (and with a worse economic climate) are $150 (and rising). Tampa seems to have less crime and more economic recovery than St. Pete. I almost suspect seller collusion in Pinellas, not that such things ever happen in Florida.

      What should be noted, Fannie used to have a program called “Home Path,” which was designed for investors to take multiple foreclosures of their hands at one go, with as little as 5% down (and special privileges like a 30-day window for 1st-time homebuyers).

      Home Path ended in October, so to replace it they’re doing Home Steps. I don’t think Home Path really did its job as far as preserving prices, ‘cuz there’s still a major pending foreclosure overhang in every market I’ve checked. I’m a self-employed type, not keen on real estate, particularly, but it wouldn’t kill me even if the place was vacant while I lived in Costa Rica for six months of the year or something.

      /Lease up in three months. I, hmm, near University of Tampa. All the girls from USF coming down to party every weekend. Me a karaoke god with this cute little dog you just have to see and she’s just down the street… hmm.

  13. Even if we are in a bubble, buying a home is the right move for most people because unless you have the worst portfolio on the planet the loans amount to free money.

  14. the loans amount to free money.

    Unfortunately, they default the same regardless of the interest rate.

    Low rates drive up prices. With low rates, you effectively front a crapload of interest, and it goes to the buyer, not the bank. Take another look at that chart up there: prices are close to their pre-crash levels. You remember: the levels that put a shitload of people underwater when the market sank.

    1. Low rates drive up prices and easy access to credit drive up prices. A reasonable person borrowing money that they can afford to pay back cannot out bid a similarly situated jackass borrowing more money than he can afford because he is convinced the market will forever go up. The more access irresponsible people have to money, the higher they are going to bid up prices.

    2. It’s so obviously a bubble that I’m a little stunned that people are continuing to act like it isn’t. I believe that as recently as first quarter of this year, there were more investors buying residential property than people buying homesteads. Just who are these investors going to sell to at these inflated rates?

      1. People do learn. I don’t think people are going to take the bait to the same extent they did in the 00s. Some will. Some people have just bought the myth and are obsessed with owning a home at any price. But I think a lot of people have learned from either experience or watching other people’s experience when the last crash happened.

        1. I agree, and I think the reticence is obvious in who has been doing the buying. Most of the investor purchases happened before prices got this high, after all, and there are still a good number of foreclosures out there. Not to mention that there aren’t a lot of good places to go with your money if you don’t want it all to go into the stock market.

      2. When the big crash happened, I thought, good, prices are back to near what they should be.

        1. If the bailout hadn’t happened, prices would’ve gone a LOT lower. Housing prices are a great metric for how effed up everything really is.

      3. To all the millions of future immigrants to whom the government is presumably going to be giving free money soon enough? Just a guess.

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  16. Lots of cities in the Midwest and South present opportunities to purchase rental homes/duplexes (all cash) that throw off good cash flow, with a 36 month pay back period. Cleveland (my favorite), Columbus, Cincinnati, Indianapolis, Ft. Wayne, South Bend, Milwaukee, Austin, Dallas, Chattanooga, Atlanta, etc.

    Try to find properties that are already being rented. Try to buy a portfolio (at least 5 doors) of properties. Hire a professional property management company to handle renters/collections/maintenance. Put all your properties into a land trust. Own your properties through an LLC (or S corp). Look at your bank account on the 15th of each month and be happy.

    1. One thing I’ve always been told is that owning one or two rentals is more grief than investment.

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  18. Thing is, you’re not going to convince people to purchase a home at 3% down if they end up paying 2% extra in interest and another 1% in private mortgage insurance. Whatever you save on the down payment is going to get eaten up in extra fees and interest payments over the long term.

    Anyway, I thought the whole point of the GSEs was to reduce the risks to lenders. Why are they still charging higher interest rates and PMI if the government is absorbing the risk?

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