> "the move is likely to
> hasten the collapse of
> Fannie and Freddie.

Knowing the Bush administration I wonder whether this was perhaps the point of the whole exercise.

I haven't read the book yet, but have heard or read several interviews Naomi Klein has given about her 'disaster capitalism' thesis. Sure looks like the neocon elites viewing the country's ongoing financial 'disaster' as a huge opportunity.

If people can refinance their existing loans under the new limits, I would agree that yes there is this danger. (But I don't know if the GSE's perform this function).

If however, this is only for new purchase, then I imagine the risk is minimal, since I think the vast majority of potential buyers are astute enough (given what has transpired), to wait until prices drop another 10 to 30%, depending on the location.

In other words, It appears to me that this change will have little effect on spurring new purchases in this year.

Look for no analysis in the media about why the implications of the GSE lift got such short shrift in their coverage of the stimulus package.

What if their capital base is also increased simultaneously?

Reading this post jogged my memory to go back to an earlier post by Krugman in his blog, where he notes the possibility of this jingle mail phenomenon – and promptly gives Dean Baker! credit for pointing how it could infect even people without subprime mortgages who might otherwise have the sorts of middle class inhibitions about the social unacceptability of defaulting which we think should reliably characterize the behavior of salt-of-the-earth Fannie and Freddie types.

And Krugman has already updated the link from his December 20, 2007 post. Now there's professional comity!

I am wondering what is happening with rents right now. My impression in the D.C. area is that rents for houses and apartments are starting to decline because so many homes and condos have come on the market. If so, this should put even more downward pressure on home prices and placing risk against backers of mortgages.

It seems to me that Congress just doesn’t get it. Congress seems to be approaching the housing issue from the stance that American family’s need help obtaining bigger loans. We had the opportunity to get bigger loans for the past 5 years or so, and it led to a rapid run-up in housing prices and property taxes, and left people such as myself in a state of fear. I certainly feel that the high level of housing prices has shut my wife and me out of the housing market, yet I also dread the inevitable day when rental and housing markets come back into alignment. My primary fear is that rents will rise to catch up with the substantial increase in housing prices that we’ve seen since over the past decade. According to CEPR’s Mid-Summer Meltdown report (August 2007), U.S. housing prices, in inflation-adjusted dollars, rose by 70 percent since 1995.

As long as there is a $800 billion hole in the economy, I don't think anything Congress or the Fed does will matter.

Surprisingly enough, Huckabee was the only one to make a similar observation. Not Hillary, not Obama ... the suckups.

We live in San Diego. Will Fannie & Freddie disclose to the American taxpayers how many of these overleveraged buyers ultimately go belly-up anyway? This should be a CRIME! Fannie was NEVER setup to underwrite $ 8-900K homes!($730K loan) Are you nuts? What this does is keep people in the homes longer while digging a deeper hole for themselves, prolonging the movement to rentals and savings for these poor suckers, as they await the "next incremental bailout"!!!

"As long as there is a $800 billion hole in the economy, I don't think anything Congress or the Fed does will matter.

Surprisingly enough, Huckabee was the only one to make a similar observation. Not Hillary, not Obama ... the suckups."

Posted by: vorpal

I am 100 percent against Huckabee's social stances but you are correct. I was hoping that other people were noticing that he seemed to be a lot more honest when it came to domestic economic issues.

I suspect thats why he has only raised 9 million dollars to date. Its also apparent that the mainstream media has had no desire to cover him at all. The big story, for me at least, after super tuesday wasn't the neck and neck battle between Hilary and Barack, or the surge by McCain; it was the fact that Mike Huckabee had not been given the attention of a serious candidate despite being one.

But of course it makes sense. Who was the other candidate (major, so excluded Dennis) that had a somewhat populist platform? Edwards, and he was treated very similarly. Any whiff of populist economics and you will get ignored by the mainstream media.

Does anyone know if the GSE portfolio limits were also raised? If portfolio limits were not raised, doesn’t this mean that fewer loans at larger amounts will be issued?

Kind of defeats the whole purpose of these enterprises doesn’t it?

Dumb…

Best regards,

"Any whiff of populist economics and you will get ignored by the mainstream media."

And if you have more than a whiff, you'll get more than ignored. Which is exactly what prevents people like Kucinich from being "major candidates". Lack of funding is not nearly as big a problem as the media's self-fulfilling prophecy that "he hasn't got a chance".

"yet I also dread the inevitable day when rental and housing markets come back into alignment. My primary fear is that rents will rise to catch up with the substantial increase in housing prices that we’ve seen since over the past decade."

I don't think this will happen. Schiller pointed out that the reason housing bubbles will collapse is that new homes can be built further out for "non-bubble" labor and materials cost. Housing prices are just flat going to decline to the cost of building on new land; and rents will go down the monthly payment of the mortgage plus maintainence on those buildings.

Just for kicks I'd like to point out the other obvious bubble that is going to cause pain vastly greater than that caused by the housing bubble in a few decades.

The US population is exploding in an unsustainable way. We won't have the energy for transportation and growing of food; and, frankly, we won't have the average brainpower to do the world's intellectual work.

Maybe nuclear plus solar plus therapeutic genetics (which does not nearly exist now, plus maybe Ventner's bugs will save us; but I doubt it. It would be better to be prudent and stop all immigration. Let other countries be swamped like Darfur.

Sorry, that's Robert Hume above.

I'm mind boggled by your example of the couple with the house they bought for $400,000 now worth $300,000 pocketing $100,000 if they walk away from the house. How do they walk away with anything other than the taxes they'll still have to pay as a result of the foreclosure?

The comments posted here by readers show that they are already better-informed than the so-called "experts" that the media keeps featuring. The problem will certainly get a lot worse this year before we see any signs of a turn around.

LJM wrote, $400,000 now worth $300,000 pocketing $100,000 if they walk away from the house. How do they walk away with anything other than the taxes they'll still have to pay as a result of the foreclosure?

Because they're $100,000 richer than if they didn't walk away.

Well, the Hate Bush Derangement Syndrome (HBDS) runs deep, huh.
Let's just blame everything on him. Tomatoes don't sprout? Bush's fault.
I think this can be laid squarely at the feet of Alan Greenspan and the holding of interest rates down way too long and a lack of regulation of the industry as a whole which I believe would be a Congress held captive by lobbyists.

For long term sustainability of this market, Americans need smaller rather than larger loans. Raising the loan limit only helps sustain artificial values but the day would come when those values would have to align with realities. The longer these articial values are maintained, the longer the pain. The fastest and easiest bailout would have been to allow prices to collapse. Once this is done these houses would be resold at their real values and the economy would recover on a sound footing...There would be pain but it would be short-lived...

An op-ed I published in the Baltimore Sun a month ago. A good editor over there that thinks ahead on economic issues

http://optionarmageddon.blogspot.com/2008/01/baltimore-sun-ron-paul-housing-bubble.html

RW,

Thanks for the link and for writing that op-ed. Well done.

What I don't understand is why my fellow liberals that inhabit Congress love the GSEs. (My impression is that it's ideological, not just due to campaign contributions.)

Robert,

While I appreciate your reassurance that rents are not likely to increase to bring the rental and housing markets back into alignment, I still feel that a strong upswing in rents in coming years is by all means quite possible. I do, by the way, admire Dr. Robert Shiller. While I have seen Robert’s arguments as to why housing prices should decline to better reflect actual costs (land and building costs), I have also heard Robert indicate in a couple of interviews that it is very difficult to say whether or not housing prices will continue to fall or will actually rebound and begin rising again. In these interviews, he essentially talks about the impacts of people’s emotions and psychology in the determination of housing prices. Another factor that makes me nervous about the future of rents is the seemingly strong signals from our government, corporations, and media that maintaining housing prices at or near current levels is a ‘good thing.’ The increase in the limits of mortgages that can be insured by Fannie Mae and Freddie Mac from $417,000 to $730,000 appears to me to be a very good example of our government’s desire to keep housing prices from falling from their seemingly inflated levels.

While I believe that the rapid run-up in housing prices has been great for the majority of American households, I think this unprecedented increase in prices has created quite a challenge to any new individuals and/or families who will be entering the housing market for the first time in coming years. It really seems like a new paradigm -- where people are simply going to have to be willing to reallocate more of their income to housing, and less to other things such as savings.

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