Yes! So true. We are renters because we cannot afford a decent place close to town -- in a frugal 6-figure-income family that is saving 40k a year for our downpayment...only 100k to go for a big enough "downpayment" to afford a smallish 3-bedroom townhouse. When we finally buy, our "downpayment" to bring down the total mortgage may end up being more dollars than the SALE price was on the same house in the late 90's. Absolutely nuts.

«a frugal 6-figure-income family that is saving 40k a year for our downpayment...only 100k to go for a big enough "downpayment" to afford a smallish 3-bedroom townhouse. When we finally buy, our "downpayment" to bring down the total mortgage may end up being more dollars than the SALE price was on the same house in the late 90's.»

The American Dream is for the winners like the guy who is going to sell you that house to base their prosperity and success on making money out of the losers and suckers like you.

A small minority of voters are in your situation, and essentially no campaign donor is a loser on the same scale -- they know that the way to success is ensuring that the right political climate happens, by paying for it, one where wealthy asset speculators are justly rewarded or compensated for their losses by the Fed.

:-)

«While efforts aimed at keeping the housing bubble from deflating might be beneficial to those looking to sell their homes in the next year or two»

And to Wall Street investment bankers who haven't yet unwound their mortgage based positions. Both these guys and wealthy asset speculators have paid pretty good money in Congressional candidate sponsorship and must be allowed to close their trades in the best possible way. Otherwise it is Communism!

«they are incredibly bad public policy.»

But who is the "public"? Undeserving exploitative parasites that contribute less than $100,000 to the GDP of the USA while guzzling down "New Deal" style welfare? :-)

«Unless the government is willing to spend infinite amounts of money, its house price support program will eventually fail.»

Not necessarily -- if sustained inflation both makes house and other prices go up in nominal terms, while labor costs continue to be constant or declining in nominal terms, the program can well succeed by making those exploitative parasites pay the costs.

«Since the house price will eventually fall,»

Maybe yes maybe not, but no government can afford to destroy home front morale while the Iraq war is going on, and what happens after that is another problem for another time.

Getting the government involved in trying to set Housing Prices, will put us in a worse situation. The excesses have to be unwound on their own, in the timeframe decieded by the market's.

Dean,

The only effective proposal discussed in the editorial is to give the bankruptcy courts jurisdiction to restructure home mortgages. With such jurisdiction, the homeowners in danger of losing their homes could obtain relief.

The Bankruptcy Courts should be able to distinguish between homeowners and speculators and limit their remedies to those truly in need of help in saving their homes.

The only losers would be the foreclosure agents and their lawyers who are doing well working on essentially a commission business being paid by the packagers of mortgage derivatives.

Do you condemn the NYT for endorsing that proposal?

«The Bankruptcy Courts should be able to distinguish between homeowners and speculators and limit their remedies to those truly in need of help in saving their homes.»

Oh please -- most all of those "truly in need of help in saving their homes" have been speculators. Tax deductible interest, tax free capital gains, all those homeowners trading up to make more money on the appreciation of their investment in real estate.

Tho who cannot or don't want to afford to pay their $500,000 mortgage on a house that is worth $250,000 are just those who never had the money to pay that $500,000 mortgage off and just speculated that continuing rises in the price of houses would get that issue solved with a tidy profit.

All those people who cannot afford the $500,000 mortgage now are those that knew or should have known that they could never afford it; they just speculated that they could sell the house for $700,000 before the mortgage payments became a problem. Well, they speculated wrong. This article makes it very clear:

http://www.latimes.com/business/la-fi-perris16mar16,0,1672901.story?page=1

But yes, let's get the rest of the taxpayers to help them out -- after the rest of the taxpayers are suckers and losers who did not get on the real estate up-escalator even if Greenspan was warmly advertising it. Unamerican! :-)

Dean's on to something.

Perhaps he would herald the lowering of stock prices as well....that way everybody could afford a large portfolio.
Hey, and while we're at it, how 'bout lowering wages...particularly for economists. More people and businesses could afford their services.

The lesson: It's not Dean's Ox that being gored.

El Viajero,

it's the government that is trying to keep house prices high. I think it's wonderful to have the government prop up the value of the assets I hold, but it is not good economic policy.

btw, lowering the pay of economists is a wonderful idea -- i really wish they would remove the protectionist barriers that keep their salaries high.

I don't think they're talking about falling prices where prices are high, but in places like Detroit where housing prices are going to zero.

lgm,

if their concern is Detroit, then they would limit the guarantee price to a multiple of rent. This would prevent them from wasting money in bubble areas. Why don't they go the simple route.

Blissex,

What an interesting straw man argument. How easily you conclude that every home purchaser is a wild-eyed speculator.

So many of the homeowners in trouble are in the age 27 - 37 range. So many purchased a "starter" home for $250,000 or less. That "starter" home likely was built in the 50's and may have sold for $19,900.

Throughout their lifetime (and their parents lifetime) they had seen a virtually continuous increase in the prices of those homes. Further, the mortage lending standards have eroded steadily over the last twenty years. These people followed the conventional wisdom that "your house is your best investment". They believed the advice of just about every " financial expert" they encountered as well as most of their teachers in high school, community colleges and universities.

In many cases they purchsed their homes from speculators who had flipped them. In many cases, they went to closings only to find that the promised 30 year fixed rate mortgage was no longer available to them and they would have to walk away or take an ARM. In the best cases, the mortgage lenders required just enough of a down payment to cover the closing costs. In the most egregious case the closing costs were added to the mortgage.

So where do you arrive at your notion that such people are wild-eyed speculators who should have foreseen the existence of the bursting of the housing bubble?

The option of restructing mortgages in the Bankruptcy Courts (as I understand it) costs the taxpayers little or nothing. The mortgage lenders are required to reduce the debt and perhaps interest rates and the debtor is required to forego all (or most) of any increase in market value if the home is sold before the mortgage has been paid off.

The real losers seem to be the forclosure agents and the mortgage bankers.

Dean is essentially correct in his analysis of the parts of the proposed legislation that would result in taxpayer guarantees (or ownership) of inflated mortgages. The bankruptcy provisions (as I understand them) have no such effect.

Actually, many home buyers esp. those bought during the last six years are "wild-eyed" buyers who saw it on TV or persuaded by their families.

I have seen mortgages and housing markets in Los Angeles, San Bernandino (CA), Riverside (CA), Santa Barbara, central coasts of CA, San Francisco, Sacramento, Las Vegas, Phoenix, etc.

Many buyers have one thing in common: they believe price will continue to go up so no need to see whether they could afford or not.

When I reviewed their loan applications, the people who don't lie well on their financial statements show holes but many simply lied.

And of course with the appraisers facilitating the whole bubble, things did look real good.

Every one was doing it so why not us?

What compounded the problem was buyers even "super size" them, meaning not only they bought something that should not have been bought but they even bought a much bigger house!

People don't follow the wise adage "Save what you can, live below your mean."

Right on, James.

There will always be value in truly understanding what one is getting into - that iron law cannot be repealed for long.

I'm behind Dean on this. It is astonishing to see the NYT's presumptuousness in their statement that lower prices must inevitably lead to more foreclosures. To me that sounds like people unwilling, not unable to pay (yeah, spare me the knock-on effects econ argument). Such people should not be bailed out.

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