Reviving the Real Estate Market

Why lower home prices are the only true solution to the housing collapse.

By Robert J. Samuelson | Newsweek Web Exclusive

Mar 5, 2008 | Updated: 12:00 p.m. ET Mar 5, 2008

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Posted By: tony0211 @ 04/25/2008 4:35:30 AM

Comment: You state the "Lenders would increase interest rates or down payments to compensate for the risk that a court might modify or nullify their loans They are going to do this anyway to compensate for the "loss" of modifying the loan. You seem to support letting the market "work its will". If this is so, why save Bear Sterns or the monoline insurance companies. You can't save one without helping the other. They are just putting it on the backs of the homeowners. We got in this mess because of one reason only... GREED. You can't legislate greed; it will always find its way.
Posted By: syvrancher @ 03/08/2008 2:18:49 PM

Comment: I wholeheartedly agree with the comments from blessedone and liberty economics,

The more this Administration and government gets involved, the more damaging and lasting this whole scenario will turn out. Evidently
Bernanke either was not given his job description or failed to read it.
YOUR JOB IS TO PROTECT THE INTEGRETY OF THE DOLLAR, NOT TO "FIX" THE ECONOMY; MR. CHAIRMAN!

The imposed actions by the FED have made this a more sustained problem effecting ALL Americans now with the value of the dollar taking a dive. Thus MORE damage has been done to MORE people than the careless individuals who practically gave money away with irresponsible loans being granted to people who will eventually just walk away from their house with no equity in this pseudo market.

It IS true we are "on the heels of a depression" and I see this Administration and a totally dysfuntional congress who just could not act when all the clues were pointing in this direction, a BIG part of the
problem. Allow the market to work the way it is SUPPOSE to and quit toying with it. Big government has caused a BIGGER crisis which will be sustained for a longer problem as we will contiue to find travel to other countries less and less affordable and inflation work on commodities such as OIL drive up our ability to afford our own groceries.
- Posted By: misschinagirl @ 03/16/2008 20:49:44
  
  Comment: Actually, you are wrong. Chairman Bernanke's job is NOT to defend the dollar. His job description comes from the Full Employment Act of 1946 and it is to ???promote maximum employment, production, and purchasing power.??? Don't like it? Write Congress and have the law repealed.
  - Posted By: libertyeconomics @ 03/27/2008 01:01:30
    
    Comment: But you can't have maximum employment, production, and purchasing power without SOUND money, which is the anti-thesis of inflation, which the Fed is responsible for.
Posted By: blessedone @ 03/07/2008 12:08:35 PM

Comment: Why not let house prices fall, it???s nothing that we can really do. So let???s stop kidding ourselves, we???re not in a recession we are on the heels of a depression. President Bush and his cronies and homeboys has rape this country financially, Bush had put all these dummy companies together like Homeland Security and so many more in order to channel huge sums of money from the national treasure to the sliver lining of his greedy buddies pockets. And the sad thing about it is that the government has become just like an ordinary big company that employee wake up to go to work for and find out when they get there that the company has shut down and the doors are lock, out of business and no job. The government is the biggest business in the country and they don???t have a financial forecaster to see four months down the road of the market and see that we are in a depression, be serious. Can someone have the guts to stand up and let America know that the country is head for a depression; like 1929 hard times? And if the congress and senate on capital hill is to scare to confront Bush and his bullies, then they need to call the police to arrest Bush and the energy boys and the rest of the bullies (911). This was what the war was all about; madness but organize madness, a divergent to distract us while thieves run away with billions of tax payer dollars, just think. Or are we to dumb to do that. They say a picture is worth a thousand words, look at Bush in Kuwait holding hands with his Arab buddy. They???ve laid the con down to perfection, the sting of all stings. His little victory dance shows his stupid arrogance.
Posted By: libertyeconomics @ 03/07/2008 2:44:38 AM

Comment: Inflation is the PROBLEM--not the cure. In fact, inflation caused the loan market itself overestimate its own condition. In fact, the real rate of interest was brought below zero, since nobody believed there was inflation, thanks to the government and central planners trying to hide inflation. The loan market was eroding the real pool-of-funding the entire time the price bubble was forming, thus diminishing real collateral. The problem has NOT been "sub-prime" borrowers. The loan market is insolvent, which brought to a halt inflationary credit expansion. The loan market is incapable of re-inflating this price bubble.

As the author saliently articulates, prices were artificially raised--that was done through inflation. If houses can't clear the market as is, you don't inflate even more. With inventories increasing, inflation will make the problem worse.

We need SERIOUS, SERIOUS reductions in government spending, which is nothing but misdirected and wasted resources. We need SERIOUS, SERIOUS deregulation. And we need to let prices fall--the faster and quicker the better. We need to let the market cleanse itself malinvestment, and stop trying to subsidize bad choices.

The more the Fed tries to fight this--which it will probably do by buying up paper junk--the longer the correction, i.e., the deflationary cure, is delayed, and the worse the calamity becomes. This is what happened during the Great Depression. It was made LONGER and WORSE through government intervention, and left us with PERMANENT unemployment, which is excised from unemployment statistics.
- Posted By: misschinagirl @ 03/16/2008 20:33:34
  
  Comment: Libertyeconomics, you are confusing inflation (which is a general rise in the price level) with housing prices. If the problem were only inflation then housing prices should not have risen faster than other prices. No, the problem wasn't inflation, it was shoddy loan practices, a negative real interest rate (you are correct on that point), and government policies that encouraged people who had no business ever owning a home getting in on a "housing rush". The key would be to create inflation WITHOUT lowering interest rates (so that housing prices stabilize but other prices rise) and then slamming the breaks on inflation (nice trick if you can accomplish it). I don't think the Fed can do this (or should) but it is a completely logical (and economically sound) argument (that it is the real price of housing that matters, not the nominal price for getting the housing market fixed but it is the nominal price of housing, not the real price of housing that matters for ensuring that people don't have an incentive to walk away from their homes becuase they end up owing more than the home is worth).
  - Posted By: libertyeconomics @ 03/27/2008 00:58:56
    
    Comment: I believe you are confusing inflation--i.e., an expansion of the money supply--with a general rise in the price level. It is hard to have a general rise in prices without an expansion of the money supply. Furthermore, to suggest that inflation wasn't the problem because housing prices rose a faster pace than other prices is just not right. That argument excises housing prices from inflation statistics, while simultaneously arguing that inflate is a rise in prices. Prices do not change proportionately. This idea that there is some kind of "rate" of inflation isn't right. Some prices go up faster than others, and prices are determined by inflation as well as supply vs. demand.
    
    How do you get a negative real rate of interest without inflation?
Posted By: libertyeconomics @ 03/07/2008 2:43:41 AM

Comment: Inflation is the PROBLEM--not the cure. In fact, inflation caused the loan market itself overestimate its own condition. In fact, the real rate of interest was brought below zero, since nobody believed there was inflation, thanks to the government and central planners trying to hide inflation. The loan market was eroding the real pool-of-funding the entire time the price bubble was forming, thus diminishing real collateral. The problem has NOT been "sub-prime" borrowers. The loan market is insolvent, which brought to a halt inflationary credit expansion. The loan market is incapable of re-inflating this price bubble.

As the author saliently articulates, prices were artificially raised--that was done through inflation. If houses can't clear the market as is, you don't inflate even more. With inventories increasing, inflation will make the problem worse.

We need SERIOUS, SERIOUS reductions in government spending, which is nothing but misdirected and wasted resources. We need SERIOUS, SERIOUS deregulation. And we need to let prices fall--the faster and quicker the better. We need to let the market cleanse itself malinvestment, and stop trying to subsidize bad choices.

The more the Fed tries to fight this--which it will probably do by buying up paper junk--the longer the correction, i.e., the deflationary cure, is delayed, and the worse the calamity becomes. This is what happened during the Great Depression. It was made LONGER and WORSE through government intervention, and left us with PERMANENT unemployment, which is excised from unemployment statistics.
Posted By: ace123 @ 03/07/2008 2:21:29 AM

Comment: the other thing to consider, is that with interest rates rising, even those with great credit, who weren't buying more than they can afford will delay purchasing till the bottom falls out on prices. you might get some more activity in the way of buyers if rates were lower for those with the credit to handle it.
Posted By: misschinagirl @ 03/06/2008 7:08:18 PM

Comment: There is one other possibility -- although no one is going to like it (then again, do they like the housing price drop idea either?): inflate the problem away. Already we see inflation rearing its ugly head. If the Fed unleashes inflation, the problem cures itself (although it does cause a host of other problems). The fact is that housing prices do NOT have to go down, IF the price of everything else goes up (in that case, the real price of housing, which is the only price that really matters will fall). Of course, to stop this inflation will require raising interest rates to cool things so it would have to be a controlled inflation that raises the price level by 20% or so and then is stopped. Too bad that no central banker in the world knows how to do this.
Posted By: joeys101 @ 03/06/2008 4:37:37 PM

Comment: I think that prices could fall a lot further as the cycle is far from over. Just as prices seemed to go up beyond reason, prices can go down beyond reason. The only problem with people who try to apply reason to markets is that markets are not reasonable. Markets are greed and fear translated into $$$$$$. The government will not be able to prevent the final outcome of lower prices and affordability. They can however totally destroy the dollar and ballon the national debt.

Check out these sites for some charts showing cycles and where things could be headed for the housing markets. I follow the San Diego market, but they apply elsewhere as well. San Diego was one of the first markets to balloon, so I think it is a good indicator of where other markets are headed if they are not already.

http://piggington.com/this_just_in_san_diego_homes_are_overpriced
http://www.housingbubblebust.com/OFHEO/Major/SoCal.html
Posted By: joeys101 @ 03/06/2008 4:36:58 PM

Comment: I think that prices could fall a lot further as the cycle is far from over. Just as prices seemed to go up beyond reason, prices can go down beyond reason. The only problem with people who try to apply reason to markets is that markets are not reasonable. Markets are greed and fear translated into $$$$$$. The government will not be able to prevent the final outcome of lower prices and affordability. They can however totally destroy the dollar and ballon the national debt.

Check out these sites for some charts showing cycles and where things could be headed for the housing markets. I follow the San Diego market, but they apply elsewhere as well. San Diego was one of the first markets to balloon, so I think it is a good indicator of where other markets are headed if they are not already.

http://piggington.com/this_just_in_san_diego_homes_are_overpriced
http://www.housingbubblebust.com/OFHEO/Major/SoCal.html
Posted By: joeys101 @ 03/06/2008 4:35:50 PM

Comment: I think that prices could fall a lot further as the cycle is far from over. Just as prices seemed to go up beyond reason, prices can go down beyond reason. The only problem with people who try to apply reason to markets is that markets are not reasonable. Markets are greed and fear translated into $$$$$$. The government will not be able to prevent the final outcome of lower prices and affordability. They can however totally destroy the dollar and ballon the national debt.

Check out these sites for some charts showing cycles and where things could be headed for the housing markets. I follow the San Diego market, but they apply elsewhere as well. San Diego was one of the first markets to balloon, so I think it is a good indicator of where other markets are headed if they are not already.

http://piggington.com/this_just_in_san_diego_homes_are_overpriced
http://www.housingbubblebust.com/OFHEO/Major/SoCal.html
Posted By: sosebee2 @ 03/06/2008 12:45:18 PM

Comment: Mr. Samuelson - Although I agree with your principal of allowing house prices to fall to a recoverable level you fail to look at factors that make this current crises more than just an 'adjustment'. The suburban model of life in america is not merely unsustainable but the gen-xers no longer want it. Young people who grew up on the 'Seinfeld' , Friends' view of urban life don't want to live isolated in the suburbs. They want to live in hip cosmopolitan environments. In the current issue of the Atlantic Monthly there was an aritcle talking about the trend of todays McMansions becoming tomorrows slums.

With gasoloine approaching $4.00 a gallon how does Samuelson see Americans adjusting to a shrinking economy to go with the equity in thier homes evaporating? As usual Samuelson makes his assertions in a vacuum.
Posted By: sosebee2 @ 03/06/2008 12:44:35 PM

Comment: Mr. Samuelson - Although I agree with your principal of allowing house prices to fall to a recoverable level you fail to look at factors that make this current crises more than just an 'adjustment'. The suburban model of life in america is not merely unsustainable but the gen-xers no longer want it. Young people who grew up on the 'Seinfeld' , Friends' view of urban life don't want to live isolated in the suburbs. They want to live in hip cosmopolitan environments. In the current issue of the Atlantic Monthly there was an aritcle talking about the trend of todays McMansions becoming tomorrows slums.

With gasoloine approaching $4.00 a gallon how does Samuelson see Americans adjusting to a shrinking economy to go with the equity in thier homes evaporating? As usual Samuelson makes his assertions in a vacuum.
Posted By: luce_sociator @ 03/06/2008 11:24:14 AM

Comment: This is why no one should be allowed to graduate from high school or college without at least one course in economics. Americans are economically illiterate for the most part, and that includes the people who are trying to run the government.
Posted By: eddiewhere @ 03/06/2008 4:13:39 AM

Comment: HILLARy should get out now. ALTER's FUZZy MATH MEANS NOTHING. OBAMA WILL NOT WIN. The media no longer is a viable real time source, they can only comment after the fact. All their predictions and polls have been wrong since IOWA, INCLUDING THESE NEWSWEEK ANALySTS. they need to stick to reporting and leave the politics to the pro's like me.

OBAMA CAN THANK LOUIS FARRAKHAN's ENDORSEMENT FOR HIS LOSS.
His pastor's public endorsement of Louis Farrakhan MADE the public question his religious loyalities-
LOUIS FARRAKHAN believes that the "WHITE DEVIL IS IN OBAMA'S SOUL" and that he does not represent true "BLACKNESS" that is why he did not wait until after TEX/OH/RI/VT primary elections to. mess up OBAMA's CAMpaign. OBAMA's pastor and mentor's public endorsement of LOUIS FARRAKHAN HAS COST OBAMA THE NOMINATION. THE SUperdelegates LIKE DAVID SHULSTER WHO ARE IN THE CLINTON pOCKET will have the final say.

i would have been dead on but Obama did better than expected in early voting in TEXAS..

eddiewhere @ 03/03/2008 4:52:12 AM
"IN HILLARy WE TRUST"

My sources HAVE assured me that HILLARy WILL WIN By MORE THAN FIVE POINTS IN TEXAS AND By DOuBLE DIGITS IN OHIO. SHE will also take Rhode ISLAND but lose Vermont by seven points. HILLARy's door to door camPaign was very successful in both states.
Posted By: eddiewhere @ 03/06/2008 3:48:35 AM

Comment: OBAMA CAN THANK LOUIS FARRAKHAN's ENDORSEMENT FOR HIS LOSS.
His pastor's public endorsement of Louis Farrakhan MADE the public question his religious loyalities-
LOUIS FARRAKHAN believes that the "WHITE DEVIL IS IN OBAMA'S SOUL" and that he does not represent true "BLACKNESS" that is why he did not wait until after TEX/OH/RI/VT primary elections to. mess up OBAMA's CAMpaign. OBAMA's pastor and mentor's public endorsement of LOUIS FARRAKHAN HAS COST OBAMA THE NOMINATION. THE SUperdelegates LIKE DAVID SHULSTER WHO ARE IN THE CLINTON pOCKET will have the final say.

i would have been dead on but Obama did better than expected in early voting in TEXAS..

eddiewhere @ 03/03/2008 4:52:12 AM
"IN HILLARy WE TRUST"

My sources HAVE assured me that HILLARy WILL WIN By MORE THAN FIVE POINTS IN TEXAS AND By DOuBLE DIGITS IN OHIO. SHE will also take Rhode ISLAND but lose Vermont by seven points. HILLARy's door to door camPaign was very successful in both states.
Posted By: fabronder @ 03/05/2008 10:24:52 PM

Comment: As a really gay, you should visit ???.???gaysinglehunt.com_???.???,start your brand-new life. It's our own community.Share lots of such gay videos,musics,articles and romantic stories with lots of gay friends.
Posted By: amandojavier2000 @ 03/05/2008 9:22:47 PM

Comment: I think lowering the cost of houses is not the solution. If this will happen, there will be more foreclosures. Because people who bought their houses recently or before it went down will be affected. The mortgage they will be paying will be more than the actual cost of the house. If this will happen they will just foreclose it.
Posted By: adadad @ 03/05/2008 8:25:58 PM

Comment: How long does it take for houses to rot? There are carrying costs associated with keeping a property in a declining or stagnant market, of course, but spoilage is not a realistic component. You need a better "apples-to-apples" analogy ;)
Posted By: adadad @ 03/05/2008 8:15:36 PM

Comment: http://www.newsweek.com/id/118914/page/2
Posted By: U.Heinrich @ 03/05/2008 6:31:57 PM

Comment: Posted by Uwe Heinrich
Exactly. I totally agree. Let the market do what it is supposed to do. The market needs to correct because we created a mess of unsustainable economics. People acted as customers trying to buy products that they simply could not effort in the first place and banks got greedy by trying to find "new customers" who never qualified for such a status because of their lacking abilities and in some instances lacking responsibilities. The mess could have been avoided with some sense of objectivity, common sense and realistic expectations on both sides. Now the market dynamics force us back to a healthy equilibrium. If we are trying to muddle up this situation (which is long overdue in the first place) we only prolong cancer. The sooner we find a true equlibrium, the sooner true recover can start.
Posted By: Jimmy.S in DC @ 03/05/2008 4:46:06 PM

Comment: Yes, but apples don't kill themselves, and a simple rotten apple doesn't ruin someones's credit and tear a family apart, but a falling home price and a defaulted mortgage can. I agree with Professor Samuelson that house prices should be able to drop, but the solution is not as easy as he suggests given the unintended consequences.
Posted By: GelatoRocks @ 03/05/2008 4:32:28 PM

Comment: Housing will correct itself, as I predicted would happen 2 years ago. I live in a market that is seeing very little decline in some neighborhoods, and an increase in others, especially homes priced in the lower end of the market, like condos and townhomes, which are in hot demand for first-time buyers, but who knows what will happen as mortgage interest rates keep climbing. No one is 100% immune from the transitional market.
Posted By: wrecktafire @ 03/05/2008 4:03:40 PM

Comment: I have listened to years of whining about the lack of affordable housing. Well, ready or not, here it comes!
Posted By: echameleon @ 03/05/2008 4:01:42 PM

Comment: I think this was a well balanced article pointing out some important points:
1. This country is in a housing value decline.
2. Notions of alleviating the problem with bailouts are false and similar to intervening in population corrections in nature.
3. Rise or decline in "real" housing prices should be based on the actual capability to afford the housing. Not as a result of speculation. Neither should they be artificially propped up by tax dollars.

I left the housing market in 2000. Would have loved to have bought another home, but I saw something dreadfully wrong with interest only loans and other similar vehicles. I chose instead to wait for what I saw as the inevitable correction in the market. While I appreciate that alot of homeowners are being hurt, a tax payer funded bailout would hurt people like me. If the current owners and speculators are bailed out home values will NOT decline. They will stay static. Life will go on as before and more second mortgages will be handed out to people using them as ATMs. Eventually it willl have to stop. Better now before it gets worse.
Posted By: echameleon @ 03/05/2008 3:59:09 PM

Comment: I think this was a well balanced article pointing out some important points:
1. This country is in a housing value decline.
2. Notions of alleviating the problem with bailouts are false and similar to intervening in population corrections in nature.
3. Rise or decline in "real" housing prices should be based on the actual capability to afford the housing. Not as a result of speculation. Neither should they be artificially propped up by tax dollars.

I left the housing market in 2000. Would have loved to have bought another home, but I saw something dreadfully wrong with interest only loans and other similar vehicles. I chose instead to wait for what I saw as the inevitable correction in the market. While I appreciate that alot of homeowners are being hurt, a tax payer funded bailout would hurt people like me. If the current owners and speculators are bailed out home values will NOT decline. They will stay static. Life will go on as before and more second mortgages will be handed out to people using them as ATMs. Eventually it willl have to stop. Better now before it gets worse.
Posted By: gwood501 @ 03/05/2008 3:54:03 PM

Comment: Every real estate agent in Seattle has 10 rent houses and is constantly flipping houses. The agents are either also mortgage originators or connected to one and pushing ARMs with no interest. They rationalize that Seattle will be like San Francisco and jump in before the price goes up. Reminds me of the pre-internet bust days with it was buy Qualcomm before it's $400 / share. At least 25% of the market is speculators and another 50% won't admit their home isn't worth the appraisal. Then, you have a land locked area around Seattle and rich Asians coming in from China and Korea buying up east Bellevue where > 60% of the schools are filled with immigrated children. Ultimately, we'll all be in the high rise apartments on the edge of town like the low & middle class of Singapore. Isn't a global economy great! Who needs a strong middle class and everybody has a home in the suburbs anyway. <sic>
- Posted By: emmarcee @ 03/05/2008 16:08:30
  
  Comment: Hey, This is what happens when tough times come.. blame it on the immigrants. Don't you think they would have paid these inflated prices too? falling for predatory american agents? flotting their hard earned money onto american housing market?
Posted By: Jatta Pake @ 03/05/2008 3:25:53 PM

Comment: Too bad you media "experts" are on the bandwagon now. Propably would have helped people more if you were like www.patrick.net and told the truth YEARS ago. Housing is a terrible investment now and will be in the foreseeable future. People should stick to RENTING!
- Posted By: tobyguy @ 03/05/2008 15:32:37
  
  Comment: Jatta Pake re: "Housing is a terrible investment and people shold stick to RENTING!".
  
  There's nothing wrong with buying a house you can afford (key emphasis on "a house that you can afford"). Treating a house like an investment or an ATM bank machine is the problem.
Posted By: DJWilson2 @ 03/05/2008 3:23:07 PM

Comment: Probably the most truth in the housing market I have read this year.
Awesome analysis! Almost to the point of common sense.
Posted By: tobyguy @ 03/05/2008 3:22:02 PM

Comment: Interesting artical, but simply put, it misses the point.

The housing bubble is only a small part of a much bigger problem - that problem is the "credit bubble" (specifically the mass amount of debt westerner's hold).

Not only is housing being deflated, but so are many more things (stocks [Nasdaq, DJIA, S&P, etc.]). And there's more to come - It's just a question of time before commodities and metals get deflated too (Oil, gold, silver, wheat, etc.).

ALL of the above have hit highs in recent times because of the MASS amount of credit (cheap money which flowed into every corner of the financial market). Now that cheap money is gone, and debt is everywhere, here comes deflation and it will take out each one at a time (one by one).

And if you are proposing to allow them all to deflate (as you are proposing with housing), do you recall the last time this occured? (1930's actually). If that repeats, welcome to the DEPRESSION of 2008. That's what you get when DEFLAITION is everywhere. And it's the logical outcome when you have MASS amounts of credit (like we have today), that has never been seen before since guess when? Yup, you got it, the great depression.

But guess what... there's little anyone (including the fed, the gov't, you or I) can do about it.
Posted By: tobyguy @ 03/05/2008 3:21:04 PM

Comment: Interesting artical, but simply put, it misses the point.

The housing bubble is only a small part of a much bigger problem - that problem is the "credit bubble" (specifically the mass amount of debt westerner's hold).

Not only is housing being deflated, but so are many more things (stocks [Nasdaq, DJIA, S&P, etc.]). And there's more to come - It's just a question of time before commodities and metals get deflated too (Oil, gold, silver, wheat, etc.).

ALL of the above have hit highs in recent times because of the MASS amount of credit (cheap money which flowed into every corner of the financial market). Now that cheap money is gone, and debt is everywhere, here comes deflation and it will take out each one at a time (one by one).

And if you are proposing to allow them all to deflate (as you are proposing with housing), do you recall the last time this occured? (1930's actually). If that repeats, welcome to the DEPRESSION of 2008. That's what you get when DEFLAITION is everywhere. And it's the logical outcome when you have MASS amounts of credit (like we have today), that has never been seen before since guess when? Yup, you got it, the great depression.

But guess what... there's little anyone (including the fed, the gov't, you or I) can do about it.
Posted By: garychildress @ 03/05/2008 3:17:42 PM

Comment: The press is finally starting to come around on what's really going on here. Everybody blames "subprime" borrowers for this but the real blame lies with banks making unwise loans, aggressive real estate pricing, flippers, speculators and wall street trying to turn homes into high profit investment packages. Subprime borrowers were simply the first and obvious people to get caught in the loan crunch. The problem is slowly creeping up the economic class scale. What's going on now is not a "crisis". It is a much needed but painful "correction" and needs to run it's course.
Posted By: leprechaun1230 @ 03/05/2008 3:13:00 PM

Comment: Well, I tend to agree with most of what you say. The housing market was indeed spiraling out of control, and home prices got crazy. Who was to blame, if anyone? Well, I submit that the banks were at fault, working out crazy deals to anyone with a pulse. That was crazy. The recipients of these crazy loans, people who at any other time, knew for sure that they could never, ever afford the homes they were borrowing for. They should have realized that they would have to pay the piper down the road a bit. I think the problem with the housing market has a lot to do with the fact that legitimate borrowers, not borrowing more than they could handle, exercising due diligence, are now getting burned as well. They are upside down on their mortgages if they have bought in the past two years or so, and find it difficult to move since they will be taking a bath on the sale, not having enough equity built up to break even at minimum. In order for good homes to sell, the potential buyers must be able to move/relocate, and in many cases this is not the case. These poor souls are the ones who bite the bullet and are not even figured into the equation of discussions like this.
One thing made this housing market what it was... GREED, pure and simple. GREED on the part of the banks for making such poor loans, GREED on the part of a lot of buyers, thinking they could buy this home and flip it in a month and make money (as many did), and GREED on the part of many home owners who tried to make a killing on their homes and sell for ridiculous prices. Shame on them all.
The day of reckoning has arrived and many realize the reckless abandon with which they got sucked in. Let the GREEDY bankers figure their own way out of this. I would not recommend the Fed bailing there sorry asses out.
Posted By: leprechaun1230 @ 03/05/2008 3:12:28 PM

Comment: Well, I tend to agree with most of what you say. The housing market was indeed spiraling out of control, and home prices got crazy. Who was to blame, if anyone? Well, I submit that the banks were at fault, working out crazy deals to anyone with a pulse. That was crazy. The recipients of these crazy loans, people who at any other time, knew for sure that they could never, ever afford the homes they were borrowing for. They should have realized that they would have to pay the piper down the road a bit. I think the problem with the housing market has a lot to do with the fact that legitimate borrowers, not borrowing more than they could handle, exercising due diligence, are now getting burned as well. They are upside down on their mortgages if they have bought in the past two years or so, and find it difficult to move since they will be taking a bath on the sale, not having enough equity built up to break even at minimum. In order for good homes to sell, the potential buyers must be able to move/relocate, and in many cases this is not the case. These poor souls are the ones who bite the bullet and are not even figured into the equation of discussions like this.
One thing made this housing market what it was... GREED, pure and simple. GREED on the part of the banks for making such poor loans, GREED on the part of a lot of buyers, thinking they could buy this home and flip it in a month and make money (as many did), and GREED on the part of many home owners who tried to make a killing on their homes and sell for ridiculous prices. Shame on them all.
The day of reckoning has arrived and many realize the reckless abandon with which they got sucked in. Let the GREEDY bankers figure their own way out of this. I would not recommend the Fed bailing there sorry asses out.
Posted By: ploughman @ 03/05/2008 3:03:00 PM

Comment: The great post-WWII housing booms were built on: 1) rising wages, as productivity gains an economic growth was SHARED, 2) modest houses, and 3) simple, fixed-rate mortgages. This failed boom (bubble) had none of these.
Posted By: rckymtnmoose @ 03/05/2008 2:53:12 PM

Comment: While in the military assigned to Colorado Springs I purchased a townhouse during the boom year of 1984, six years later Colorado Springs was ground zero for the Savings and Loan crisis and the resulting foreclosures, and that is when I received orders reassigning me. My townhome was worth 205 less than when I bought it, so I had to rent it for the next 7 years until the market turned around. It happens, much of this is people buying more house than they could afford and I don't think taxpayers should be paying for that.
Posted By: LightsOut56 @ 03/05/2008 2:39:19 PM

Comment: THANK YOU SO MUCH! I agree totally! Here in Southern California, it is so hard for realtors and others in the industry to admit that paying $900,000 for a 1,100 sq. ft. 2 br. + ba. shack, is too much money. Fiscally responsible "potential" homebuyers have known that for several years now. People got so caught up in what the monthly payment was going to be on teaser rate financing, that they were not paying attention to the fact that they were paying way to much in the overall price of the home.
Posted By: LightsOut56 @ 03/05/2008 2:39:03 PM

Comment: THANK YOU SO MUCH! I agree totally! Here in Southern California, it is so hard for realtors and others in the industry to admit that paying $900,000 for a 1,100 sq. ft. 2 br. + ba. shack, is too much money. Fiscally responsible "potential" homebuyers have known that for several years now. People got so caught up in what the monthly payment was going to be on teaser rate financing, that they were not paying attention to the fact that they were paying way to much in the overall price of the home.
Posted By: LightsOut56 @ 03/05/2008 2:38:00 PM

Comment: THANK YOU SO MUCH! I agree totally! Here in Southern California, it is so hard for realtors and others in the industry to admit that paying $900,000 for a 1,100 sq. ft. 2 br. + ba. shack, is too much money. Fiscally responsible "potential" homebuyers have known that for several years now. People got so caught up in what the monthly payment was going to be on teaser rate financing, that they were not paying attention to the fact that they were paying way to much in the overall price of the home.
Posted By: LightsOut56 @ 03/05/2008 2:37:57 PM

Comment: THANK YOU SO MUCH! I agree totally! Here in Southern California, it is so hard for realtors and others in the industry to admit that paying $900,000 for a 1,100 sq. ft. 2 br. + ba. shack, is too much money. Fiscally responsible "potential" homebuyers have known that for several years now. People got so caught up in what the monthly payment was going to be on teaser rate financing, that they were not paying attention to the fact that they were paying way to much in the overall price of the home.
Posted By: dmihailescu @ 03/05/2008 2:19:25 PM

Comment: The core issue is wages not keeping up with the home prices.
Making loans easy, throwing tax incentives at the buyers or pumping subsidies through FHA can get you only so far. It is merely a money changing hands scheme that is not sustainable.
And if they people get a home they would stop saving just to make the payments. That would make them more dependent on Medicare and Social Security later, like a deferred payment.
The issue is the wealth distribution that makes more Americans unable to buy a house or care for themselves unless uncle Sam helps them.
Posted By: JSquid @ 03/05/2008 2:17:08 PM

Comment: The Housing Crisis was created by Fraud and Criminally inflated prices perpetrated by Greed. The only way things will get back to normal is for the cost of housing to go back to what it was before it started.
- Posted By: tobyguy @ 03/05/2008 15:25:43
  
  Comment: The housing crisis was hardly created by fraud and criminally inflated prices (though there's little doubt that there are cases of fraud or greed).
  
  The housing crisis was created because of the mass amount of credit that the vast majority of americans are willing to take on. It was created as a result of the asset mania that has taken place in western society - and the want everything now attitude. Housing is just another casualty (another pop) of the much bigger bubble out there - the "credit bubble" (which has come about due to the mass amount of debt currently held by western societies).
Posted By: Stevie B @ 03/05/2008 2:12:24 PM

Comment: Mortgages are written with the idea that -- if the buyer defaults -- the lender can sell the house to recover some money. This is "secured credit", similar to a car being repossessed by a lender.
Even when secured rates are 5-6%, unsecured rates ("personal loans") are often at least double. Letting bankruptcy judges rewrite loans eliminates secured credit -- driving up rates and will be widely abused. Allow this only in cases of extreme fraud ofr the like.
l

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