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Subject: Housing Bubble II - The End is Nigh! Posted by: biliruben - Leader [589301110] Wed, Dec 07, 2005, 14:13 The Anderson Forcast is out today,, and it's predictions look bleak: A sustained decline will hit the U.S. housing market next year, costing the nation as many as 800,000 jobs, according to a new economic report released Wednesday. The old thread was getting very heavy, so I figured I'd start a new one, as we begin the slow slide down the back of this beast. I am interested in your predictions regarding: -this sucker's existence -severity of the downturn (will your home decline in value?) -timing/length -geographic impact (is it everywhere, nowhere, or just some places) I'll just reiterate my prediction from a while ago in the other thread: I see a leveling out in 2006, speculators start realizing that they aren't making mortgage payments on rent, and appreciation has slowed, a few start to bail, we see a rush for the doors in late 2006, early 2007, a drop in price of 5-15%, guys like Jack jumping in in late 2007 to scoop up "bargains" gives us a brief upward blip, then a real drop and depressed house prices for several years, with falls from 10-50%, depending on markets. Condos in over-built areas catering to speculators will get slaughtered, losing half their value. Single family houses in traditionally strong areas recover most of their 2004 inflation adjusted value by 2009. My timing may be very off; dunno. Condo projects in Florida are already starting to be canceled, and inventories are building in particularly heady markets. Investors are starting to shy away. Here in Seattle, inventories are still declining and price increases, year over year, are still in the neighborhood of 15%, though we are seeing some month or month leveling more recently. What's going on where you are? | |||||||
[Lengthy or complex threads may require a slight delay before updating.] | ||||||||
| 366 | Baldwin ID: 125312919 Wed, Aug 15, 2007, 03:17 |
From my POV the home building industry is the bell weather of the economy. If homes are being built then tradesmen are being paid, furnishings and materials are being bought, real lasting assets are being created, potential is being put into gear and going to work. If the automotive industry used to serve in that important a role in the economy I find it hard to believe it does quite so much with the decline in domestic production vis-a-vis imports. Even if it does how much of GM is tethered to their home loan business? That doesn't even take into consideration the drying up of credit going on for all business as lending institutions pull back their horns and regroup from their home lending debacle. You don't think access to cash effects the business community, Nerve? I don't feel too comfortable relying on the Fed's printing money and manipulating the interest rates to extricate things this time. | ||||||
| 367 | biliruben ID: 4911361723 Wed, Aug 15, 2007, 08:16 |
So when did you sell all your stocks and go 100% cash or short? I'm not the type of guy to panic. The key to me previous sentence is "potential". I am still long good companies, with good balance sheets and no direct link to housing. Just bought a nice company with high upside I'd been looking at for a while who's price was unnecessarily beaten down, imho. I'm still shorting the bejesus out of hinky lenders. Usually with shorts I cover when I make 20%, but I'm already there and I'm seriously tempted to ride a couple to bankruptcy. I am also about half cash, and looking to move a bunch of it from a money market to CD today, just to diversify risk, because it seems like the traditionally safe investments are no longer safe. I feel more comfortable in stocks these days. I don't mind risk, I just want to be compensated properly for it, and 5% ain't it. At least I know there is a real company back there somewhere instead of some invented derivative made by some pointy headed geek freshly graduated from the University of Phoenix, who thinks he's way smarter than he is. | ||||||
| 368 | biliruben ID: 4911361723 Wed, Aug 15, 2007, 08:59 |
General Economy - I am seriously worried. The economy and the stock market, and certainly not individual stocks, often don't move in tandem, so I am not modifying my investment strategies that much, but the warning signs for impending recession are hard to miss. The housing industry - residential construction, renovation and brokerage (and it's just starting to spread to commercial RE) - is in a serious tailspin with no end in sight. This is going to be a huge drag on the economy for the foreseeable future, imho, and we are just beginning to see it's effects. Some argue that what has been driving our economy for the last few years is mortgage equity withdrawal (MEW). Cash out refi and 2nd mortgages and such. Real incomes have declined over the last 10 years. We have a negative savings rate. MEW has been what makes the world go round and kept the vaunted American consumer buying those hummers and wide-screen flat-panels. (I'll take a few graphs from Calculated Risk):  So at the height of the housing boom we were taking nearly a quarter trillion per quarter, and spending it on "stuff". Sometimes nearly 10% of our disposable income was coming straight out of our roof and 4 walls. If that doesn't make you say wow, it should. And all that MEW just went away. Poof. So next you ask: well so what? How much of our economy is really dependent on consumer spending anyway? Phew. According to Janet Yellen, CEO of the Federal Reserve in SF it's only 70%: The effects of the housing slowdown go beyond their direct contribution to GDP. In particular, what happens to house prices could have important effects on consumer spending, which is a very big part of the economy—roughly 70 percent. | ||||||
| 369 | biliruben ID: 4911361723 Wed, Aug 15, 2007, 09:14 |
Shoot. I hit post before sharing my favorite graph. Investment and Recessions:  This graphs shows something very interesting: in general, residential investment leads nonresidential investment. There are periods when this observation doesn't hold - like '95 when residential investment fell and the growth of nonresidential investment remained strong. Baby's awake. Gotta go. | ||||||
| 370 | nerveclinic ID: 105222 Wed, Aug 15, 2007, 09:22 |
50% cash...that's pretty conservative Bili. That doesn't even take into consideration the drying up of credit going on for all business as lending institutions pull back their horns and regroup from their home lending debacle. You don't think access to cash effects the business community, Nerve? I depends on what the true extent of the credit crisis is yet. Also, the Fed has already shown a willingness to add money to the system (last week) as the credit dried up. They are obviously prepared to keep the credit system flush, but at this point without lowering interest rates. So at the height of the housing boom we were taking nearly a quarter trillion per quarter, and spending it on "stuff". Sometimes nearly 10% of our disposable income was coming straight out of our roof and 4 walls. If that doesn't make you say wow, it should. And all that MEW just went away. Poof. Again this is a fairly recent phenomena. Yes it will have an effect on the over all economy but it's not like the only time the economy has been good is when we mortgage our houses and spend that money on "stuff". Also, in terms of the stock market, everyone is just focusing on the US. There is a HUGE economic boom going on in parts of the world that have never experienced this before...China, India, Russia, Brazil. The world economy is clipping along at an over 5% GDP. Especially if you are invested in Big Cap companies, they are making lots of money on this world boom. So then the next fear is...will our problems contagen to the rest of the world? I am encouraged by the fact everyone seems to be panicking" and "doom and gloom". That means lots of others like you are going to be or are at a 50% cash position. The desperation in your voices is actually a very bullish sign. | ||||||
| 371 | biliruben ID: 35112816 Wed, Aug 15, 2007, 11:43 |
Yeah - conservative. Mainly because this isn't long-term money. We need a bigger house within the next few years. I would buy one now except that I have a strong suspicion housing prices will fall pretty substantially over the few couple years, and loathe to see my down payment evaporate. It's going to be hard to hold off as the market gets weaker, however. I'm looking for any excuse to start shopping, but am targeting 1010. As you know, you should be pretty conservative with money you will need in the short-term. | ||||||
| 372 | biliruben ID: 35112816 Wed, Aug 15, 2007, 11:44 | The upshot is, don't use me as a contrarian indicator. | ||||||
| 373 | biliruben ID: 35112816 Wed, Aug 15, 2007, 11:47 | Huh. Those graphs looked good when I posted them at home. Anyone able to see them? | ||||||
| 374 | nerveclinic ID: 105222 Wed, Aug 15, 2007, 11:48 |
As you know, you should be pretty conservative with money you will need in the short-term. Absolutely. I am 80% cash in my personal short term money, in fact I was 100% until yesterday. Since we were talking about the stock market I assumed you meant your investment portfolio was at 50% cash. I'd say 50% cash in money you might need in the short term is actually pretty aggressive. Nerve | ||||||
| 375 | biliruben ID: 35112816 Wed, Aug 15, 2007, 11:49 | Short-term money's 75% cash. | ||||||
| 376 | biliruben ID: 35112816 Wed, Aug 15, 2007, 11:53 |
Sentinal Money Market update. Not as big a deal as it at first sounded. | ||||||
| 377 | biliruben ID: 35112816 Wed, Aug 15, 2007, 12:33 |
The housing market is still pretty much business as usual here in Seattle, BTW. The house next-door just went on the market yesterday. $225K for a generous 840 sq ft. of rotting floors, moss covered roof, gutters falling off, 50 year old appliances, and 8000 sq ft of Himalayan black berry bushes:  It's the cheapest property available for 10 miles in any direction. There is only one property cheaper in all of Seattle and Shoreline (a 600 sq ft house on a 2500 sq ft lot in the land of milk and crack). Half a dozen groups came by to look at it yesterday. Freaked by dog out, spun big holes in my gravel driveway, walked up to my window and started chatting away with me as I was working on my computer. Crazy. | ||||||
| 378 | Perm Dude ID: 52710159 Wed, Aug 15, 2007, 12:40 |
Did you tell them you were researching the housing market bubble? :) | ||||||
| 379 | biliruben ID: 35112816 Wed, Aug 15, 2007, 12:44 | Hah! Tempting, but I try to keep my bubble-head affiliation under wraps. I get more open, honest discussions that way. | ||||||
| 380 | Doug ID: 117331420 Wed, Aug 15, 2007, 12:51 | I'm half-tempted to try and find this listing online, drive by, walk up to your window, and start chatting away with you bili. Unfortunately, I still have one relative to visit this noon out in Shelton, and then need to head to the airport for my flight back to LA, so I don't think I can squeeze into the schedule. Next time. ;) | ||||||
| 381 | nerveclinic ID: 105222 Wed, Aug 15, 2007, 12:54 |
Bili are you joking or are you so pessimistic you really expect the SP 500 to go 1010 in the near term (next 6 months say) Every time I see a list of top 10 housing markets that haven't been effected by the housing bubble, Seattle is on that list. If you haven't been effected by the sub prime problems yet, I would think things look pretty good for the future of the housing market there. Any correction should be minor there assuming interest rates are done going up. | ||||||
| 382 | biliruben ID: 35112816 Wed, Aug 15, 2007, 13:07 |
Hah, Doug. If anyone comes up to my window this evening, I'll make sure to offer them a tasty Bridgeport IPA, just in case it's you. I'm not that pessimistic about the S&P 500, Nerve. I would be very surprised to see it dip below 1200, and if it did, then it will start rising again. I haven't taken any long-term money out of any of the indexes. I am very pessimistic about the Seattle housing market. Nobody can afford a house here. It's all specuvestors and flippers gambling on other peoples money and running the prices up to unheard of heights. We've been building like crazy. We haven't had any substantial increase in population. We haven't seen any substantial increase in wages. We haven't seen any substantial increase in rents. It just doesn't add up. When I bought 3 years ago, with 20% down, I could buy and my mortgage payment was just about the same as what it would cost me to rent, and I thought I was overpaying. Now my mortgage payment would be 1.5-2 times what it would be to rent. How does that make sense, in any world except in one where people are speculating that prices will continue to appreciate indefinitely? It no longer cash-flows to buy RE in Seattle, period. If someone were to offer to buy my house and let me rent it back from them for my mortgage payment for a few years, I'd jump at the chance. | ||||||
| 383 | nerveclinic ID: 105222 Wed, Aug 15, 2007, 14:32 |
Let's do it another way Bili we opened the market today at SP 500 1426. Which will we hit first 1526 or 1326? I'll take 1526 | ||||||
| 384 | Perm Dude ID: 52710159 Wed, Aug 15, 2007, 14:35 | Is that the best gauge, in this case? I would think the housing market would affect the bond market first rather than stocks. | ||||||
| 385 | nerveclinic ID: 105222 Wed, Aug 15, 2007, 15:44 |
PD read our last few posts, we've been discussing the effect on stocks. I don't disagree with you. Thus I'm betting on 1526. | ||||||
| 386 | Perm Dude ID: 52710159 Wed, Aug 15, 2007, 16:54 |
Yahoo report on the economy. Looks like lower gas prices have kept things going on a better level than they would have otherwise. Housing (and tighter credit, and all that accompanying stuff) is a worry but appears not to be really slowing things down overall. Of course, with our "spend first" economy, the fact that we are largely ignoring the housing crisis is par for the course. | ||||||
| 387 | Baldwin ID: 125312919 Wed, Aug 15, 2007, 17:24 |
Bili If you can write it, and you can get someone to sign it, it can be done. There are 1000 people in Seattle just dying to be the middleman in that deal, find you the suc...err...buyer and help you write that up, of course you can put in a classified and hire that RE lawyer yourself. PD Loved that comment. 8] | ||||||
| 388 | biliruben ID: 35112816 Wed, Aug 15, 2007, 17:25 |
As I've stated before, I think trying to predict short term fluctuations in the stock market is a fools game. But if someone put a gun to my head, and those were the only two choices, I'd have to pick 1326. Panic is in the air, the pros are confused and the momentum is down. | ||||||
| 389 | biliruben ID: 35112816 Wed, Aug 15, 2007, 17:34 |
Yeah - I've mentioned my desire to a couple Realtors, but no solid follow-through. My house is cheap enough that the amount of money we are talking wouldn't be worth the legal costs, time and hassle I don't think. There is an affordable housing non-profit locally that bought up property and is selling it cheaply with the proviso that it retains any appreciation. I think they will be bankrupt within 5 years. | ||||||
| 390 | Pancho Villa ID: 495272016 Wed, Aug 15, 2007, 19:44 |
If homes are being built then tradesmen are being paid, furnishings and materials are being bought, real lasting assets are being created, potential is being put into gear and going to work. Homes will continue to be built, but there will be fewer McMansion type subdivisions that have been fashionable the past 10 years(McMansion = 4,000 sq ft on up). As has been established, the guy making $75,000 a year has been able to buy one of these, depending on the market, for $500,000 to over a million. That guy making $75,000 will still be able to buy a home, but it will have to be in the $300-400,000 range. The market will force developers and builders to adhere to reality, building more 1,200 - 2,000 sq ft homes, as well as townhomes and affordable condo projects to maximize acreage. You'll see fewer builders building spec homes, with banks demanding that buyers be in place before handing out the bucks. But banks need growth as well as any other business, so they will get behind projects that make sense. Right now I'm doing a commercial project in Provo consisting of 162 condos on three acres. Each condo is 4 bedrooms(very small) two baths, selling for $275,000 to 350,000 for corner units with a bit more space(and two extra windows!!) The units have tile kitchen and bath floors, granite countertops and alder cabinets. Most of the buyers are investors who will rent them to BYU and Utah Valley State students. Four students per unit, paying $400 each a month, is the kind of math that investors and banks can both profit from. I expect to see more of this type of construction, geared to middle class America. The downside is that a lot of the guys who used to pound nails and saw boards, then became speculators and general contractors, will actually have to go back to doing construction work. That might put some illegals out of work, which I'd say is about half of the workforce on this project currently. | ||||||
| 391 | Perm Dude ID: 52710159 Thu, Aug 16, 2007, 00:00 |
Fort Myers: "Blood in the water" We see a lot of ads up here about buying Florida property, usually new developments. With a 27-month inventory it seems like that whole market is getting rocked. | ||||||
| 392 | nerveclinic ID: 105222 Thu, Aug 16, 2007, 00:35 |
Let's do it another way Bili we opened the market today at SP 500 1426. Which will we hit first 1526 or 1326? I'll take 1526 UMMM can I change that? Let's do it another way Bili we opened the market today at SP 500 1406. Which will we hit first 1506 or 1306? I'll take 1506...I think. If it drops again tomorrow, I'll restate it again... 8-} Seriously though, I bought more with 5 minutes left in the close today, again hit really nice drops on stocks. Of course I am running out of cash to "buy more" with. | ||||||
| 393 | Baldwin ID: 125312919 Thu, Aug 16, 2007, 09:33 | What sectors are you buying? | ||||||
| 394 | nerveclinic ID: 27051103 Thu, Aug 16, 2007, 11:10 |
What sectors? 1) Consumer Staples Mutual Fund that I've been adding to...it's a safe bet in any market because everyone still has to eat. It's just boring and no relationship to financials. 2) Technology No Relationship to financials unless the entire economy goes in the tank, so far that hasn't happened. Obviously the way the market is reacting some people do think we are headed for a recession, which would hurt tech badly. 3) IVW ETF (I just bought this for the first time this week) this is a large cap SP growth index ETF with very little exposure to financials, lots of the biggest companies who have been flat this year, Exxon, PG, Cisco Johnson and Johnson, GE etc. Safer because they are big companies and they get the world growth story play and the benefit of the weak dollar. Other then that I bought some SP 500 on the way down between 1450 and 1425. It has some financial exposure but only the biggest companies and they are pretty beaten up already. Obviously some of these entry points were premature but I missed the bottom in February because I waited so I vowed to buy on the way down this time. I was about 35% cash in my retirement before we hit 1450, now I am all in. And yes after yesterday and this morning a little scared...hopefully that's a good thing. I really wasn't that worried when I was baiting Bili a couple days ago but now I am a little more concerned. Again, that may be a good sign. Of course most of this money went into the market at SP 850 in March of 2003 so that gives one a little levity at times like these. It's long term 10 + year money I think 1380 on the SP is a really important symbolic test. That's where the lows were in February before the market came back. We hit 1390 as I wrote this. My biggest problem right now is a small exposure to Materials (Lots of steel) and Mining which I've had for a few months but it's actually down the last few weeks MORE THEN THE FINANCIALS if you can believe that. Fear that the boom in the world growth story may stall here because of USA home problems. Plus people taking big profits. Now right about now we are hitting a 10% drop from the highs. That is potentially very healthy for the market...as long as we don't zoom down from here. Anyone thinking of buying the best time to do so lately has been the last hour of trading. I've made all buys this week with 10 minutes left in the trading day and have managed to at least hit the lows of the day that way. I know this post is stock related but to me all the problems stem completely from the housing slump so very appropriate in this thread. By the way I have no fricken idea what I am talking about so please don't follow any of my advice and then blame me. Nerve | ||||||
| 395 | biliruben ID: 4911361723 Thu, Aug 16, 2007, 11:38 |
PV - there will certainly be a decline in the amount of construction as well as a change in type. We are at record levels of inventory, so unless everyone suddenly is able to own multiple homes on the same income, something has got to give. | ||||||
| 396 | Perm Dude ID: 44727169 Thu, Aug 16, 2007, 13:11 |
#69: Although I did see where Countrywide Financial has moved into town. So they may be moving the bubble here. Dow drops 250 after credit worries intensify when Countrywide draws from their credit line to fund operations Investors' confidence, already diminished by months of bad news about mortgages and credit, took a further drubbing after Countrywide, the nation's largest mortgage lender, said it was forced to draw on an $11.5 billion credit line to fund operations. The key word there, I think, is "operations." | ||||||
| 397 | biliruben ID: 35112816 Thu, Aug 16, 2007, 14:47 | Yeah, CFC was briefly down nearly 30% on the day. Almost decided to cover. Probably should have. | ||||||
| 398 | nerveclinic ID: 105222 Thu, Aug 16, 2007, 19:31 |
One of my best friends has worked for Countrywide for years as an IT. We've bee talking a lot this week. No insider trading talks sorry...he doesn't have a clue anyway...8-} Same friend that bought the electronic implant stock a few years ago. | ||||||
| 399 | biliruben ID: 4911361723 Fri, Aug 17, 2007, 09:45 | Arg. Now I know I should have covered my shorts yesterday. Devine intervention. Market manipulation from on high! | ||||||
| 400 | Perm Dude ID: 35738179 Fri, Aug 17, 2007, 23:54 |
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| 401 | biliruben ID: 35112816 Tue, Aug 21, 2007, 13:12 | Rumors of Buffet wanting to pick at CFC's bones. | ||||||
| 402 | Perm Dude ID: 50747219 Tue, Aug 21, 2007, 19:53 |
Breaking down the MLS walls, part I bili, do you read inman.com, by any chance? | ||||||
| 403 | biliruben ID: 4911361723 Wed, Aug 22, 2007, 00:08 |
Yeah - occasionally. Usually when it's pointed to in a blog. I didn't read the whole article, but that's exactly what needs to happen. There's actually a lawsuit ongoing because the MLSs are anti-competitive. | ||||||
| 404 | Baldwin ID: 125312919 Wed, Aug 22, 2007, 08:49 |
Nerve Never never invest in GE, please. They personify to me everything that is evil. They invented planned obsolesense. Even if they don't get the money and you are just trading with someone who already owns the stock, it's just wroooong to own that company. Unless you plan on being there at their board meeting and protesting this policy. In which case you have my blessing. | ||||||
| 405 | biliruben ID: 4911361723 Wed, Aug 22, 2007, 09:04 | Wow. I would never have guessed Baldwin would be one to only buy socially conscious stocks. | ||||||
| 406 | sarge33rd ID: 99331714 Wed, Aug 22, 2007, 10:56 |
They personify to me everything that is evil. I'm hurt. I thought I did that. :( | ||||||
| 407 | Boxman ID: 337352111 Wed, Aug 22, 2007, 13:34 |
From the WSJ. Payback BUSINESS WORLD By HOLMAN W. JENKINS, JR. Payback August 22, 2007; Page A14 Bailout has been a busy word in the last two weeks. But lending so solvent institutions won't go under for lack of short-term liquidity is very different than bailing out insolvent institutions from their bad decisions. In any case, we've made peace with a financial system that lives a little closer to the edge on liquidity than it would if there weren't a Federal Reserve. Whether the alternative would be a more stable world, with as much growth, is uncertain. But there's no doubt that the system has been conditioned to expect a general subsidy to risktaking by way of the Fed's willingness to provide cheap money in an emergency. Everybody talks about moral hazard. A wisp of memory came to mind last week. Then-Fannie Mae chief Franklin Raines visited The Journal years ago and entertained himself by mocking editorial writers who assume that establishing that a policy is economically inefficient is enough to establish that it's unwise. He yukked it up quite a bit, in fact, noting that voters are perfectly entitled to assert values other than those of the market, namely that homeownership is a social blessing and should be encouraged with subsidies. And so we've done with tax subsidies, lending subsidies and a concerted set of policies by Bill Clinton's HUD to move low-income people out of rental units and into homes they own. His goal, which was achieved, was to lift the homeownership rate from 64.2% to 67.5% of households. But a home financed by a mortgage is not just an asset. It's also a liability. We owe thanks to Carolina Katz Reid, then a graduate student at University of Washington, for a 2004 study of what she dubbed the "low income homeownership boom." She considered a simple question -- "whether or not low-income households benefit from owning a home." Her discoveries are bracing: Of low-income households from a nationally representative sample who became homeowners between 1977 and 1993, fully 36% returned to renting in two years, and 53% in five years. Suggesting their sojourn among the homeowning was not a happy one, few returned to homeownership in later years. Even among those who held on to their homes for 10 years, the average price-appreciation gain was 30% -- less than if their money had been invested in Treasury bills. This meager capital gain was about half that enjoyed by middle-income homeowners. A typical low-income household might spend half the family income on mortgage costs, leaving less money for a rainy day or investing in education. Their less-marketable homes apparently also tended to tie them down, making them less likely to relocate for a job. Ms. Reid's counterintuitive discovery was that higher-income households were "twice as likely to move long distance if they're unemployed." Almost needless to add, the great squarer of circles for middle-income homeowners, the mortgage-interest deduction, won't turn a house into a paying proposition for those with little income to shelter. Bottom line: Homeownership likely has had an exceedingly poor payoff for millions of low-income purchasers, perhaps even blighting the prospects of what might otherwise be upwardly mobile families. And yet subprime lending wouldn't be a business without a flow of customers, and politicians and a vast array of interest groups flog the notion that owning a home is the American dream for anyone who can squeeze sideways through the door. Now this curse is being repaid with interest, and by an inherently unpredictable route -- don't buy any "news analysis" that says that because subprime lenders were known to be making risky or fraudulent loans, last week's credit meltdown in unrelated markets from here to Tokyo should have been foreseen. Yes, you can find a hedge fund manager somewhere who bet on a credit crunch, just as you can find some who did the opposite. For every buyer there's a seller and selective evidence always supports the hindsight fallacy. That's more comfortable than acknowledging that big, unpredictable effects sometimes result from small causes. The irony is, were the owners of the subprime paper inclined to make themselves known and realize their losses, the majority of these loans would likely end up paying off. Buyers of the severely discounted paper would make a killing and the market's dispersed decision-making, which recently became its weakness, would return to its normal role as a strength. In any case, subprime lending accounts only for about 15% of outstanding mortgages, with an uncataclysmic $90 billion worth facing foreclosure. Fluctuations in the S&P 500 wipe out as much wealth every ho-hum day without drying up credit globally. But today's caginess problem is partly a regulatory and legal problem, because something is clearly stopping holders of temporarily unmarketable mortgage paper from sidling up to their bankers and asking forbearance on the loans financing these positions. The Fed's announcement of an accommodating discount window last Friday was an invitation to banks to help their clients dig out of these problems. But the Fed can't make them do so. If prosecutors and class-action lawyers now decide to launch an undiscriminating war on the mortgage finance industry, look out below. For the sake of people trying to climb into the middle class, let's hope that one lesson will be a rethinking of policies designed to saddle them with money pits. The Democratic presidential contenders are currently outbidding each other in ways to help "homeowners" (a dubious term in the present instance) avoid foreclosure. What might really benefit these citizens is being freed to return to renting, where some real bargains will likely be had in the months and years ahead. Mr. Jenkins invites comments to holman.jenkins@wsj.com. | ||||||
| 408 | biliruben ID: 35112816 Wed, Aug 22, 2007, 14:01 |
I agree with the point about homeownership being not such a great deal. We should be the mortgage interest deduction a credit, and only for mortgages dollars under, say 250K. That's the most a first time home buyer who is truly in need of the help could possibly afford to pay anyway. Right now the mortgage deduction is almost useless for first-time home buyers who get a house they can afford. When you take into account maintenance, upkeep, taxes and the historically low rate of appreciation, homeownership's a pretty bad deal, unless you luck into buying during a period of historically rapid appreciation, as we've seen in the last 10 years. | ||||||
| 409 | sarge33rd ID: 99331714 Wed, Aug 22, 2007, 14:06 |
I've posed that rgument many times bili. That for many, MANY Americans, renting is actually to their economic benefit. Mortgage Interest Deduction: ONLY, if you can itemize your taxes. Then, the only tax savings, is the difference between what your itemized tax owed figure is and what your non-itemized figure would have been. For a good nr of people, the standard deduction applies, and there is no tax savings. Property Taxes: Conveniently ignored as an off-setting expense to tax savings, by those touting home ownership. Maintenance/Upkeep/Repairs: Billed as an "investment", and ignored as the cash flow drain it can be. Easements: Never ever talked about, by those who tout home ownership. | ||||||
| 410 | biliruben ID: 17502215 Wed, Aug 22, 2007, 16:53 |
Yeah not to mention electric/sewer/water/gas/garbage/recycling Those add up to more than my total rent in my last apartment. It was cheaper to rent two places than it is to own one, with less total sq footage. | ||||||
| 411 | biliruben ID: 17502215 Wed, Aug 22, 2007, 16:56 |
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| 412 | Perm Dude ID: 7723229 Wed, Aug 22, 2007, 19:22 |
#409: The thing that is (or should be) the real deal breaker is catastrophic costs. If you are renting and the roof starts leaking, your landlord has to fix it no matter what you are paying and your rent doesn't go up (that is, if you have a lease). But sudden costs associated with a house have to be paid by the homeowner no matter what, and that can really hurt, especially people with no financial cushion. That said, the mortgage deduction is almost always a far better deal than the standard deduction, even if you don't take any other deductions. Those who have a mortgage and don't itemize their interest on their taxes are idiots. | ||||||
| 413 | biliruben ID: 4911361723 Wed, Aug 22, 2007, 19:30 |
Depends on your mortgage and your other deductions. The first year of our mortgage (9 mo), I did it both ways, and the standard deduction easily won. The last 2 years it's saved us about a grand. Peanuts. This is mainly because we have a small mortgage by Seattle standards (<200K), and Washington, doesn't have state income tax and we didn't have huge medical expenses. This year, with a kid, I assume it will be a little better deal. | ||||||
| 414 | sarge33rd ID: 99331714 Wed, Aug 22, 2007, 19:43 |
and you're in a hi-cost area bili. Take the middle of the country, where we had a 90k mortgage and that was with ZERO down. To blanket state the mortgage interest deduction is "worth it", is to ignore the differences in regional costs/realities. | ||||||
| 415 | biliruben ID: 17502215 Wed, Aug 29, 2007, 12:33 | Moving to a new thread | ||||||
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Post a reply to this message: (But first, how about checking out this sponsor?) | ||||||||