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Friday, September 19, 2008
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53 comments:
Looks like the Washington area is heading for a new boomtown, as the Treasury puts together this new RTC-like institution to take over failed mortgages. It will take a huge staff to work these instruments, and the most knowledgeable around town are F&F employees. That is good news for McLean and Chevy Chase real estate, IMHO.
We have yet to see the details of the legislation, but I am not sure yet of the overall impact on real estate of this action. If it is means tested (I suspect Democrats insisted flippers, vacation home owners, and the wealthy not be included), it should stabilize that portion of the market selling under $500,000. For houses over that amount, don't expect that it will do anything to stop the slide downwards.
F&F employees can afford a lot more house than 500k.
They get sick low mortgage rates - like 3.5% fixed for 30 years.
They also pull in very large salaries. I know someone in the biz, 35 years old making over 200k. She owns a 1.4M house in Reston.
edward allen said: "If it is means tested (I suspect Democrats insisted flippers, vacation home owners, and the wealthy not be included)..."
Based on your comments, i don't think you understand the government's plan. They are buying the so-called bad assets of financial firms. They are bailing out the financial firms, not individuals with loans.
And with regard to your comment about F&F employees doing the legwork on the bailout, again I think you are misguided. They are looking to buy assets, hold them, and resell them as the market strengthens. They are not looking to buy mortgages and do work-outs. And even if they were to, they would likely outsource to an existing servicing firm rather than try to start up ops from scratch.
"Doug said...
...I know someone in the biz, 35 years old making over 200k. She owns a 1.4M house in Reston."
she owns a property seven times her salary? she must have a large equity in that house. good for her.
You are assuming they are going to buy up all of the toxic assets the banks, etc. are holding. I do not think so, because they are envisioning some banks still will fail under this plan. Either way, once they have the bad loans, they are going to have to make a workout with the homeowner to persuade them to stay in their houses. Doesn't make any sense they would hold everyone harmless in this deal, or unravel deals made by flippers, vaction home owners, and the wealthy who can well afford the loss.
Actually, we still do not have the details of the legislation, and I am just trying to draw out the consequences of what I'm reading and hearing.
I dont know what she put down, but she owned property inside the beltway before she married.
He is an officer in the Navy so she is the bread winner.
Edward Allen - the means testing of your comment is debatable, but your other point about a "boomtown" is notable.
I remain firmly convinced that one of the reasons inside the beltway housing prices have not collapsed a la California, etc. is we are still adding jobs to the local economy. Los Angeles is losing several thousand jobs a month. Those people have to move. When, they do, who is there (with a job) to buy up their houses?
By contrast, our housing stock is not increasing, but our net inflow population is. Those people need a place to live, either they buy, or they rent, but our vacancy rates do not increase. Either way, we do not see a collapse like some of the other huge bubblers out there.
Bu the same token, if jobs were to suddenly decrease, I think we would see a whole new round of price drops, starting with the core areas and working their way out. Yet with the gubamint continually coming up with new ways to "save us" I am not holding my breath waiting for jobs to leave.
i'm liking this brand new listing - 3/3/1, 1029 sf TH in 22207 near Lee Heights @ $595K.
HOA is $95/mo, has a sizable deck and a skinny side yard. One(?) assigned surface parking, no garage.
what say you?
In the last month or so two homes were sold at around $550K, one was 4/3/1, the other 3/2/1, I believe. Both started at around $585K.
gte811i,ace,
The same people who advocated the 'less government' philosophy have brought us to this mess. That theory assumes that individuals are always honest, rational and concerned about the well-being of the country as a whole, which is not true.
However, in this instance, I am outraged by the bailout of banks that played the system. Goldman and others made windfall profits by shorting other companies. When their stocks are shorted, though, they run to the Govt. for help. Presto, short-selling is banned.
If banks benefit from the bailout, at the least, let them pay more taxes on their windfall profits.
Anyway, if the Govt. buys banks' worthless MBS, it should/will be only at a deep discount... say 90--95% markdown. To my mind, this will only show who is swimming naked and will force them to 'realize' their losses. So it seems to me that the market's euphoria is misplaced?
the anonymous: When I was younger, I harbored the belief that once Republicans took over this town, there would be a wholesale cleanout and agency closings, etc. that would really hurt real estate. The only real estate recession this town has seen, I am told, came in the Eisenhower administration in 1951.
Age and the Reagan Bush-Bush administrations have seasoned my views, but I must admit that I have never seen such an expansion of government has I have seen in the last eight years of someone who once was touted as the most conservative Republican of the three. This latest episode just caps it, and I fear there will be a real backlash someday when people revolt at the tax increases that are going to be necessary to pay for this incredible excess. Now I'm sounding like an old fart.
the anonymous: Since 2000, housing stock for DC metro has increased faster that the population.
"Novawatcher said...
the anonymous: Since 2000, housing stock for DC metro has increased faster that the population."
Novawatcher - I have no doubt about that, but my point is, the vacancy gap is closing. Thats not the case in places like detroit where there has been a large net outflow of jobs, but not a home bulldozing program to keep vacancy in check.
To a degree, the same thing is happening in LA. Same # of houses as before, but due to their net job loss, there are now less people to occupy those places.
Terminator X continues to point out that if the layoffs start, places closest to the city will fall bigtime. I think he is spon on in his analysis. My point was as long as we continue to add jobs, the vacancy rate will continue to close without the tremendous drop other areas are seeing, and I originally thought we would see here in the DC area - even close in.
Edward Allen - I see where you are coming from and I agree. Its absurd how much bigger the whole thing has gotten under an ostensibly "less government" administration.
the anon said: "the vacancy gap is closing."
The opposite is true and has been so widely reported that I can't help but conclude that this is purposeful misinformation. The vacancy rate is at 50+ year highs as we speak...
http://www.census.gov/hhes/www/housing/hvs/historic/histtab2.html
"John Fountain said
The opposite is true and has been so widely reported that I can't help but conclude that this is purposeful misinformation. The vacancy rate is at 50+ year highs as we speak..."
Hold on there John - lets unpack what I said, or was trying to say, before we conclude that I am engaged in "purposeful misinformation" shall we?
If you will, my argument was one of common sense:
1. Since the bubble popped in 2005-2006, have the builders continued to build at the rate they did pre bubble, or did they slow down. I believe they slowed down. Please tell me if I am incorrect in this belief.
2. Since the bubble popped in 2005-2006, have people continued to move into the area, or have they left to pursue greener pastures elsewhere like they have in places like detroit, cleveland, etc. and (perhaps) california. The Census seems to indicate they are moving in.
http://www.census.gov/popest/counties/tables/CO-EST2007-01-51.xls
My gut tells me, and the point I was trying to make was it has something to do with the fact that we continue to add jobs here - not hemmorage jobs away like they are in other areas of the country. I am also assuming there is some correlation between people being gainfully employed, and home prices in the area. Again, please let me know if I am mistaken in this assumption.
3. If people are continuing to move in to an area post bubble, and if they have largely stopped building in an area post bubble, this suggest to me that in that area, the vacancy rate is decreasing. Again, please let me know if I am mistaken in this assumption.
Further, with regard to your larger point about a 50 year increase, that is certianly true, but lets think for a second about what happened in the last 50 years. Seems to me, there was this period of time, called "white flight" where a number of people moved out of the cities, and into the suburbs and all those shiny new homes they were building. Those old homes in the city didnt go away - they just sat there, run down, dilapidated...abandoned to nothing but the winos and crack addicts who apparently dont count towards vacancy rates.
Now, in the last 10-20 years, a funny little trend seemed to develop. Some people decided to quit moving further and further out, and decided to move back into the center cities. I look at DC proper for example. I hear that 20 years ago, the place was large swaths of the city that were boarded up and abandoned. I go to those same areas today and I dont see abandoned buildings. I see places that have people in them. Maybe its just the winos and crack addicts have taken the plywood of the windows, but these formerly abandoned areas look pretty much full to me - not at all like it did from an earlier era.
So in any event, I would like to think that the whole white flight thing somewhat explains the whole 50 year trend of increasing vacancies in the larger metro areas. That is of course, unless the media, the winos, the crack addicts, et. al. have also engaged in my appparent campaign of "purposeful misinformation".
Now, it is painfully obvious that I am being quite snippy in my response here. To be fair, I should have stated I am only speaking about vacancy rates decreasing in the post bubble period, and since I did not, I apologize.
Still, the thing is, I would like to think I have a decent track record of making thoughtful comments to this blog. I would like to think that before one would simply conclude it is a case of Lance type "purposeful misinformation", perhaps they would ask me to clarify my statement. Had you done so I think you would have found that there is some shred of merit to what I am suggesting. Then again, I am sure you will tell me if I am mistaken.
tedk,
No actually, it does not assume "honest, rational and concerned about the well-being of the country as a whole".
It's actually quite the opposite. It assumes that people are irrational, dishonest and not concerned. The basic tenant is that I as an individual has a sovereign right over my person, and subsequently over my property. It assumes that morality or ethics cannot be dictated or forced by the government, b/c forcing morality is in itself immoral.
The one thing it holds dear above all else the sovereign of the individual or the individuals property rights, and below that . . . contracts. Government should be set up to protect property and to prosecute those who commit fraud or steal money. It doesn't assume that people are honest, it assumes that people will be dishonest, but if you are you will be prosecuted- b/c you are committing fraud which is a type of theft (i.e. I make a contract with you to deliver x with these specifications, if you don't deliver x according to the contract you have committed fraud and consequently committed theft b/c I gave you money in exchange for x which you did not deliver).
Good thread....one thing that is lacking however is any discussion about credit, or the lack there of.
As we move forward the biggest challenge for most buyers (not all) will be access to money. Banks simply are not going to take the risk anymore.
You'll need to come to the table with 20% down and your mortgage payment probably won't exceed 40% of your total income. Otherwise the bank is going to say, "put moree $$$ douwn or keep looking because you can't afford that house."
Prices will continue to drop because most buyers won't be able to get the money required to sustain the current price levels, IMO.
The bottom won't arrive until a MAJORITY of buyers are capable of getting the loans they need to pay for a house. In order for that to happen prices will need to drop. Too many people have bad credit or they don't make enough money to afford a home particularly inside the beltway.
Sure, there are houses selling but they are going to people who sat out the bubble and kept their credit score high or they sold at just the right time...that's not a majority of people, IMO...and the pool of potential buyes will become even smaller due to stricter lending standards.
Throw in higher taxes to pay for the bail out, higher energey costs, and inflation in general and it's not a pretty sight.
gold_h2o,
I agree with you . . . I'm just curious about the implications of these bailouts. For example, the price range I'm looking at normally has anywhere from 85-90 homes available. Early this week it had 90, today I noticed that it dropped to 80. The "more than meets the eye" part of me wonders if these banks that are getting bailed out will just pull their inventory off the market. With no reason to sell b/c the gov. backstops them, they just pull it. This drops supply and will artificially keep prices high. I guess the way to really find out is to see what the vacancy rate of homes are vs. prices in a year or so. If it's a high vacancy rate and high prices you know something is fishy.
gte811i-
"For example, the price range I'm looking at normally has anywhere from 85-90 homes available"
No doubt there are that many available. However, there are probably only 30-40, maybe 50 qualified buyers.....that's not enough buyers to sustain a healthy "growing" market.
I think what the government is tring to do, in part, is set a bottom to the market. Prices will nedd to fall (see above) but they won't collapse, i.e., a 500k house in a nice area (inside the belway) won't drop to 250k.
I am sure you could find an example of a house that has lost 60% of it's value but then again it was probably overpriced to begin with which is how we got here in the first place.
Uncle Sam is trying to prevent an all out collapse.....stay tuned.
John Fontain said...
Based on your comments, i don't think you understand the government's plan. They are buying the so-called bad assets of financial firms.
Two things here and please debate.
1. What constitutes a bad asset? Now that the government is open arms for these assets, it would behoove current holders to move as many assets to the government as possible. Got a homeowner 30 days late? BAD ASSET! Give it to the government! No need to file foreclosure notices, no need for the courts to get involved. One less for the books, problem solved.
2. Once the government gets these assets, do they not indeed become the note holder for the mortgage? And once inundated with all these mortgages, would the government not re-tool the loan to keep the homeowner out of foreclosure? I mean come on, the sad stories abound about how the lender duped these “innocent” homeowners and they are in foreclosure. Getting kicked out by the government is just bad for votes. In the end, is it not a bailout all around?
But the real question…if these loans are modified, how will these modifications be reported? What happens if principal gets reduced? If principal was $400k, but gets reduced to $300k, where will we see this? The MLS? Tax Records? That $400k home is no longer a $400k comp. And quite possibly, that $400k neighborhood is no longer a $400k neighborhood.
The Anonymous said...
1. Since the bubble popped in 2005-2006, have the builders continued to build at the rate they did pre bubble, or did they slow down. I believe they slowed down. Please tell me if I am incorrect in this belief.
I do believe it’s at a slower rate. However, to continue with your reasoning, have the builders inventory been depleted? If not, those inventories are still a factor, especially to those who have a home on the market.
2. Since the bubble popped in 2005-2006, have people continued to move into the area, or have they left to pursue greener pastures elsewhere like they have in places like detroit, cleveland, etc. and (perhaps) california. The Census seems to indicate they are moving in.
You did not define the “area” and least we start another gerrymandering argument I’ll not try to guess. However, to continue with your reasoning and assuming people are not fleeing; have existing incomes, or will new incomes increase to match the price of housing? The number of people moving to an area bears little if their income can not support the current cost of housing; of course that point is moot if you are not expecting people to have to pay the mortgage or you’re calling for the return of no money down, NINJA, ARM loans.
3. If people are continuing to move in to an area post bubble, and if they have largely stopped building in an area post bubble, this suggest to me that in that area, the vacancy rate is decreasing. Again, please let me know if I am mistaken in this assumption.
You must also take into account where people are moving from(regardless of what the REI will say, it’s not just about local). If they are moving from an area in which the bubble has greatly deflated, will they have enough for a down payment? Did they foreclose? Has their credit held up? The same if they are moving from an economically depressed area or and area in which their former housing prices did not increase to a level of local housing prices. Regardless, the number of vacancies (for rent/sale) can be tracked, therefore the rate, and no suggestions would be necessary.
gte811i said...
For example, the price range I'm looking at normally has anywhere from 85-90 homes available. Early this week it had 90, today I noticed that it dropped to 80. The "more than meets the eye" part of me wonders if these banks that are getting bailed out will just pull their inventory off the market. With no reason to sell b/c the gov. backstops them, they just pull it.
A 10 point drop may seem like a lot, but keep in mind, the selling “season” is over, contracts run out, and sheeple still buy houses. If you haven’t kept up with the numbers in a spreadsheet, you’re behind. Record the numbers and find the trend.
I agree with the “no reason to sell” just give it to the government but, what will the government to with a 3bed 2bath bungalow? Call me crazy but I think they’ll put it back on the market.
contrarian,
I agree that the natural result of the massive inflationary credit bubble we had over the past 10 years is a depression and deflation.
I just believe the gov. will do everything it can to try and prevent it . . . I am therefore supposing one of two things will happen. An inflationary depression, or by a miracle we get out of this with a "mild" recession. My biggest worry is a mild recession. We traded the '01 recession for today . . . what happens if we trade '08 for whatever is next, that will be nasty.
Actually . . . the more I think about this the more I think this is like the 30s program of buying up food to keep food prices high.
From CNN:
The federal government would buy up "hundreds of billions of dollars" of illiquid mortgage assets at a deep discount from banks.
Read: fed. gov. buy mortgage assets (i.e. mortgages on homes, or in otherwords they become the mortgage holder)
CNN:The government will likely buy the assets at below-market rates and hold onto them until the market recovers. Ideally, the loans could then be sold at a gain.
Read: They will undercut the actual market buy taking hold of the assets (houses) mortgages at a lower price. They will hold them until they can be resold (i.e. until either inflation eats up the value or until they can slower trickle them out)
If this is like the 30s program it will only end very badly. Without a natural floor the market will take much, much longer to recover.
We will lots of homes available, rotting with no one in them while it's too expensive to buy them.
the anonymous - you can list all the unsubstantiated theories you want, such as those about reverse white flight, but they don't change the facts. the fact is that the vacancy rate is at 50 year highs (and almost double the long-term average).
The fact that you posit such unsubstantiated theories to support an obviously incorrect argument (after being shown the hard statistics), only reaffirms my original belief as to your intent. Had you responded to the hard stats with a, "oh, i was wrong" then i could believe that your original misinformation wasn't purposeful. Now you have just confirmed that it was.
"Robert Said...
I do believe it’s at a slower rate. However, to continue with your reasoning, have the builders inventory been depleted? If not, those inventories are still a factor, especially to those who have a home on the market."
Robert - Good point. It does in fact look like the new home inventory is declining (check out the 9th chart on this link)
http://www.recharts.com/mris/mris_15.html
The same holds true for farther out places as well.
http://www.recharts.com/mris/mris_7.html
"have existing incomes, or will new incomes increase to match the price of housing? The number of people moving to an area bears little if their income can not support the current cost of housing"
I dont know about incomes, and you are right it could be that its like Las Vegas which constantly brags about "4,000 jobs a month" while failing to mention that they are all low wage service sector jobs. However, take a look at the affordability index from Wells Fargo (second title on this link)
http://www.nahb.org/reference_list.aspx?sectionID=135
I am assuming the jobs are high income given that median incomes in our area continue to increase in the last 2 quarters. It looks like our area (Washington MSA) is the fourth highest in the US - third highest if you exclude the Bethesda, MSA (which is #1 overall) Contrast that to LA where median incomes have in fact fallen in the last 2 quarters - which goes back to my original point as to why the DC area is doing far better than the LA meltdown taking place.
"You must also take into account where people are moving from(regardless of what the REI will say, it’s not just about local). If they are moving from an area in which the bubble has greatly deflated, will they have enough for a down payment? Did they foreclose? Has their credit held up?"
I am assuming that many of these people now have to rent for the reasons you cited. But again, if they have to compete for rental stock in any given area, rents in an area will rise. The Wall Street Journal had an interesting article on this recently. One of their conclusions was that joblesness is absolutely crippling when it comes to vacancy rates (thus rents). And this goes back to my original point. Take a look at this list on job gainers versus job losers:
www.houston.org/blackfenders/10AW001.pdf
Its a whose who of areas doing OK, and areas falling apart. Dallas never had a big price run up, and hence no downturn. Same thing with Houston. DC had a huge housing run up, but is deflating far slower than areas like LA & Miami which are league leaders in the job loss category. As long as DC stay in the positive category, we will not see a big drop off via the other big bubble cities. However, if we do start slipping into negative territory in the jobs category - watch out.
"John Fountain said...
The fact that you posit such unsubstantiated theories to support an obviously incorrect argument (after being shown the hard statistics), only reaffirms my original belief as to your intent. Had you responded to the hard stats with a, "oh, i was wrong" then i could believe that your original misinformation wasn't purposeful. Now you have just confirmed that it was."
Sorry John - you burned that bridge when you accused me of "purposeful misinformation" from the get go. Ive learned from a past exchange Ive had with Robert, its not a good idea to start a dialogue with someone with an inflammatory comment. Its unconstructive, and unless that person has a prior reputation a la "Lance", completely inappropriate. Apparently you believe differently.
Now, if you wish to join Robert and I on what you deem to be an "obviously incorrect" agrument and line of reasoning, feel free to go back to the items 1-3 in my comment above.
the anon - you see how poorly you are playing your hand? if you were only interested in an honest fact finding, you would have by now admitted you were wrong. you have the hard stats and still refuse to accept reality. that speaks volumes.
So it appears, this is as I feared.
http://calculatedrisk.blogspot.com/
If this isn't stopped, the secretary will get a blank check to buy houses. If it gets passed, the only saving grace would be IF the Supreme Court strikes it down.
gte811i: How does this violate the law so the courts would get involved? It would be an act of Congress. It is authority that only lasts for two years, so there would not be time for any case to percolate up to the Supreme Court before the authority expires.
What would concern me is that at the end of the two-year period there would be fire-sale of government owned properties. Lots of money to be made then, just as was made after the Resolution Trust Corp. expired.
But this is just the opening shot. The basic dimensins won't change, but Congress is certain to tinker with this because House members are going to have to find was to justify spending $700 billion as they run for reelection in a month. Some sort of local economic stimulus package is almost certain, but since the Bush administration is over a barrel, they could demand much more like a tax increase, and estate tax hike Bush doesn't want.
Fountain - apparently you are miffed because I didnt look at your stats and say "Oh I was mistaken"
Maybe you missed, my earlier comment when I looked at your stats and said "with regard to your larger point about a 50 year increase, that is certianly true..." - but whatever.
Thats not really the thing that gets me going, it was the initial comment that I was being "intentionally misleading". I find this particularly comical coming from you because I can remember a conversation between you and someone else a few months back that went like this:
Fountain - Arlington has 7 monts of inventory
XYZ - Are you sure about that? Do you have a source.
Fountain - look here http://www.recharts.com/mris/mris_15.html
XYZ - thats a 3 month moving average - the real months of inventory is 5
NARL - Is anyone surprised Fountain, the least credible person here, is playing fast and loose with the numbers?
If you want, I will find the whole exchange, but notice how the first guy ASKED you to clarify before accusing you of being misleading? Ever think of trying that tact?
Hey Fountain - I just found that exchange - its even better than I recall - its a real gem. Let me summarize this little drama play in 3 acts:
ACT I
"CRT - Inventory is falling and months of inventory is falling.
Fountain - Pointing to slightly falling inventory and saying the correction is over is nothing short of misleading...Months inventory is on an upward trend..."
So once again go right in and accuse CRT of being misleading. He hadnt directed any comments to you, and yet you go right in with your "misleading" bit again. But it gets better, lets look at CRT's response to you:
PART II
"CRT - John Fountain...Per MRIS, I am showing Arlington at 5.5 months...Is there a separate source you are looking at? Per MRIS as for the each of these has declined for the last 3 months. Are you refering to YOY trends?"
So even after you accuse him of being "misleading" from the get go, CRT, having much more restraint than I do, did not retaliate, instead he asked you to clarify your comments. But wait, it gets better:
PART III
"Fountain - use this link... http://www.recharts.com/AroundDC.htm....months inventory is surging upward as we speak.
Lance - That link says Arlington months of inventory is at 6.8 three months moving average. And that is right in line with what CRT just said.
NARL - Shockingly, Fontain, one of the least credible posters here, was playing fast and loose with the numbers..."
So the truth of the matter is you were dead wrong on inventory and you were dead wrong on months of inventory. I mean if anyone was being "misleading" it was you saying the inventory was "surging" when in fact were both going down.
Finally, want to know the supreme irony of all this? I find it absolutely comical that you are now going after me for not saying "oh I was wrong" when you provided census data. Yet, look at what you did when the shoe was on the other foot.
CRT had you dead to rights, Lance called you out on it, did you respond and say "oh I was wrong"? NO you simply slunk away. You said nothing! I mean, at least in this thread I had the decency to say "with regard to your larger point about a 50 year increase, that is certianly true" - its not verbatim saying "oh I was wrong" but its not bad huh.
Yet when the situation is reversed - you just run away...amazing.
Here is the whole thread if you or anyone else wants to examine it yourselves - have fun!!!
http://novabubblefallout.blogspot.com/2008/05/northern-virginia-bits-bucket-562008.html
Incidentally, its at this point when I predict that if you do respond, you will not address the exchange in that thread. Likely you will come back with some comment about me having to much time on my hands, or some other tangential attack.
So heres your change to prove me wrong yet again John. Lets see what you do...
edward allen said...
What would concern me is that at the end of the two-year period there would be fire-sale of government owned properties. Lots of money to be made then, just as was made after the Resolution Trust Corp. expired.
I did hear one administrator/politician (don’t remember which) saying that the government could basically put these homes back on the market piece-meal as to not flood the market.
Thing is, what happens to these potentially empty homes in the mean time?? Who’s gonna keep them up? The lawn mowed? I could see yet another branch/function of F/F just to keep up with maintenance. Probably contracted out and you’ll have contractors cutting as many corners as they find in the contract and then some. Blight anyone?
Who will pay the taxes on the property? Citizens paying taxes to pay the taxes? (sorry, made myself laugh on that one)
the anon - i don't at all blame you for trying to distract the argument away from your misleading claim that vacancies were low. if pointing to a discussion over whether months inventory should be computed at a single point in time vs. over a rolling period is the best you've got to try to "ding me" then have at it. bring up all the old, off topic items you want - it still doesn't change the fact that you were wrong about your claim.
since you are so convinced that vacancies are low, you may want to tell the census that they've got it all wrong. just tell them "reverse white flight" and i'm sure they'll quickly revise all their census data. they, like you, prefer unsubstantiated theories over hard facts.
Fountain, your initial claim, verbatim, stripped away of your accusations of my intent:
"The vacancy rate is at 50+ year highs as we speak..."
My initial response - verbatim - stripped away of the remainder of my argument:
"with regard to your larger point about a 50 year increase, that is certianly true"
How much clearer can it be? I made a claim, you refuted it, I agreed - asked and answered.
Now that this is dispensed of, lets get back to items you refuse to answer:
In the earlier exchange I highlighted. You accuse people of being misleading - yet when it was shown you were wrong, why did you not apologize? Why did you just run away?
He puts his name, and web site, in the open. He's not hiding or running...ever.
Fountain - while on the subject, I have to ask, in that exchange I showed you, why did you then choose to cite the 3 month moving average of Months of Inventory (MOI)?
Harriet's decade of sales is probably the most popular entry on this blog. Last fall, as every decade of sales entry came out, MOI numbers were going up - we all saw it - we all commented on it - yourself included.
Yet in the spring, when MOI was clearly going down, a funny thing happened. It seems you switched from the widely known, widely cited 1 month MOI number to the more obscure 3 month average MOI number. Why this sudden change?
Also, why the change to the 3 month MOI number, when it happened to give a higher value than the 1 month number? The timing seems a bit curious doesnt it?
Its funny, every spring when sales rise, the NAR cites MOM sales numbers. Yet in the autumn when sales fall, they quit doing that. Seems a bit "misleading" doesnt it?
By the same token, last fall when MOI is going up, the 1 month number is cited. Yet in the spring, when the MOI are going down, the 3 month MOI number is used? What are we to conclude from your choice?
Now, some may conclude your choice was "purposefully misleading", but I will not. I dont know you. I have no idea what deep seeded intentions lurked in your mind when you posted that lesser known stat. However, if you want to be considered honest and accurate by other bloggers on this site here is your chance to clarify your earlier remarks (and explain why you then ran away). Any comment?
contrarian: the legislation Congress now has is pretty explicit about what is involved, and even spells it out for us in plain English:
(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.
As I read that, it covers everything from the house mortgage on through to the most exotic security created based on that mortgage. Since the legislation also says they are also going to manage these very complicated securities, the U.S. Secty of the Treasury is going to become the other party at a settlement on a lot of houses on the market today.
Anyone else note the very unusual paragraph in the legislation, under which Paulson has absolute authority, not subject even to court review:
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
I think this paragraph effectively resolves the issue of any expectation by anyone that a court will be looking over these actions
gte811i,
This is not the right forum for arguments on political philosophies.
Anyway, Alan Greenspan was a 'less government' free market guy who got it all wrong. Back in 1997, when everyone was calling him Maestro, I told anyone who would listen that this guy was overrated and the effects of his policies would be revealed only later.
Of course I didn't know it would take so many years that it would come to this.
Now many people think Paul Volcker was a better Central Banker.
In practice, 'less government' has come to mean privatizing profits and socializing risks.
Edward,
>>I think this paragraph effectively resolves the issue of any expectation by anyone that a court will be looking over these actions.>>
I did notice that. Scary. Congress may allow the wording to go ahead, though I hope there will be some revisions. With a new administration next year, there will be another chance to revise the program.
The key issue here is what price the Treasury will pay to buy the currently worthless assets. As Merrill could offload its toxic assets at 22 cents on the dollar, why should the Treasury be allowed to pay more? The public should call their Reps to make this case in Congress.
tedk: You hit the heart of it. I also have been wondering how these purchases/transfers take place. Obviously, a lot of this already written down, but do they "sell" it to the government at the lower price, or what they paid for it. Paulson can set the price for this anywhere he wants. He could actually give WS firms less than they want if he chose, although I somehow doubt that will happen.
Then there is the second half of it, with the Treasury selling off the securities they get at a discounted price. There are a lot of diamonds in that garbage, and a lot of money to be made on that end, too.
Finally, I have been thinking this through, and damned if I can figure out anyway how this stops the price declines of houses in California, now at 90 percent of their original price, I read, or elsewhere. I guess they want the market to find the bottom, but it still isn't there and nothing in this bill would seem to help it accomplish that end.
tedk said . . .
"This is not the right forum for arguments on political philosophies"
Well, if you would stop misrepresenting the philosophy of less government and turning it into whatever you think it means (like privatizing profits socializing loses--absolute BS, and I can't stand)then maybe I wouldn't have to correct you.
Look the bottom line is that EVERYTHING is political and that it all boils down to political philosophy. To try and debate this housing debacle and the proposed solutions to it without debating the philosophical reasons behind it is to not understand the problem or to attempt to come to the right solution to the problem.
The country's core philosophy on how governments and economics should work in conjunction with this housing mess will be vital to how it is solved, or how the proposed solution will attempt to solve the problem. You CANNOT debate the problem without political philosophy.
So tedk why are you scared of debating the philosophy of a housing bailout? Does it require you to actually think outside of the box? Like so many people I have talked to, you don't want a real solution. You want to go back to being fat, dumb, and happy. Heaven forbid we actually have some serious moments of introspection as a country and figure out what in the world we are doing?
I believe I have stayed very much on topic here. I haven't gone into Iraq War, terrorism, or any other plethora of "political" topics. I have stayed precisely on-topic as it relates to a) the Housing debacle b) the proposed solutions c) philosophical reasons against the proposed solutions and d) situations similar to the current one and previous solutions.
Now if that is the philosophical debate that you want to limit, then I believe it is b/c you do not want to think outside the box. You just want the problem solved the quickest way possible so you can go back to your 9-5 possibly gov. job, come home, have a nice house, big car, and not worry one bit about where in the world all these political bailouts b/c of the housing mess are leading us.
Get your head out of the sand and think!
And FYI, Alan Greenspan was hardly free markets---he helped instigate this mess, by ARTIFICIALLY LOW INTEREST RATES!
(if it's ARTIFICIALLY LOW, it's not the free market b/c the free market would be HIGHER!)
edward allen said . . .
"How does this violate the law so the courts would get involved? It would be an act of Congress."
Well, uh . . . there is a thing that is called the Constitution, that explicitly tells Congress what it can and can't do. If Congress tries to do something that the Constitution doesn't say it can do, it's unconstitutional and therefore should be null and void.
Congress can't just write any law they want to. Congress could pass a law saying all your cars are ours, and it wouldn't be constitutional/legal.
Tell you what edward . . . here's a link to the constitution. You tell me where this act is constitutional.
http://www.usconstitution.net/const.html.
Actually, here is a link to the powers of Congress. Please show me where this would be constitutional.
http://www.usconstitution.net/const.html#A1Sec8
get811i: Our laws don't get automatic reviews by the SUpreme Court, and it takes years for cases to percolate up through the courts. So even if there is a legal challenge, it is doubtful it would reach the Supreme Court in less than two years -- the time which this extraordinary power is given the Treasury.
A parallel is the National Reconstruction measures Roosevelt put through Congress in June, 1933. It was not until 1935 that the Supreme Court held some of the measures to be unconstitutional. Congress passes unconstitutional laws all of the time, in the full knowledge there will be challenges and the law will be overturned. But the laws serve the purpose of dealing with an immediate problem.
There is an emergency process of expediting cases to the Supreme Court, used in the 2000 election, but it took agreement by all sides to do that. You can be assured that if this measure becomes law, there will not be agreement from all sides to unravel it any time soon because it is seen as the only effective way of dealing with the economic problem the markets are now facing.
Bottom line: don't count on any court challenge soon. And if it comes, there is that curious paragraph the courts would have to address which specifically excludes them from having a say in this matter. That would occupy the first two years for the courts to sort out before even getting to the meat of the issue.
Finally, thanks for the copy of the Constitution. I have read it. Congress routinely hands over power to the executive branch to administer and carry out laws, and this one looks no different than those.
I'm opposed to the proposed bailout, but the devil is in the details.
The bailout is Uncle Sam's attempt to buy distressed assets from financial institutions. The collapse of Bear, Lehman, Freddie, Fannie, AIG, and (almost) Merrill reflect that those who have investment capital have no confidence in our financial system. The stocks of those institutions plunged because investors were too afraid to buy them. First, it is clear that these sophisticated institutions lent money to those who can't pay them back (this includes home buyers). Moreover, the MBS and other debt securities held by these firms are so opaque, and the pronouncements of the rating agencies so unreliable, that potential investors cannot assess the risk of devoting capital to those institutions. So what started as a housing correction has led to the near collapse of our financial system. Yikes.
What Uncle Sam is attempting to do is assuage concerns buy purchasing the bad assets, thereby removing them from the books of the financial institutions. Uncle Sam hopes that once confidence and transparency are restored, the financial institutions will be recapitalized. My concerns:
(1) As a taxpayer, Uncle Sam should pay intrinsic value for those distressed assets, which means well below face. How do we prevent the taxpayers from getting shafted? How does buying assets for pennies on the dollar help the bank that is selling them?
(2) The government can't afford absorb these potential losses without cutbacks elsewhere or substantial tax increases on the wealthy. And housing prices in many areas will continue to fall; so too will the value of the distressed assets that the government purchases.
(3) I fail to see the continued optimism for the "immune" areas of the DC housing market. Non-farm payrolls are negative YOY, and jobless claims are steadily above 450K per week. Since 1935, non-farm payrolls have gone negative 11 times, with each time resulting in recession (see chart in tinyurl). And the money from financial institutions, which greases our law firms and lobbying firms, is drying up. We're in a recession and DC is not immune. Act accordingly.
http://preview.tinyurl.com/4gsjb3
edward,
Sadly, you are absolutely correct.
I agree, in today's society it would most likely be a long time before such act would be reviewed. In reality, once Congress passes it, nothing can stop it. Like you said it is for 2 years . . . what happens afterwards? I believe several parts of the Patriot Act were struck . . but it took years. So it might be struck . . . years from now . . . if they renew it.
"Congress routinely hands over power to the executive branch to administer and carry out laws, and this one looks no different than those"
Again, sadly I agree 100%. Like I said the only saving grace would be IF they struck it down, yeah it may not be in time, but at least it would get struck down.
(political rant on)
I do have some hope that we have a Republic and a Constitution left . . . but not much. As we see, Congress doesn't do its job, passes the buck to the executive branch (i.e. legislate itself out of existence), or passes whatever it wants.
(political rant off)
I think we are somewhat along the same wavelength on this one :-).
gte811i,
I have had plenty of such discussions on politics in many forums a long time ago and I am simply fed up with it, but I didn't mean to hold you back in expressing your views.
In the end, we are all reduced to listening to Bernanke: "There are no atheists in foxholes" and that there are no ideologues in a massive crisis like this.
For a start, let all voters demand that our elected Reps in Congress listen to their constituents and not allow money from lobbyists to subvert democracy. The system is too corrupt now and without cleaning it up, it is only a matter of time before another crisis.
"For a start, let all voters demand that our elected Reps in Congress listen to their constituents and not allow money from lobbyists to subvert democracy. The system is too corrupt now and without cleaning it up, it is only a matter of time before another crisis."
A hearty AMEN to that!
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