Solution for Housing Market ?

[Glenn Black]

I don't know if this is allowed or required. I previously posted this at the taill end of a different thread http://itulip.com/forums/showthread.php?t=14077, and it seems to have been too late, so I have re-posted here on its own thread, and removed it from the former.

The problem with current housing market is that 80% of the population (most of whom were prudent) need the home prices to stay the same, or rise.

However, the foolishness of the other 20% are the ones that will cause the price volatility in the marketplace, and it is this volatility (excess supply) that will cause prices to drop like a rock, especially because the second bulge of the excesses of the 1990's is coming home to roost.

The only possibility is to do a 2-tier pricing system. This would be similar to where the unions protect the wages of veteran union members who retain their benefits and high wages by selling out all new hirees who start at minimum wage instead of $30/hr + fringe. How would you feel if the majority in the union (the old guys who have the most to lose) vote for this contract, and then you work side by side others who do the exact same job as you, the new hiree, but they make more than 3 times what you do, and you have no benefits. Some go so far as to lay you off for 1 day every 89 days, so that you never get out of probation, and never get to be a union member that gets a vote of the contract you are forced to live with. This is the closest thing to slavery today in N. America.

The government will have to set minimum price tables based on square footage, bedrooms, bathrooms, region, similar to current property assessments. It will become illegal to sell a house below this assessed minimum price, except if sold (or gifted, of Strategically Defaulted "SD") to Federal Government.

If you are an owner who needs to get out before you run out of cash, you can walk now by doing a SD, or hope to sell before you burn your cash holding on to the house against all hope of winning lottery, or finding a buyer, or government changing the rules again.

If you're a mortgagee stuck with a SD's rejected house, you can try selling it at the highest price you can get, or the legal minimum price, or let it sit vacant, or sell it to the government to recoup a fraction of its mortgage value (better than walking away with nothing, or it getting destroyed by squatters).

The government eventually buys or receives (through surrender by those making strategic defaults "SD") all the excess housing units. Government controlled land registry offices will ensure that all sales meet the minimum prices, or the transfer is not registered.

The new guys coming into the housing market (those who are currently under water and previously did a SD, as well as the new home buyers) have the advantage because their home purchase will be dirt cheap to buy one of these recycled houses.

The government (through Fannie & Freddie ?), resells the SD house at bargain basement prices to all those who need affordable houses. You are ineligible to buy a deep discount government house unless you don't already own a house, and do not own any real estate indirectly (ie. neither held by spouse, corporate share, etc.)

Of course, all the loses are held by those who took excessive credit risk, or the holder in due course of the MBS', CDO, & CDS associated with these bad mortgages. FDIC &/or bankruptcy court will eventuall sort it all out.

I would suggest this will be the Gold Standard for bank stress testing. All banks who survive this really were secure, unlike previous mirage stress tests of the banks.

Taxpayers are spared picking up the tab, or only have to pick up a small percentage through FDIC.

What does everybody think? Does it have hope? Take your best shot to blow up the idea.

[stanley2008]

Re: Solution for Housing Market ?

Ever heard of Adam Smith, the free market, or the fall of the Soviet Union?

[swgprop]

Re: Solution for Housing Market ?

I can't begin to decipher what you are proposing.

[sunskyfan]

Re: Solution for Housing Market ?

I agree. But, the government effectively just did the same thing for the stock market. Why choose to just reward failure in one sector and not the other.

[Aetius Romulous]

Re: Solution for Housing Market ?

Well, at least there is somebody proposing a solution.
Glenn, I think it is a well considered idea, however I would suggest the following;
There are several fundamental issues surrounding the home fiasco in the US (and to a lesser extent, the UK and few others).
1) There are just too many homes than people to buy them. Way too many. One in four homes is currently in distress, and they will eventually swell an inventory that will never again be filled.
2) There is very little financing available as the "credit crunch" rages on. It is just not there. Mortgage holders (whoever they may be) are facing the daunting prospect of massive hits to their balance sheets, which seriously impairs their ability to lend.
3) Consumer attitudes have changed dramatically, and are changing still. American savings rates are skyrocketing after years of negative saving. Regular folks are embarking on an historic shift in their behaviour. Home ownership just ain't what it used to be.
4) Credit agencies, regulation, and consumer lending standards are all shrinking the pool of people who could qualify for financing, if any were available.
5) There is not an interest rate regime currently that can reward lenders for the risk in housing. Nobody is making any money lending to homeowners and small business relative to other investment pursuits.
6) Real unemployment is pushing 20%. The underemployed is much greater than that, and together they form a group who do not qualify for home ownership now, or for years into the future.
7) The Baby Boomers "officially" hit 65 in two years. This is a demographic certainty that would have been devastating even had the bubble not burst.
8) Robert Schiller is very concerned.
I believe there is no solution for the housing crisis that does not absolutely devastate somebody - Homeowners, Mortgage holders, Taxpayers. Homeowners are also tax payers, so it really comes down to will the people take the hit, or will the corporations take the hit. This is funny in a way, because we have put ourselves all in the same pool together regardless. No happy ending here I'm afraid.

[Serge_Tomiko]

Re: Solution for Housing Market ?

No happy ending here I'm afraid.

Well, I try and get a happy ending out of some babe on at least a weekly basis, but some of us are happy about the state of the housing market.

I live in my nice rent stabilized, 450-square foot apartment in a tenement in Manhattan for which I pay very little. I got some savings, but not much, and you know what? I want the prices to fall.

For the first time in my life, there is the chance housing might not seem like a fool's purchase!

Actually, I only feel this way when I'm somewhat confident the nation will not descend into anarchy.

[MulaMan]

Re: Solution for Housing Market ?

The only people that "need" high home prices are banks and real estate agents.

The solution is court ordered principle write downs, it is called capitalism, the right wing christano-fascists bribed both dems and gop to make personal bankruptcy and principle writedowns difficult.

Say you home was bought for 800K and is now worth 400K. You walk away and buy the same home back for 400K, the bank takes the 400K hit for not calculating risk properly and the homeowner has a higher debt to equity ration in his/her home.

LOW HOME PRICES ARE GOOD FOR AMERICANS.

HIGH HOME PRICES HELP BANKERS, LOCAL GOV WASTERS, REAL ESTATE AGENTS.

Home prices simply need to drop into line with real wages, which have been droping for 20 years. simple.

[MulaMan]

Re: Solution for Housing Market ?

According to the last census only about 30% of Americans actually OWN thier homes.

REPEAT: HomeOWNERSHIP in America is only about 30%.

Why? Artifically high home prices.

Back in the 1920s it was more like 50% of all homes were owned debt free.

It is amazing how Americans cannot figure out the difference between a homeowner and a home-debtor.

If home "OWNERSHIP" is a policy goal then low home prices relative to wages will allow for more people to actually OWN thier home.

The policy of the last 20 years has been to increase home-debt, people that have no hope of paying off thier mortgages to bankers for the rest of thier lives - home slaves. This debt policy of course drives up home prices.

Only a retard signs up to be a slave for the rest of his/her life, it is just amazing.

People need to just walk away from thier homes and mail the keys to the bank, save up some money and buy the same home back for 60% off.

Also, if you pay a real estate agent 6% to buy a home, then you are a retard. Buying a home is NOT that difficult. In most states you can get a real estate license within a week, pay $99 for a seat at a realtor so that you can access the MLS database.

[Glenn Black]

Re: Solution for Housing Market ?

I can't begin to decipher what you are proposing.

My apologies for wasting your time by my lack of clarity. I'd like to try & explain it better. Exactly what part don't you understand?

[Glenn Black]

Re: Solution for Housing Market ?

Ever heard of Adam Smith, the free market, or the fall of the Soviet Union?

Yes, I agree it is very interventionist. I'm afraid all the other alternatives seem even worse.

[Glenn Black]

Re: Solution for Housing Market ?

Well, at least there is somebody proposing a solution.
Glenn, I think it is a well considered idea, however I would suggest the following;
There are several fundamental issues surrounding the home fiasco in the US (and to a lesser extent, the UK and few others).
1) There are just too many homes than people to buy them. Way too many. One in four homes is currently in distress, and they will eventually swell an inventory that will never again be filled.
2) There is very little financing available as the "credit crunch" rages on. It is just not there. Mortgage holders (whoever they may be) are facing the daunting prospect of massive hits to their balance sheets, which seriously impairs their ability to lend.
3) Consumer attitudes have changed dramatically, and are changing still. American savings rates are skyrocketing after years of negative saving. Regular folks are embarking on an historic shift in their behaviour. Home ownership just ain't what it used to be.
4) Credit agencies, regulation, and consumer lending standards are all shrinking the pool of people who could qualify for financing, if any were available.
5) There is not an interest rate regime currently that can reward lenders for the risk in housing. Nobody is making any money lending to homeowners and small business relative to other investment pursuits.
6) Real unemployment is pushing 20%. The underemployed is much greater than that, and together they form a group who do not qualify for home ownership now, or for years into the future.
7) The Baby Boomers "officially" hit 65 in two years. This is a demographic certainty that would have been devastating even had the bubble not burst.
8) Robert Schiller is very concerned.
I believe there is no solution for the housing crisis that does not absolutely devastate somebody - Homeowners, Mortgage holders, Taxpayers. Homeowners are also tax payers, so it really comes down to will the people take the hit, or will the corporations take the hit. This is funny in a way, because we have put ourselves all in the same pool together regardless. No happy ending here I'm afraid.

1. Somebody was living in them before. Let's assume that the government takes bids for these SD homes that are being remarketed, and the best bid is just 30% of what the house sold for in 2007. Maybe the original SD-owner could buy it if they match the best bid received. If the SD'ing owner who lost their house could decide to buy it back at 30% of what their original purchase price was, why not. They liked it the first time, maybe at just 30% of former price, they'll like it 3 times better. If not, there are lots of homeless people who could rent it.
2. Why wouldn't the bank want to lend? At just 30% price of the other full-price houses, there is a low probability of default, and quick re-sale if they did. Besides, Freddy & Fanny have lots of money.
3. As energy prices climb, extra-burbs may be a tough sale, I agree. Maybe Internet workers could still use these houses.
4. At 30% of the sale price, they would be the last ones left standing. 80% of the market would be locked into the higher price region. I would suggest that this 80% would be the first affected, not the cheap houses. The high price houses would slowly add to the cheaper housing stock until the situation stabilized.
5. Borrow money at 0.5% from the Fed, and loan at 6%? Why couldn't the banks make money at a 5.5% spread?
6. Yes, loss of jobs is a big issue. But that is another issue. We'll solve that next week.
7. I agree. There is a major sea change here & now. Hopefully, the McMansions will be subdivided into group homes & apartments just like the mansions of the 1920's were done in the Great Depression.
8. I'm speechless about Shiller.

[sunskyfan]

Re: Solution for Housing Market ?

I so disagree. People who speculated with their housing via second mortgages and refinance have earned the stress of loosing their house. The people who didn't either gamble with their house or didn't participate and were on the side lines during the frenzy should have access to an open housing market at a market driven price to reap the reward of their conservative choices.