Posts Tagged ‘housing’

Larry Summers Strikes Out Again

Monday, October 24th, 2011

The Genius has some ideas to help with the housing problem!

But they’re all classic early Obama Administration “don’t rock the boat too much or we’ll get blamed” ideas.

Rather than being truly radical in dealing with a disaster, half measures are adopted which only make everyone angrier.

On housing, there’s a need for reality:

1) Prices are still at least 10-15% too high relative to the 100 year trend. Any policy that doesn’t start with an acknowledgement of that fact is not a serious policy.

2) Banks are not being forced to mark their bad loans to market. This creates the impression that all is well, or will be if we wait another 10 years, but the fact remains that the banks are largely bust and sitting on piles of cash. With little demand in the economy, and little incentive to engage in lending, the situation only gets worse.

3) The federal government isn’t using its leverage to get meaningful changes across. Like it or not, the GSE’s are 95% of the mortgage market now. They should be engaging in massive refinancing, cramdown, i.e. principal reductions, and buying up lots of bad loans from the banks (or the Fed should substantially increase its balance sheet and do so). So long as this doesn’t happen, the GSEs are little more than the even poorer sisters of the banks.

4) There should also be greater promotion of renting and greater promotion of housing for the unemployed. We need to stop subsidizing home ownership over a 10-20 year period. Alas, if subsidies go, prices are likely to fall further, but that makes home ownership truly affordable.

5) Get the Fed to give everyone some free money to encourage spending and get the Treasury to print some money and start hiring people.

Gorilla says: “A house may be a home, but it’s not a good investment!”


Another 10 Percent To Go

Tuesday, June 28th, 2011

House prices continue to fall, and they will do so until their long-term price trend is reached…

That’s roughly 10-15% lower, and it’s quite possible prices will overshoot the trend on the downside.

What’s needed is what’s been needed all along: modification of mortgage loans by bankruptcy courts, reducing principal so as to keep homeowners in their homes.

Alas, the cramdown approach has twice failed to pass the Congress, and the Administration’s housing program has been a miserable failure.

It’s difficult to see how the US economy will recover strongly so long as housing remains a drag and unemployment remains unacceptably high (well, it should be unacceptable at these levels but our leaders don’t seem to care).

Gorilla says: “Austerity doesn’t hire and it doesn’t sell houses!”


House Prices: Still Too High

Tuesday, May 31st, 2011

House prices have been falling for several months, but overall prices remain at least 10% above their long-term average.

Until the bottom is hit (and perhaps overshot), there’s little prospect for anything other than years of anemic US economic performance.

There’s very little private sector demand, and our leaders in DC are wasting all their time on deficit reduction at a time when we should be borrowing and spending much, much more to tackle unemployment.

Gorilla says: “Our country’s house is still on the skids!”


Only Going Down

Friday, April 15th, 2011

Raising the down payment on mortgages to 20%?

Or even 10%?

Guess what: the real estate industry and consumer protection groups don’t like it!

This doesn’t mean it’s a bad idea: 10% down used to be the standard 30 years ago, and 20% down meant you didn’t have to take out mortgage insurance. It might mean not buying a home until you were well into your 30s, but overall home ownership rates haven’t changed very much since those days.

The real problem is that incomes have remained more or less stagnant for the past 35 years. Costs like health care have become an ever larger proportion of the household budget. Within families, both parents must work today to achieve the wage one parent got back in the days of 10% down. As a country, we don’t save enough because we don’t earn enough to save.

Housing itself has also proven to be a lousy investment. We spend way too much on subsidizing home ownership, which keeps house prices at least 25% too high and unaffordable in many places for those families earning at or less than the median income of $58,000/year.

A program that would force the banks to reduce principal amounts for currently underwater homeowners might help the housing industry to recover. So would the recognition that house prices remain above their historical trend line by at least 10-15%. So would the end of the home mortgage deduction, a regressive subsidy that keeps home prices artificially high.

But none of these things are on offer, so it’s best to encourage Americans to amass savings (although not right now, we need Americans now to keep spending and we need government to start hiring some of the 25 million currently unemployed so they can resume spending and paying taxes) and pursue home ownership if they can, or rent if they can’t, but also recognize that a home is a place to live, not an investment.

Gorilla says: “Being honest requires courage and no money down, but our leaders never want to make those payments!”


The Bust Goes On

Wednesday, March 23rd, 2011

Housing, of course!!!

And house prices (not everywhere, but on average) are still at least 10-15% too high relative to the long-term trend.

It’s hard to see a sustained, strong recovery without the housing market contributing.

Gorilla says: “We need to get moving on more moving days!!!”


Shorter Mortgage Servicer Reform

Friday, March 4th, 2011

When you’re paid to screw homeowners, you screw them!

Now stop that!


Another Good Idea, But…

Wednesday, February 16th, 2011

From FHA, to ship bad loans back to their originators while insisting on better risk management and higher down payments.

It’s precisely what should have been done in Dodd-Frank.

Alas, the Know Nothings now run the House, so the chances of this being passed are pretty much zero. They like their local banksters and mortgage fraudniks even more than Democrats.

Gorilla says: “Proposals are good, action is better!”


Deleveraging Is The New Normal

Wednesday, February 2nd, 2011

Still have home equity?

Still have a jumbo loan?

Want to refinance?

Gorilla answers: “All you need is cash!


A Paragraph About Failure

Thursday, January 27th, 2011

The failure of the Fed, the failure of Greenspan and Bernanke, the failure of the regulatory apparatus, the failure of so-called free markets, the failure of political leaders, the failure of credit agencies, take your pick, they were all failures, they were entirely avoidable, and no one involved in this litany of failure has paid any price at all (while 25 million Americans were made unemployed and several million lost their homes), according to the final report of the Financial Crisis Inquiry Commission:

“The prime example is the Federal Reserve’s pivotal failure to stem the low of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. The Federal Reserve was the one entity empowered to do so and it did not. The record of our examination is replete with evidence of other failures: Financial institutions made, bought, and sold mortgage securities they never examined, did not care to examine, or knew to be defective; firms depended on tens of billions of dollars of borrowing that had to be renewed each and every night, secured by subprime mortgage securities; and major firms and investors blindly relied on credit rating agencies as their arbiters of risk. What else could one expect on a highway where there were neither speed limits nor neatly painted lines?”

Gorilla says: “And we learned nothing at all about breaking up the banks, and the failure Bernanke was reappointed, so the prospects for avoidable failure remain as strong as ever!”


Going Lower

Tuesday, January 25th, 2011

House prices, that is, now going down for 5 months in a row!

And they’ll be going lower, because there is still a huge oversupply of houses and a massive shadow inventory of foreclosures that hasn’t come on the market (yet).

Without a housing recovery, it’s difficult to see the US economy doing much more than muddling along.

Like unemployment, absolutely nothing is being done in Washington to address the issue. The obvious solution, cramdown via bankruptcy court, doesn’t have the votes in Congress.

Gorilla says: “Wish this week’s prom night in Congress would be renamed as Come On Night!”