The GSEs have strayed from their original mission, and now they are being used to support bloated house prices. They should be dissolved and their function turned over to private lenders.
Irvine Home Address … 2 GLENOAKS Irvine, CA 92618
Resale Home Price …… $815,000
Time Has Frozen Still What's Left to Be
Hear Nothing
Say Nothing
Cannot Face the Fact I Think for Me
No Guarantee
Metallica — Dyers Eve
Should the government provide loan guarantees to subsidize home ownership? The arguments in favor of government subsidies all come down to putting people into homes they cannot afford in a free market. The theory is that homeowners care more for their properties and community and are less likely to cause social unrest. There is no real evidence to support this idea, but expanding home ownership has been the cornerstone of government policy since before the Great Depression. The arguments against are summarized below.
Ten Arguments Against a Government Guarantee for Housing Finance
By ANTHONY RANDAZZO From the Reason Foundation — February 9, 2011
There is a growing belief among mortgage investors, industry groups and some policymakers in Washington that some type of explicit government guarantees for mortgage lending will be necessary to undergird a new housing finance system in America. Yet whether by the sale of insurance on mortgage-backed securities or a public utility model replacing Fannie Mae and Freddie Mac with new government-sponsored enterprises, this would be a tragic mistake, repeating the errors of history, and putting taxpayers and the housing industry itself at risk. This policy summary offers ten arguments for why there should be no government role—explicit or implicit—in guaranteeing housing finance.
1. Government guarantees always underprice risk. All federal guarantees underprice risk in order to provide a subsidy for lending. That is their purpose. And taxpayers will be exposed to losses in the future, as those risks materialize.
This simple truth is inescapable, yet proponents deny this fact.
2. Guarantees eventually create instability. Guarantees failed to prevent the savings-and-loan crisis and subprime crisis. In fact, they contributed to the cause of both by distorting the market.
When people believe they have no risk, they behave in foolish ways. Why wouldn't people take out a $600,000 loan to speculate on real estate if they have no money in the deal. It's like getting the free spin or free bet at a Las Vegas casino.
3. Guarantees inflate housing prices by distorting the allocation of capital investments. The artificially increased capital flow will make mortgages cheaper, boosting demand for housing and pushing up prices, ultimately creating another bubble.
It was private loan guarantees known as credit default swaps that caused so much money to flow into real estate and inflate The Great Housing Bubble.
4. Guarantees degrade underwriting standards over time. Historically, a primary justification for guarantees has been to increase the availability of finance to politically important groups with higher credit risks. It is inevitable that this will continue to happen, requiring the government to lower underwriting standards, and resulting in more risky mortgages.
Actually, the FHA has proven remarkably resistant to lowering its lending standards prior to the collapse of the bubble. The FHA has been around long enough to be a subprime lender — a role it has been forced into since 2008.
5. Guarantees are not necessary to ensure capitalization of the housing market. As has begun already, the jumbo market will evolve and practically any credit-worthy potential homebuyer will be able to get a mortgage in a fully private system.
Guarantees ensure more capital enters the housing market, but the secondary mortgage market is evolved enough now to exist without the GSEs to facilitate them.
6. Guarantees are not necessary for homeownership growth. Other nations have substantially higher homeownership rates in spite of having far less government interference in their housing markets.
Canada has no counterpart to the GSEs, they have no home mortgage interest deduction, and they have a higher home ownership rate than the United States. They either have better borrowers or better government policy.
7. Guarantees drive mortgage investment in unsafe markets. As long as there is a government guarantee covering financial institutions, investors and lenders will look to the government's credit, not the credit of institutions and loan applicants themselves.
This is the problem at the core of all loan insurance.
8. Guarantees are not necessary to preserve the “To Be Announced” market for selling mortgage-backed securities. If needed, a TBA market could easily develop with originators hedging against any short-term interest-rate risks in the private sector.
There is no guarantee the private sector could not provide assuming the risk can be quantified and valued.
9. Guarantees are not needed to prevent “vicious circles” that drive down prices. Mild price movements in the housing market are necessary to keep balance in the market. Keeping prices artificially high reduces housing demand and prolongs recovery. The most common threat of default as prices decline is from borrowers who have little equity in their homes—because they borrowed at high loan-to-value ratios—seeing the value of their homes drop below what they owe. Guarantees support these high-credit-risk borrowers.
Guarantees are not necessary to prevent a downward spiral in home prices because without guarantees, house prices would never become so elevated above fundamental valuations to cause worry about a downward spiral. The current downward spiral in real estate prices has required loan guarantees because prices were so elevated that the repricing of risk would have cut prices in half if not for the guarantees.
10. Even a limited guarantee on just mortgage-backed securities targeted at protecting against the tail risk will slowly distort credit allocation and investment standards, ultimately destabilizing the market and forcing the need to rely on the guarantee.
The FHA experience argues against this last point, but going forward, if we don't do something with the GSEs, reckless behavior will almost certainly take over because the government is backing all the losses. We know what we must do.
The End of Fannie Mae
Treasury wants the company phased out but punts on how to do it.
FEBRUARY 14, 2011
It's enough to make you believe in miracles: The Obama Administration is now on record as saying that Fannie Mae and Freddie Mac should go out of business. It took a global financial panic and $140 billion in taxpayer losses, but on Friday there it was in black-and-white in the U.S. Treasury's report to Congress on reforming the mortgage market: The Administration will “ultimately . . . wind down both institutions.”
This marks a break with decades of bipartisan support and protection for the two government-sponsored giants of mortgage finance. Fannie Mae has its roots in the Roosevelt Administration, and a phalanx of bankers, mortgage lenders, homebuilders and Realtors worked together to keep the companies growing and federal mortgage subsidies flowing. Now even some Democrats—though not yet those on Capitol Hill—admit their business model was a catastrophe waiting to happen.
This is a Wall Street Journal editorial, so the right-wing political posturing pervades the article. However, their point is true: it took a complete catastrophe for politicians to admit failure.
Under the Administration's proposals, Fan and Fred wind down over five to seven years. The two mortgage giants would, in effect, gradually price themselves out of the mortgage finance market by raising guarantee prices and down payment requirements, while lowering the size of the mortgages they could securitize and guarantee. This sounds like a plausible set of first steps to lure private capital back into the mortgage market, where some 92% of all new mortgages are currently underwritten or guaranteed by the government.
That is an excellent idea for phasing out these monsters. If you take away their margins, competitors will slowly emerge and take up the slack.
The $5 trillion question, however, is what would replace Fan and Fred. And here the Obama Administration has punted, offering the “pros and cons” of three broad proposals without endorsing any one of them.
Door No. 1 is the best of the lot by our lights. Under this option, federal guarantees would be limited to Federal Housing Administration (FHA) loans for lower-income buyers and VA assistance for veterans and farm programs—each a narrowly targeted market segment. A Treasury official says this would reduce the taxpayer backstop over time to about 10% to 15% of the mortgage market.
The Administration puts the case for federal withdrawal from the broader housing market in compelling terms: “The strength of this option is that it would minimize distortions in capital allocation across sectors, reduce moral hazard in mortgage lending and drastically reduce direct taxpayer exposure to private lenders' losses.” Bravo.
Treasury points to other benefits: “With less incentive to invest in housing, more capital will flow into other areas of the economy, potentially leading to more long-run economic growth and reducing the inflationary pressure on housing assets. Risk throughout the system may also be reduced, as private actors will not be as inclined to take on excessive risk without the assurance of a government guarantee behind them. And finally, direct taxpayer risk exposure to private losses in the mortgage market would be limited to the loans guaranteed by FHA and other narrowly targeted government loan programs: no longer would taxpayers be at direct risk for guarantees covering most of the nation's mortgages.”
Those two paragraphs more or less sum up 20 years of Journal editorials on housing.
The political right must be ecstatic. They are getting everything they have every wanted with housing. Those two paragraphs from a government report summarize the situation better than I can.
So what's not to like? The Administration says this option could reduce access to credit for some home buyers, and that it would leave the government without the tools to intervene in a future crisis. As for the credit point, other countries have high rates of home ownership with far less government support. If the government stands aside, it would open the way for alternative forms of finance, such as covered bonds, that now can't compete in the U.S. because of government favoritism for the 30-year mortgage model. This would open options for borrowers by increasing the diversity of financing.
As for a future crisis, government intervention is less likely to be needed if the market isn't distorted by government subsidies in the first place.
Amen. Just as affordability products make prices unaffordable, subsidies create the market need for future supports and subsidies. 
Behind Door No. 2 is a rump Fan or Fred, one that would stay small in “normal” times but stand ready to step in with Uncle Sam's firepower in a future housing-finance crisis. But as the Administration acknowledges, it would be difficult both to stay small and retain the capacity to go large when needed. We'd add that the political pressure to expand any federal mortgage-lending program would be too great for lawmakers to resist. Within a generation, the winding down of Fan and Fred would be unwound.
Can the GSEs Exist Outside of Government Conservatorship? No. they can't. If they try to keep it around, it will become a political Hydra. Each time we cut off its head, two more will grow in its place.
But the greatest danger lies behind Door No. 3, which looks like Fannie in a new suit. Under this last option, the Administration envisages a group of tightly regulated, well-capitalized private mortgage insurers whose policies would be backstopped by government reinsurance. The government would charge premiums for this insurance, “which would be used to cover future claims and recoup losses to protect taxpayers.” This reintroduces the lethal mix of private profit and public risk by other means.
The problem with Fan and Fred from the beginning was not—despite the Administration's claims—that the profit motive corrupted their benign goals. Rather, the political influence and financial power of the housing lobby ensured that the companies operated outside the normal rules of politics and financial discipline. Thanks to an implicit government guarantee, the market never put any limit on their growth, even as their liabilities climbed into the trillions. Few politicians had the nerve to challenge a housing lobby that would attack them for opposing home ownership. The same political flaws would afflict a future reinsurer and its coterie of putatively private insurers.
The power of the housing lobby is implicit even in the Treasury's refusal to pick a preferred reform. As with entitlement reform, the Administration is leaving the hard work to House Republicans, who will bear the brunt of the political blowback. A reasonable GOP fear is that the Administration, whatever its rhetoric now, will pounce with a veto when it's politically advantageous—in, say, 2012.
Our view is that there should be no federal housing guarantee. If Congress wants to subsidize housing for the poor, it ought to do so explicitly through annual appropriations. One lesson—perhaps the most important—of the financial crisis is that broad policy favors for housing hurt every American by misallocating capital and credit. The feds created incentives to pour money into McMansions we didn't need while robbing scarce capital from manufacturing, biotech and other uses that might have created better jobs and led to a more balanced and faster growing economy.
We realize this is political heresy, but it is the beginning of wisdom in getting government out of the mortgage market. We're glad to see the Administration concede this rhetorically, even if it lacks the courage to embrace its logical policy conclusions.
The conservatives are right on this issue. The GSEs need to be dismantled. The FHA can stay in its current form and continue to provide the emergency backstop market protection it always has. The GSEs are redundant, and their current form of private ownership with public guarantees on the losses is dangerous.
Walking away from $400,000
Today's featured property is not for sale. It is a recent closing in Oak Creek that sold at a loss of about $180,000 after commissions. At first glance this doesn't seem like a big loss, but when you factor in the $200,000 or more this owner spent on upgrades, this house turned into a money pit.
With current financing conditions, this property would cost about $3,500 per month to own. Would it rent for that? If I could afford it, I would pay $3,500 a month to live there. I wouild be delighted to show a deal like this and say I bought it. (I didn't.) Those buyers are as happy as anyone can be that just paid $815,000 for a beautiful tract home in a nice but somewhat noisy neighborhood. I could see spending many happy hours in that pool. I love this house. Isn't the three-car garage cool? š
This is perhaps the nicest property I have seen transact at a price I thought was at rental parity.
Irvine Home Address … 2 GLENOAKS Irvine, CA 92618 
Resale Home Price … $815,000
Home Purchase Price … $945,000
Home Purchase Date …. 6/19/06
Net Gain (Loss) ………. $(178,900)
Percent Change ………. -18.9%
Annual Appreciation … -3.2%
Cost of Ownership
————————————————-
$815,000 ………. Asking Price
$163,000 ………. 20% Down Conventional
5.02% …………… Mortgage Interest Rate
$652,000 ………. 30-Year Mortgage
$169,138 ………. Income Requirement
$3,508 ………. Monthly Mortgage Payment
$706 ………. Property Tax
$252 ………. Special Taxes and Levies (Mello Roos)
$136 ………. Homeowners Insurance
$136 ………. Homeowners Association Fees
============================================
$4,738 ………. Monthly Cash Outlays
-$858 ………. Tax Savings (% of Interest and Property Tax)
-$781 ………. Equity Hidden in Payment
$319 ………. Lost Income to Down Payment (net of taxes)
$102 ………. Maintenance and Replacement Reserves
============================================
$3,520 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$8,150 ………. Furnishing and Move In @1%
$8,150 ………. Closing Costs @1%
$6,520 ………… Interest Points @1% of Loan
$163,000 ………. Down Payment
============================================
$185,820 ………. Total Cash Costs
$53,900 ………… Emergency Cash Reserves
============================================
$239,720 ………. Total Savings Needed
Property Details for 2 GLENOAKS Irvine, CA 92618
—————————————————————————— 
Beds: 4
Baths: 3
Sq. Ft.: 2273
$359/SF
Lot Size: 6,130 Sq. Ft.
Property Type: Residential, Single Family
Style: Two Level, Traditional
View: Pool, Faces Northwest
Year Built: 2000
Community: Oak Creek
County: Orange
MLS#: S633860
Source: SoCalMLS
Status: This home is sold and off the market.
——————————————————————————
Huge corner lot with magnificent custom salt water PRIVATE POOL & oversized 8-person SPA and waterfall. Volcano-blower with FOUNTAIN effect in shallow-end. Flagstone decking, raised patio and Slate-tiled BBQ area. GOURMET KITCHEN with Solid Cherry-Wood cabinets, including pull-outs & easy-touch drawers. High-end STAINLESS STEEL APPLIANCES. Tumbled travertine backsplash with imported tile inlay. SLAB GRANITE COUNTERS. Upgrades galore. Dark HARDWOOD FLOORS in living room, family room, upstairs hallway and Bull Nose stairs. Custom stone fireplace. Custom built-in entertainment center. Decorator paint. Recessed lighting. Luxurious ITALIAN TUMBLED TRAVERTINE SPA SHOWER, huge tub, custom mosaic tile accents, dual sinks. OVERSIZED WALK-IN CLOSET. Shoe closet holds 80 pairs of shoes! Convenient upstairs laundry. 3-CAR GARAGE with storage cabinets. YOU WILL LOVE THIS HOUSE! Really close to the many association amenities, elementary school, upscale shops & restaurants!
IR, I would have to agree with you. This is a great deal in Irvine at $3500 per month cost of ownership, closing for $360 per sq ft. I could see you being proud to show this off had you bought it. Maybe in a few years if your Las Vegas trustee flipping business coninues it’s great success.
Its not $3500/Month, this figure does not include HOA and property taxes. Note that monthly payment is $4700,
Its a money pit for $4700/mon when you can rent for $3,500? Yes!
I don’t see how this is rental parity. We negotiated with a northpark owner for a bigger 4b for 2800 per month. Didn’t end up moving as we are still debating buying but point is that this oak creek house will not get 3500.
Also, remember that renters do not pay what buyers would for upgrades and backyards. Imagine exact floorplan house with same interior and plane jane backyard- how much more would a renter pay on monthly basis for this with its great backyard vs same house without? For me its under $100 a month.
to add some data to my point, 23 detached 4b were leased off of MLS so far this year and the average price per sq ft is $1.38. At 2273 sq ft, this should rent at ~$3100 a month.
I am sure there are discounts that dont show up on the MLS such as extra weeks. We are in an Ave 1 condo and we moved in 2 weeks before the lease start date so saved almost a $1000 that way.
For the upgrades, swimming pool, and nice lot by Irvine standards this should fetch $3500-$4000 a month in rent.
That said, the above $3500 rental market is limited and the propery would probably sit vacant for some time. This is not a good rental proposition, but I believe IR is correct in saying the buyers should be very happy.
Whoa, Ave1! Why not Villa Siena? I hope your costs are much cheaper next door at Ave1 than a comparable unit at Villa Siena.
PR – i disagree with you. renters do not pay what buyers will pay for upgrades. would you pay $400 more per month for a pool and a nicer backyard? i think most renters look for bedrooms, size, age, washer/dryer as their biggest criteria. all the other stuff is nice to have but not necessary.
IHB readers – how much more would you pay in rent for a nicer back yard?
Perspective – i used to always rent from IAC and Ave 1 was my first private party rental and let me tell you, i am saving a ton. my rent is $1775 for a 2b + loft on 4th floor so high ceilings, plenty of space with 1200+ sq ft, and a bit less density than villa siena. when we signed lease over a year ago, similar IAC units were 2500 and non IAC units like calypso and avalon wanted 2300-2400 for similar.
That’s cool. Congrats on the savings.
Back in 2007 we wanted to lease one of the townhomes in Villa Siena (we were in a 1 bedroom in Villa Siena at the time going on three years). They were asking nearly $2,800 at the time for a < 1200 sq ft 2 bed/2 bath attached-garage townhome with someone living on both sides and on top of you. This was one of the things that pushed us into our fateful decision to purchase a townhome instead.
rkp, I believe you personally would not pay additional rent for upgrades but many people do.
Many people pay tens of thousands of dollars in cash for upgrades when they own. This translates into hundreds of dollars in monthly rent. Why would you pay the same in rent for a plane Jane outdated house versus an upgraded house with beautiful pool and yard? You get what you pay for.
i agree with you that buyers pay 10s of thousands for upgrades. my premise is a renter will value the upgrade differently than a buyer and will not be willing to pay as much for it as a buyer. reasons might include that renters see it as short term or not “theirs”
i am sure i am clouded by my own bias and would love to hear real examples. based on my research, the sweet spot in irvine rentals seems to be bedroom count and age of property while all the other aspects dont really generate enough additional rent to cover their expense.
in our own ave 1 community, our friend owns the same floorplan as we are renting(2b + loft) and paid $50K more for pool view when he bought it. he is currently renting it for $1900 so $125 more per month than us. these are identical units and just different location in the community. his renter valued the pool view as a $125 difference which equates to about $25k in purchase price at 5% 30 years and yet as a buyer, he paid $50k more.
Pool view in Avenue One equates to noise, at least in the summer months. We lived in the 2BR plus loft for a while and thought it was too noisy. The pool is in a closed yard so noise gets amplified and you can almost hear every words someone says. The Watermarke has a much better design since there are some opening for the sound to travel out of the pool area. But Ave One is from my perspective much better than Siena, where we have seen pool parties thrown by UCI kids with 100 people or so. Crazy. I still donāt understand why someone would pay so much money to live in Villa Siena. Also I rather give my money to a private owner than make the monopolistic and overcharging IAC even richerā¦
I had been a renter for a really long time and in the past never cared about upgrades. I only payed attention to how much rent I would be paying. It wasn’t till I could actually afford a nicer place that I moved to a nicer place. When my husband and I were looking for an apartment 2 years ago we were debating between Anacapa and Las Palmas. Very similar locations and layout but we chose Anacapa because of the upgrades. It felt more like home instead of a rental. So yes, we spent an extra $200 a month for the upgrades.
Halfnote19,
I haven’t seen you comment in a while. Good to see you are still a reader.
I am with you. I will pay for upgrades if the cost is reasonable, and if the feature is something I would use. In my last apartment, we paid an extra $100 per month for a larger, ground-floor patio adjacent to a greenspace.
IR – this might be worthwhile of a post as rental parity is such a big indicator on IHB.
Both you and halfnote are paying more in rent for something you value but how much does that “more” cost to the buyer and would the additional rent recoup it?
I am not saying that there is no rental increase with better products but I am saying that the rental increase doesn’t correlate with what a buyer would additionally pay.
Renters certainly won’t pay as much as an owner would pay for certain household luxuries (what’s the premiium for a great home office?) However, there is some premium.
I was looking for rentals last fall. Based on what I saw then, if you were a family looking to rent a nicer place long term, $3,500 for this property represents a value over competing rentals.
We just did this last year. I pulled comps for the house that we rented, but they had smaller lots. We have a huge lot with great landscaping, and are paying about $200/mo extra for that luxury.
Right on IR. They did a great job up updating this house. Are you saying it sold for $815,000?
Oh, I just noticed the bit about a shoe closet holding 80 pairs of shoes. I think I have 10 pairs of shoes. I am confused about the stacked washer/dryer in a home that large.
“I am confused about the stacked washer/dryer in a home that large.”
At 2273sft with all 4 rooms upstairs, there isn’t enough space for a large upstairs laundry room like we are seeing in some of the new homes. By the picture, it looks like they stacked it just to make more space for other things like a utility table and hamper. You can certainly put them side by side but that’s pretty much all the space you’ll have.
I also think $3500/mo may be on the high side for rent… but it does have that cool 3CWG.
Only a 14% drop from 2006… newer SFRs in Irvine are still a bit more stubborn… but maybe this will one day become one of those significant 40%+ declines (although I’ll probably jump in at 20-25%).
I can’t believe all the people foaming at the mouth over this house. It’s a 2200 sq ft Irvine tract house with some nice upgrades, if it really did sell for 815K it still has quite a way to drop in price. When all is said and done I see this house coming down another 10 to 15% which puts it right around 675 to 700K.
No one is really foaming… to me it’s still overpriced (and it did indeed sell at $815k).
I hope you’re right… it would be nice to a buy a newer 3CWG in Irvine for less than $700k, but with The Irvine Company benchmarking new 2-car SFRs at high $700k to start, it’s a longshot.
TIC is benchmarking new 2-car SFRs at high $700k and these homes have small lots (hardly any backyard or frontyard), motorcourts, no upgrades and floorplans that are not very functional (at least compared to the older homes). What are they thinking!!
This is the reason I bought a resale. It is not very old (2001 built), has separate living /family areas, large yard, 2500sqft, 4bed in the mid 700’s.
As much as I think these homes are overpriced, TIC is still selling these new homes fairly well, so clearly people think it is worth it.
Wow, I actually agree with the conservatives regarding dismantling the GSEās. This is quite disturbing.
However, I think people are living in a fantasy world if they think this will keep the government from ever having to intervene in the housing market again. This whole mess was originally fermented in the private market and the GSEās were forced by the government to sop up that mess. Regardless, the GSEās would have been in trouble anyway since the non-GSE mortgage market pushed up home values so much that even a 20% down payment wouldnāt save people that bought from 2004-2008 from going underwater.
Itās worth noting that Fannie Mae had worked fine since it was established as a government agency in 1938. We privatized it in 1968. The former government agency started hiring lobbyists that pushed for relaxing the regulations over it. Not good. Even so, the company would still be okay if it wasnāt for the Credit Default Swaps used on the banking side of things. Those things are what really enabled this whole crisis.
I issued a $800k mortgage, but I got a Credit Default Swap from Bob that will cover any default. Bobās got no money, but thatās okay ācuz he has a CDS from Jim that offsets his position. Jim also has no money, but heās got a CDS from Bill that offsets his position. Bill has no money, but heās got a CDS from Tim that offsets his position. And so on.
What could go wrong?
spot on. dissolving GSEs is a worthy discussion but looking back at the housing bubble, private lenders like countrywide were creating loans and packaing and selling them as fast as they could…this was an entirely private market and GSEs werent the problem
“this was an entirely private market and GSEs werent the problem”
That inconvenient fact will likely get lost in the rhetoric in the debate. Even though I agree with the conservatives on this issue, their political posturing has been embracing bad arguments. First, they have foolishly declared war on the 30-year FRM. Their reasoning is that this loan justifies the GSEs; therefore, if you remove the loan, you can kill the GSEs. Dumb. Second, conservatives have been beating the drum about the GSEs being responsible for the housing bubble. As you pointed out, that is simply not right.
Despite my disagreement with the right’s methodology, I do support their goal of dismantling the GSEs.
It hurts me greatly to be aligned with the right on this issueā¦ well, any issue really. But, reality is reality and these GSEās have been tainted to such an extent that they should go. I think in the short term (20 years maybe) they are unnecessary, but there might be a problem that crops up when or if new homes need to be built for a growing population.
That problem is the cost of new construction. Will the loans that people can get be affordable enough to make it worthwhile to build new homes? I know most people here will say that the miracle of the market will automagically adjust wages and the cost of materials thereby bringing new home prices in-line with what people can afford. Iām doubtful of this.
But, that is not going to be a problem anytime soon as we have way more homes than people who need them.
UE numbers disappoint, stock market rallies. Egypt overthrown, market rallies. Inflation, huh? I’m beginning to think UAE could be overthrown by radical Muslims, and the market would rally; an analyst might spin “this presents a rare opportunity to negotiate with a uniquely qualified group who bring fresh perspective to the table”. Dow 15K by January 2012? Keep printing money. Housing price up, stock market up, everybody happy.
You are only looking at the negative news. Wasn’t there a bunch of positive news over the past few days, too?
The chart below doesn’t look healthy to me with stubbornly high UE and gas approaching $4, but what do I know? Everyone’s a bull. Buy, buy, buy.
http://finance.yahoo.com/echarts?s=^DJI+Interactive#symbol=^DJI;range=2y
Been getting that funny deja vu feeling.
I don’t know Irvine as well as some of you out there but I have to agree with where’s the beef that this seems still high.
I bought last fall in Huntington B. a 2500 sq. ft townhome for under 600k. Just over a mile to the beach. Locked in a 4% rate. If you want to pay me 800k for mine I might consider it. Heck we have a full size laundry room, the 3 car garage and 4 bdrooms too.
I’ll take closer to the beach any day. (not to mention 200k less!)
Based on the current rental listings, this isn’t quite at rental parity, but I have to admit that prices in Oak Creek seem to be improving a lot. There are condos here with 35%+ haircuts. The SFRs aren’t there yet, but this particular sale looks like a nice comp killer. I like where things are headed.
This house is kind of expensive for a family without kids.
A small child will inevitably fall into the backyard pool.
The house is only 100 yards from the highway. A kid will always be sick because of pollution.
Irvine Co. reports sale of 1,200 homes
http://lansner.ocregister.com/2011/02/17/irvine-co-reports-sales-of-1200-homes/99937/
āAlthough the housing market may not have turned nationally, it has unquestionably returned in Irvine,ā said Dan Young, president of Irvine Co. Community Development, the Irvine Co.ās homebuilding arm.
How much will these houses’ value decrease in two or three years? Like new cars?
Columbus Grove is similarly new. Homeowners there “suddenly” realized that they have to pay enormous association fees and taxes. When they try to rent, they lose $1,000 or more.
Please take your meds soon.
-Darth
..tho it *is* true that even the Pool Boy will cost more than $102/mo. no doubt…
Really? You want to dismantle GSE’s and feed them over to private banks? Wow! I cant believe it!
Now this. Imagine if this happens, and then banks turn around and start offering interest only loans again. It could very well happen here. Banks are sitting on losing asset but they can always sell loans that collect interest only, I can bet you that we will see another spike in home buying spree pushing prices higher again.
Affordable homes should be offered to those who really cant afford. No reason for these loans to be over $417K that was original limit.
I think we are going to see 40 or 50 yr and interest only mortgages very soon
Just to let you know, we in Canada do have the equivilent of Fannie/Freddie. It’s called the Canadian Mortgage and Housing Corp. CMHC. They insure most mortgages, and is one of the reasons Canadian house prices continue to rise. It seems we are oblivious to what happened in the US, and must go down our own dismal path.
Here’s a link with some ongoing discussion:
http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/02/cmhc-corrects-two-critics.html
and here is link to CMHC
http://www.cmhc-schl.gc.ca/en/index.cfm
Thanks so much for the blog and the information prsented.
You write …. The GSEs have strayed from their original mission, and now they are being used to support bloated house prices. They should be dissolved and their function turned over to private lenders.
I respond …. I’m sorry but as I write here Sunday night before the President’s holiday, I have some terrifically bad news for you.
In my linked article … Exhaustion Of Quantitative Easing Starts The Mother Of All Bear Stock Markets … I write that Peak Credit, has been achieved. Said another way the end of credit as it has been known has commenced; this being communicated by the topping out and/or falling lower of mortgage and investment securitization company Annaly Capital Management, NLY, as well as credit providers, WRLD, NNI, ASP, DFS, as well as in the fall on Bonds, BND, LQD, BLV, PICB, MINT.
Investors in the longer out, that is the greater duration corporate bonds, BLV, were deleveraged when the bond vigilantes seized control of the Interest Rate on the 30 Year US Government Bond, $TYX beginning in Septemeber, that is, just after Ben Bernanke suggested QE 2 in Jackson Hole.
Except for possibly some samll private lending groups, mortgage lending will be coming to a screeching halt.
I go ont to write that the chart of the S&P, SPY, manifested three white soldiers, and a dragon fly candlestick, at the top of an ascending wedge; this is a terrifically bearish formation.
The S&P, SPY, will be forever falling lower on exhaustion of quantitative easing, as an Elliott Wave 3 Down commenced on Friday February 18, 2011 in the S&P, at a price of 134.53, as seen in the chart of SPY Weekly.The world has entered into Kondratieff Winter.
The emerging markets, EEM, and the BRICs, EEB, are cresting up into an Elliott Wave 2 High.
Brazil, EWZ, has risen to strong resistance, as has Brazil Financial, BRAF, and the Brazil Small Caps, BRF. Deflation in the Brazil Financials is taking Brazil down!
Quantitative Easing gave strong moneyness to investing in Brazil, but that inflation, and threat of capital controls has deleveraged investment out of Brazil and into US Financials, IYF, World Financials, IXG, and even the European Financials, EUFN, as is seen in the chart of Itau Unibanco Banco, ITUB, and the other financials, ā¦. ITUB, IYF, IXG, and EUFN.
It’s reasonable to expect that the way is now down for the emerging markets, EEM, and Brazil, EWZ, India, INP, and China, YAO as well as oil laden Russia, RSX, as its chart shows that it has now fallen through the middle of a broadening top pattern.
Oil, USO, manifested a massive harami and wave 5 completion at the first of the year and is now in an Elliott Wave 3 Down delveraging investment in both the airline stocks, FAA, and airline supply company, BE Aerospace, BEAV, which is also in an Elliott Wave 3 Sell Off.
Small Cap Energy Shares, XLES, became the swing trade of QE 2 investing. While QE 2 deleveraged the precious metal mining stocks, it leveraged the Small Cap Energy Shares even more than the overall Energy shares, XLE. The small cap Energy Shares, XLES, manifested a massive bearish lollipop hanging man candlestick and closed 2% lower.
A Elliott Wave 5 high was achieved in commodities, DJP, on February, 2, 2011 at 50.13.
QE Exhaustion caused disinvestment from agriculture commodities, JJA, the week ending February 18, 2011, resulting in disinvestment from agricultural industry stocks, MOO.
Exhaustion of quantitative easing has started the mother of all bear markets, and a failure of traditional carry trade investing, the US Federal Deficit, a soon coming municipal bond funding crisis, and a worsening of the European sovereign debt and banking crisis, will be the dynamos that will propel the world from the Age of Leverage and into the Age of Deleveraging.
The world is passing from The Age of Leverage characterised by sovereign debt expansion, currency inflation, credit liquidity, stability, stock and junk bond inflation, economic growth and expansion and prosperity ā¦ and passing into The Age of Deleveraging characterised by failure of sovereign debt, currency deflation, credit ill-liquidity, instability, stock and junk bond deflation, economic contraction and austerity.
The primary money good investment will be ownership and physical possession of gold and silver.
I have enjoyed reading your website, and I hope as the economy dives you will continue to post articles. So please keep up the faith and you take care.