Can Housing Be “Rescued?”

First, a quick data check of Existing Home Sales:

• Unit sales dropped 8% in September; this is the lowest level in eight years;

• Sales of existing homes were down 19.1% year over year;

• Sales of existing homes fell to a seasonally adjusted annual rate of 5.04 million;

• Inventories of single-family rose to a 20-year high;

• Sales fell in all four regions.

• Median sales price for homes and condos was $211,700, down 4.2% in the past year. 

• Median sales prices have fallen in 13 of the past 14 months, pressured by a decline in jumbo mortgage lending (> $417,000).

Here’s a chart worth looking at closely:

Existing Home Sales (gray), Inventory (red) and Months of Supply (blue)

Courtesy of Calculated Risk


The always interesting Rex Nutting Marketwatch column had quite few interesting quotes:

-The deepening subprime crisis is threatening a recession, said Peter
Morici, a business professor at the University of Maryland.

Bros. now expects the Federal Reserve to cut its overnight lending rate
by a full percentage to 3.75% by the middle of 2008, including a rate
cut next week.

-"The housing crunch is accelerating; the Fed can’t stand by and watch,"
wrote Ian Shepherdson, chief U.S. economist for High Frequency


I am continually surprised by some of the more absurd commentaries I’ve read on the housing situation, and what we need to do to "rescue" it.

Here’s some tough love for economists, real estate agents, and especially those people in Washington on both sides of the aisle: fuhgedaboutit.   

The problem in the housing market is really, quite simple: Over the past 5 years, 100s of 1,000s people — perhaps a million buyers or more — were creatively financed into homes that THEY CANNOT AFFORD.

Combine this with a still over-priced homes, and the ongoing inventory build, and that’s a recipe for a prolonged, multi-year slump in Hosuing.

This may not be what people want to hear, but it is unfortunately true: Forget the 2/28 ARMS, the teaser rates, the Interest only loans — if we were to magically reset every one of those problem mortgages at a 6.25% fixed rate 30 year mortgage, it would not "fix" the housing problem. A huge swath of them, perhaps a majority, would eventually default anyway.

I have yet to hear anyone in Washington acknowledge this simple reality. The problem is not one of a credit crunch — although that is what uncovered the issue to the broader public; rather, it is the cost of housing relative to income ratio.

I don’t want to appear cold, but this is a simple economic reality: many, many current homeowners are likely to be ex-home-owners unless they find more income or a random chunk of non-loan cash.

The issue isn’t credit availability –its affordability . . .


Here’s a wild idea: All you alleged believers in the free markets: Why don’t you let the market do its job, via defaults, foreclosures and auctions — and process the problem? Its either that, or "gift" a few billion dollars — $100k at a time —  to those people who over-leveraged themselves.


Mortgage Availability Improving But Hampered September Existing-Home Sales
Shits & Giggles, October 24, 2007

Home sales crater on credit squeeze
Sales of single-family homes at 10-year low; inventories highest in 20 years
Rex Nutting
MarketWatch, 11:15 AM ET Oct 24, 2007

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  1. DonB commented on Oct 25

    You may be correct on what should be done, but political pressure will enter, especially given the upcoming election. Also, I’m guessing that Ben doesn’t want to be tagged as doing nothing as the economy weakens substantially. IMHO the Fed showed its bias when it reduced rates 50 bps in August. Over the next year I’m betting that inflation management takes a back seat to economic growth management, in Fed actions if not in their words.

  2. SG commented on Oct 25

    “homes that THEY CANNOT AFFORD”

    you hit the point. And now is time for the economy to follow it’s nature and sweep all that people from the stage. Has happened before, will happen the same.
    If they try (FED…) to rescue the home market (thing i don’t believe they’ll do) they’ll be puting all the economy in check for the security of some people that thought they were smarter than the rest.

  3. Philippe commented on Oct 25

    At this address if interested, you may see the graphic financial corrolary of you above comments.


    BR: is there a better link to the chart?

  4. Sue commented on Oct 25

    Absolutely correct! I have been saying to myself for weeks: the problem is that people do not have the income necessary to afford these houses. The only way the loans worked was teaser rates of 3 or 4%, low credit quality requirements, no down payment, and the assurance that housing valuations would rise quickly and steadily.

  5. OkieLawyer commented on Oct 25

    “The average new home is 2,434 square feet, 62 percent larger than a home built in 1970, according to the National Association of Home Builders.”

    I found this quote in an article in the New York Times. Could that have something to do with it?

    Our meals are also getting larger, too. And look how fat we have become as a nation.

    Both are unhealthy for us. The merchants said they were only responding to the market, but the reality is that the larger homes (and larger meals) increased profits. But, as we are seeing, it is unsustainable in the long run.

    Combine that with the fact that we have rolled back the protections that were put into place to prevent another Great Depression, and you have the makings for a true economic disaster (albeit we now call the same economic instruments new names; for instance: hedge funds of hedge funds instead of trusts of trusts).

    Can someone please explain to me what tricks the Fed has at its disposal to prevent another Depression? How are the economic conditions different this time?

  6. SM commented on Oct 25

    Don’t forget overbuilding. We have had a building frenzy around the country and there are way more houses in inventory than can be sold. The builders outstripped the supply of buyers a long time ago. Here in NE Atlanta area they keep right on adding to the inventory. If Cramer makes the fed cut next week – it will not help.

  7. wally commented on Oct 25

    Exactly so. Housing prices are the core problem. They got pushed to this point by several things, including low Fed rates. Ironically, the cry is now for a new round of low Fed rates to “fix” the problem.
    This is absurd. It is like trying to fix a wrecked car by putting more gas in the tank.
    The best thing the Fed could do is to wring the problems out of the system, and that is likely to be the very thing it fails to do.

  8. D. commented on Oct 25

    “IMHO the Fed showed its bias when it reduced rates 50 bps in August. Over the next year I’m betting that inflation management takes a back seat to economic growth management, in Fed actions if not in their words.”

    The Fed will do something that makes them look like they’re doing something.

    But at the end of the day, if they cut rates, the dollar will drop and inflation will just get stronger quicker. Spreads will just get higher so the rate cut won’t serve any purpose.

    Like Barry said, if people can’t affor a 30 yr fixed, they can’t afford the house. Millions are in this situation and it won’t go away until someone takes the losses.

    The only thing the Fed is going to determine is who takes the losses. The homeowners, the banks, investors or the taxpayers?

    My bet is that it’s everyone in the name of democracy of course! That’s what living in socety is all about. We’re social animals, remember?

    Of course, some people are postioning themselves in the right direction… that’s why they’re still saying that everything is going to be fine. They’re buying time.

  9. dark1p commented on Oct 25

    Right on, Barry!

    By the way, Housing Panic ( posted a somewhat different report of the housing numbers from yesterday and chastised the 8% figure propagated by the MSM (repeated in Barry’s post):

    “…nobody in the MSM bothered to check the numbers or question the NAR spin. Nope, they just reported sales down 8%, and made that sound bad enough, but if they had reported the REAL numbers – down 29% versus last month and 23% versus last year, now THAT would have really freaked people out. Of course, the MSM is too stupid to realize that the NAR goes with the ‘annualized’ number because that takes longer to crash.

    “Do your own search – good luck finding any report that shows the -23% or -29% true numbers. And why won’t you find it? Because the NAR didn’t report it in their PR, so nothing to copy and paste for the lazy MSM.

    “Here’s the simple numbers from the NAR:

    Sept 2007: 409,000 sales (down 29% versus last month, down 23% versus last year)
    Sept 2006: 529,000 sales
    August 2007: 575,000 sales”

    Just passing it along. Seems straightforward enough. Comments?

  10. 12th percentile commented on Oct 25

    Modest Mouse had a record called Good News for People who Love Bad News. Apparently on Wall Street they love that record. Today’s quote via CNN

    Still Hogan said bad economic news could actually be good news for the markets Thursday, as it would raise hopes for the Federal Reserve to announce another rate cut, perhaps as big as a half a percentage point once again, when it concludes a two-day meeting Wednesday.

  11. mack macdaniel commented on Oct 25


    Great observation re: the ability of time to mitigate price declines.

    Unfortunately, “fair value” for housing (as a function of long term budget position relative to buyer’s demographic position, in my mind) can only be “returned to” via passage of time if there is no debt attached to the asset further modified by income movements.

    Generally, this applies to all assets and use/ user types.

    Thankfully, housing has a long useful life
    (contributing to it’s “intrinsic value”).

    Regretfully, a note in the mail every month demanding payment for an over-priced good encourages action of some sort. Usually not a pleasant one.

    See also: SIVs, CDOs, “Levered” Hedge/ P-E Funds, etc.

  12. jm commented on Oct 25

    I’ve been trying for a long time to figure out how this is going to unfold, but just can’t. Here in the suburbs of Chicago, hundreds upon hundreds of McMansions have been built on spec and stand vacant with asking prices near or above $1 million. Checking the databases for past recorded sales above $900k (assuming a 10% discount for argument’s sake), one finds that even going by the sales volumes in this price range in the peak bubble years sales the inventory is in multiyear territory.

    Using last year’s recorded-sales price:volume profile as a proxy for the demand curve, I can only conclude that for the banks that will soon own these spec homes to get them off their books, they would have to slash the prices about 30%. But will the coming year’s demand curve be the same? With the new discipline in ending, and tight supply of jumbo loans, not bloody likely. So the prices will need to drop even more, will they not? And when a “million-dollar home” sells for under $700k, what happens to the “$700k” homes’ prices?

    According to the data in Chris Cagan’s analyses, 39.7% of US homeowners have less than 30% equity in their homes. A greater-than-30% price drop is going to make all these people unwilling, and most unable, to sell.

    Being fluent in Japanese, I am well aware of what happens to the “gotta buy now or be priced out forever”, “you can’t lose money in real estate no matter how much you pay” mentality when the market turns like this. It disappears quite completely. I’ll never forget the evening in the late ’90s when some young Japanese friends told me, “We’ve been thinking of buying a condo, but have decided we’ll wait a few more years, because they’ll be cheaper then.?” That was at about five years into the bust.

  13. Marcus Aurelius commented on Oct 25

    “…Forget the 2/28 ARMS, the teaser rates, the Interest only loans — if we were to magically reset every one of those problem mortgages at a 6.25% fixed rate 30 year mortgage, it would not “fix” the housing problem. A huge swath of them, perhaps a majority, would eventually default anyway…”


    Not to mention you’d be resetting the terms and rates to refinance collateral assets that were overvalued by 200% in the first place.

    Sorry I mentioned it.

  14. jm commented on Oct 25

    Continuing on from my comment above, millions of people are going to be foreclosed upon, and will need rental housing. And with the bubble mentality broken, there will be too few potential occupant-owners stepping up to absorb the sell-off. But for competent landlords to step up to the plate and buy those homes at prices for which they can be profitably rented, prices must fall more than 50%. And from whence would so many landlords come?

  15. Eric Davis commented on Oct 25

    Dollar near a new low.
    Alright!!!!! if we can get to 1.6 dollars to the Euro, We can definitely get to 16000 on the Dow……

    Go Weak Dollar!!!!!!!! Yippeeeeee

    120 dollar oil, 10 dollar milk, 5 dollar gas, 4 dollar bread, 8 dollar latte…

    We should do a dance!!!! Yippeeee 16000 on the dow.

    Maybe the Canadians can come down and buy our homes.

    (don’t break my balls, if you don’t get irony)

  16. Ted Craig commented on Oct 25

    Here’s a stat that’s missing from all this: unoccupied homes.

    By that I mean homes that have been taken off the market because the owner would rather wait out the slump. They sit unsold

    Also, a lot of homes have been leased rather than purchased, so they’re off the market for now but will be back in a year or so.

  17. TKL commented on Oct 25

    You’re right that price is important, but it’s not the whole solution. The big picture is that a recovery will be based on a combination of: (1) lower prices; (2) higher wages; and (3) lower interest rates.

    We tend to think that if sellers just slashed their prices by 30% tomorrow, everything would be solved. Maybe true, but that’s wishful thinking. It takes a long time for prices to fall. In past housing declines (e.g., NYC and Boston in the early ’90s and Houston in the early ’80s), it took about 4 years from peak to final trough. Sellers are stubborn. People have to live somewhere, and generally they’ll opt to stay put if they can make the payments.

    In the meantime, rising wages and falling rates can relieve a good deal of the stress. Assume houses are 30% overpriced in terms of traditional affordability standards. Now imagine that prices fall 10% over four years. During that time, wages can easily rise 15%. Now you’re paying 0.9 times as much with 1.15 times the money. Voila. You have offset the original imbalance (and that’s without any help from lower interest rates).

    None of this reduces the effects of the housing slowdown on the broader economy. All the hunkering down — curbing all non-essential spending in an effort to keep making the mortgage payment, driving the same car a couple of years longer, not moving, not spending on everything associated with making a new life in a new place — has a significant effect on the economy. Housing declines have prefigured recession something like 7 of 8 times since 1960. Not a batter I’d like to pitch my money to.

  18. Adam commented on Oct 25

    I am sick of economists on Kudlow’s show (and the like) touting the fact that creative mortgage lending has allowed a greater % of the public to become homeowners. Because a person is considered a homeowner even if he puts no money down on an interest only mortgage, the fact that more people “own” homes is irrelevant. What matters is homeowners’ EQUITY. I suspect that homeowners’ equity will decline substantially in the few years to come.

  19. Peter Boockvar commented on Oct 25

    Sept Durable Goods unexpectedly fell 1.7% vs an expected gain of 1.5%. Ex transports rose .3%, .4% less than expected. Non Defense Capital Goods ex Aircraft orders rose .4% after falling .1% in Aug and is down 5.6% y/o/y. Shipments fell 2% and is down for 3 out of the last 4 months. Bottom line, sluggish data as companies remain reluctant to ramp up cap ex in an uncertain economic environment. Jobless Claims were 11k more than expected at 331k vs an upwardly revised 339k last week. It’s the 2nd week in a row above 330k for the 1st time since April and another sign that the labor mkt is starting to get impacted and bears watching. The 4 week avg is at the highest level since Aug 31st.

  20. Gavin commented on Oct 25


    I’ve been reading all about the credit crisis and no ones talking about the still ridiculous costs of these houses in the first place.

    In Southern California, I make six figures and have absolutely zero possibility of buying a house anywhere near my work (in mid-LA) that isn’t in some place I’m totally scared to place my family. And even that place I’d have to pay half my income for a mortage! (True story, friends of ours sold for 600,000 because there was a drive-by shooting on their street!)

    Anyways, I hate to feel this way but I hope the prices go down. It makes me feel sick to my stomach when I can’t even conceive of buying a house for my family at 33 with two kids.

    -Gavin Purcell

  21. s commented on Oct 25

    NY Times Quote of the Day: leave it to the NY Times to sum up the feelings of the US population

    “if for 15 years you ahve been a relativily successfyul broker and you have lived through the highs and the lows , what are you gouing to do? (I don’t know, maybe hope you saved during the highs for the inevitable lows?) Most are holding on for dear life and hoping things get better (I guess you could say that of the enitire manufacturing class, no?)”

    Boo hoo!!!

    RE Brokers are the worst of the worst – that you could put that idiot Barbara Corcoran on TV with incisive comments like just do something I don’t care if it is the wrong thing is telling in and of itself. I am buying property in the South bronx — it is a real steal!” (for all you non NYers not so nice)

    She is a microcosm of everything that is wrong with an industry that takes an onerious 5% of top line for thier insights is comical.

  22. MarkTX commented on Oct 25

    It all sounds like good news….

    think I will run the Dow up 100 points in real quick order……..

    oops….someone beat me to it!!!!!!!

  23. gc commented on Oct 25

    What is different about homes? It seems like a lot of people have been underwater on their SUVs and trucks for quite some time. This hasn’t stopped “creative” financing and incentives from continuing to roll a lot of these same people into new vehicles every couple of years. Do you just want the music to stop now because you have the chair that you will sit down on in the best position for you?

  24. s commented on Oct 25

    hey one way to fix the housing problem is burn down half of southern california? kind of a joke but one has to wonder with the state of grace

  25. s commented on Oct 25


    the fed is crippled: they want inflation in wages so debt gest paid with cheaper dollars but the flip side of coin is everything else gets more expense. No moatter how you cut it the standard of living got devalued via the Fed breathlessly stupid policy

  26. a guy called john commented on Oct 25

    i think we are going to see a surprising and, ultimately, temporary pop of sorts in october as the september numbers reflect the august credit madness.

  27. dark1p commented on Oct 25

    Not exactly on-topic, but Bloomberg has an article that shows the very negative turn in the social mood. The stock market has usually (not always, but very often) reflected such turns before they show up in surveys and articles–in the past, it’s been a great barometer. Oddly, it’s very disconnected from the greater social mood right now. Not that that proves anything about plunge protection teams or anything, but it is strange. :
    “By 65 percent to 29 percent, Americans say they expect a recession, the poll found. Fifty-one percent say the economy is doing poorly, compared with 46 percent who say it is doing well, the gloomiest view since February 2003.

    “The negative sentiment on the economy contrasts with a June poll in which 57 percent of respondents said it was doing well. The pessimistic turn comes just before the Federal Reserve meets next week to decide whether to further reduce interest rates to try to head off a possible recession. The poll results square with the Reuters/University of Michigan consumer index, which showed confidence in October at its lowest ebb since August 2006.”

  28. Neal commented on Oct 25

    Mortgage resets from the easy credit/ovepriced houses regime occur all the way into 2011. The later resets are mostly option arms, where people are currently making the minimum payment (no principal).

    This says to me that the portion of the economy dependent upon a healthy consumer will be in trouble until that time.

    Unfortunately, there is little other drivers in the economy to take over from the mortgage equity binge of the last few years.

    So look for falling house prices and struggling consumer and all of the associated fallout continuing for at least the next 4 years.

    Now if we had only invested the 2 trillion dollars poured in the sands of Iraq into something useful..

  29. Bonghiteric commented on Oct 25

    Mr. Boockvar,
    Thanks for the quick and dirty on durable goods and employment

  30. Michael Storm commented on Oct 25

    Hmm… I half agree with BR. Only half.

    The missing point, from politicians, pundits and economists is the following —

    OVERALL we are better off when that 2000 sq ft luxury house or condo with the granite kitchen, flat panels in every room, and view of the water COSTS LESS!

    When it COSTS MORE all we have is a transfer to previous purchasers from newer younger buyers. When it COSTS LESS we have ECONOMIC PROGRESS.

    This is what happens in computers, TVs, cars, healthcare, telecommunication, appliances, etc. Despite BR mainly doing a “chicken little” on inflation ALL THAT STUFF is way, way, way better than it was 10 years ago. For prices that are many times LOWER than they would’ve been ten years ago for the same quality.

    I wish the president would tell Americans that a land of luxury homes costing 50% less (while hurting a few over-levered recent buyers) is massive economic progress!

    (Now somebody go clean up the political situation in Mexico, add infrastructure, and develop all the beach-front property!)

  31. Kieran commented on Oct 25

    I think the Fed’s plan is this: Right now, Americans are spending a disproportionate percentage of their income on their homes. Normally, the market would flush out those who cannot afford their homes, and bring prices back in line with what people can afford. Instead, the Fed has chosen to inflate the dollar to such a degree that stagnant home prices will come back into line with the relative value of other assets. That way people don’t notice that the value of their homes have decreased by 50%. Voila!

  32. Bob A commented on Oct 25

    “The problem in the housing market is really, quite simple: Over the past 5 years, 100s of 1,000s people — perhaps a million buyers or more — were creatively financed into homes that THEY CANNOT AFFORD.”

    And keeping many of these people in their ‘homes’ (that they’ve only had for a year or so) is NOT doing them a favor!

    Not only can they not afford those houses but they could be renting a similar house for half of what they’re paying in interest only 100%-130%LTV loans. Money down the tube because the asset is not only not going UP in value, in most or many cases its going DOWN in value.

    That difference that’s going to interest is NOT going to WMT, F, MCD, BBY etc etc etc.

  33. flory commented on Oct 25

    In a new report to be issued today, the Joint Economic Committee of Congress predicts about two million foreclosures by the end of next year on homes purchased with subprime mortgages.

    Given this, I would say your estimate of “100s of 1,000s people — perhaps a million buyers or more” in houses they could not afford is a bit on the low side.

  34. Frankie commented on Oct 25

    “Like Barry said, if people can’t afford a 30 yr fixed, they can’t afford the house. Millions are in this situation and it won’t go away until someone takes the losses.”

    When disposable income steadily lags behind inflation (the real one that is!), affordability takes it on the chin.

    And when the financial industry is left to its own devices, without decent regulation and oversight, they’ll find a way to make people believe that affordability is a “false” problem…until it becomes a real one.

    Perhaps, at last, some people will understand (ain’t holding my breath on that one) why regulatory oversight exist and should be treated as an integral part of a TRUE capitalistic society.

    Every good game has a referee which function is to make sure that the game is played with enforceable rules applicable to all the participants.

    I fail to appreciate why the prosperity game should be any different.


  35. bob niederman commented on Oct 25

    “if we were to magically reset every one of those problem mortgages at a 6.25% fixed rate 30 year mortgage, it would not “fix” the housing problem. A huge swath of them, perhaps a majority, would eventually default anyway.”

    Evidence is that some, maybe a lot of people got fooled into taking these crap loans by people with incentives to lead them that way, even when they could have gone the right way.

    Would it not be worth keeping those who can afford a 6.25% fixed rate 30 year mortgage in their homes and let the market do whatever it will more slowly and less disastrously? Especially if we can make the investors and banker (like our “friends at CitiGroup) who financed the bubble by buying all this crap take a bite of it?

  36. VJ commented on Oct 25

    Excellent Question:


    DARREN GERSH, NBR CORRESPONDENT: Alarming, dark, bleak — those were some of the uplifting words used to describe the housing outlook as builders met in Washington to debate how much further their industry has to fall. Economist Mark Zandi says today’s report on home sales confirms the gloomy outlook.

    MARK ZANDI, CHIEF ECONOMIST, MOODY’S ECONOMY.COM: It’s a mess. The housing market is evaporating. This is about as bad as it could be and it looks like it is going to get worse before it gets better.

    GERSH: The National Association of Realtors reports existing home sales for September fell 8 percent from a year earlier, the largest drop since 1999. The median home price tumbled 4.2 percent over the same period. Futures markets are signaling even more bad news, forecasting prices in the nation’s top housing markets will fall 18 percent by the year 2010. UBS economist Maury Harris worries the downward momentum may freeze the market.

    MAURY HARRIS, CHIEF U.S. ECONOMIST, UBS: What happens if the lower prices just cause people to be afraid that they are going to go down any more, that you get deflationary psychology?



  37. MT commented on Oct 25

    Excellent post!

  38. s commented on Oct 25

    think the Fed’s plan is this: Right now, Americans are spending a disproportionate percentage of their income on their homes. Normally, the market would flush out those who cannot afford their homes, and bring prices back in line with what people can afford. Instead, the Fed has chosen to inflate the dollar to such a degree that stagnant home prices will come back into line with the relative value of other assets. That way people don’t notice that the value of their homes have decreased by 50%. Voila!

    Posted by: Kieran | Oct 25, 2007 11:56:28 AM

    the dollar is not inflating it is deflating quite rapidly. So unless your wages start to inflast which has 0 chance of happening then prepare to downsize

  39. David commented on Oct 25

    Nothing “cold” about being an ex-homeowner. I’m one. Bought a wonderful house in Chicago. Had to sell it recently due to a job relocation (for a massive 1% gain, ex selling costs, and no, I didn’t use a broker–I’m counting fixing it up a bit, etc). Am renting in bubble-land (Bay Area Cali), despite the ability to buy a decent place in a decent neighborhood (yes Chicago is that expensive, at least a SFR in the nice areas).

    Do I care? Not really. I’m renting a nice house, saving the difference and watching prices drop. When I feel like it, I’ll buy again, but not until I have a reasonable chance of not losing my shirt.

    One thing people will re-learn, is that it really makes NO sense to buy a place unless it’s almost a discount to renting because the transaction is such a hassle. And I don’t know too many people who DON’T move every 2-5 years. If you don’t have appreciation/savings versus renting to fall back on, you’re forking out $10-20,000 for a stupid transaction every few years. Me? I’d rather buy a niiiiiice vacation for that. Or a car.

  40. bZeke commented on Oct 26

    Barry — hitting the nail squarely on the head, as usual. Converting these borrowers into a 30 yr fixed just won’t work; they don’t have the income. Foreclosures are going up, cancellations are going up, inventory is going up…and yet, sellers of all stripes don’t seem to have been broken yet. It will be interesting, in a macabre sort of way, to see just how long it takes for the sellers’ last finger to slip off the ledge.

    A question I would like to see addressed is the effect that the housing downturn, both as to sales and as to valuations, is having at the local municipal and school tax level. I know that some Democrat organization was out with a chart and a report on this in the last day or so, but that means the report was written by pols, and don’t trust them on either side.

    To me, the local tax question is substantial because local govt entities usually have only a few limited sources of revenues, and their ability to raise cash via borrowings of some kind is also quite constrained. Property taxes are the main source of most local govt revenue, and so the housing bust should be hitting them directly where it hurts the most. Add in that this is occurring at the same time that GASB 45 is requiring local govts to fully fund their OPEB liabilities, and the prediction for local govts has got to be “pain.”

  41. jerry commented on Oct 28

    Don’t forget that the Treasury Department and the major Financial houses that have sold these mortgages have arranged a tidy little “Trust” so that they simply won’t have to compete with each other in the free market.

    They’ve united to prevent the homes that they’ve foreclosed on from having to be auctioned or sold at reduced prices. Citicorp, Morgan Stanley, BankAmericorp, Wachovia…have created a $1 billion cooperative fund so they can cover the losses they accrue if they would sell hese homes. Indeed the plan is to keep them vacant to keep prices high. This is just the sort of anti-competitive activity that led to major political turmoil in the major parties 100 years ago…the emergence of the “Trust-Busting” Progressives.

    So we are going to see some real oddities…with homes in some neighborhoods sitting sealed…semi-ghost towns…with not enough residents to support the surrounding services and schools. Meanwhile there may be construction of new homes…which are the ones that can be purchased on the market. This will really be a crazy period.

  42. sakelley commented on Oct 28

    The real estate problem can be solved in very short order. Send Hank Paulson over to talk to countries like China and Saudi Arabia, who are looking to deploy their excess greenbacks through their ‘sovereign wealth funds’. Perhaps he can talk them into buying most of our distressed real estate at current market prices. It sounds like a good trade—near worthless dollars for severely overpriced real estate. Maybe we could even throw in some CDO’s when they’re not looking. Problem solved!!!!!

  43. Peter commented on Oct 28


    The fed will drop the rates to help the banks make up for what they lose on foreclosure by improving the short term / long term spread. Joe Loan-fodder is back in an apartment no matter what and probably avoids bankruptcy (isn’t that what a mortgage backed security is all about?). It is a bank bail out we are talking about here, simple as that. And it will happen.

  44. Steve commented on Oct 31

    It sounds like there are two “fixes”
    An inflation level that reprices homes accordingly….
    Or the 50 year mortgage – and then we are all simply renters by another name.

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