Banks created their own nightmare. They turned good borrowers into HELOC dependent Ponzis, inflated a massive housing bubble, and now that prices are crashing, lenders are surprised at the behavior of borrowers. Each side feels they are being victimized by the other. Lenders are being left to hold the bag and absorb the losses, so they have suffered consequences for their actions. Borrowers lost their homes, so they have suffered too. Beyond enduring the consequences, each party bears some responsibility for what happened. But who deserves blame, and how much? Back in January of 2010 I advanced the proposition that Lenders Are More Culpable than Borrowers. It's a great old read and a good refresher for today's featured article. The writing today is challenging for me to deal with because I agree with the central point of this author's argument that banks are[READ MORE]
Archive for January, 2011
Should US Taxpayers responsible for every underwater homeowner? Many in government act as if they should, and many in the mainstream media report as if the status quo should be preserved. It's common at housing blogs to find calls for the government to get out of the housing market. It's rare when you find this sentiment coming from a local newspaper editorial in conservative South Carolina.
"Housing Market Setback Forecast," the newspaper headline said. A recently released report on housing says that home sales are down more than 25 percent and the inventory of unsold homes is about 50 percent higher than it was the same time last year. This is just one of innumerable stories about the woes of the housing market. We all understand about[READ MORE]
When the housing bubble burst, it was the worst of time for loan owners and speculators, and it was the best of times for buyers and cashflow investors. Some cities and regions have dropped precipitously, and to the degree these areas were dependent upon homebuilding and construction is the degree to which they are suffering today. Some of these cities will come back. Some will not.
A study says cities where home prices have fallen the most — including Riverside, San Bernardino and Fresno — could suffer long-term deterioration similar to that of the Rust Belt.January 06, 2011 -- By Alejandro Lazo, Los Angeles Times
In the Inland Empire and other former home-building hot spots, the housing bust has created a new kind of declining city, different from the nation's traditional rusting centers of industry,[READ MORE]
Over the last couple of years, a few academics have been making the case that land-use regulation is the cause of the housing bubble. Most of the post that follows summarizes their argument. I think they are only partially correct. Land use regulations do restrict supply, and therefore they do impact prices. As I noted in The Great Housing Bubble:
Speculative bubbles are caused by precipitating factors. Like a spark igniting a flame, a precipitating factor serves as a catalyst to begin the initial price increases that change the psychology of market participants and activates the beliefs listed above. There is usually no single factor but rather a combination of factors that stimulates prices to begin a speculative mania. The Great Housing Bubble was precipitated by innovation in structured finance and the expansion of the secondary mortgage market, the lowering of lending standards and the[READ MORE]
Most people try to avoid pain, physical, emotional, financial. Anyone focused on playing in the California housing market Ponzi scheme, there is only one painless feat: pass the debt off to another person. Give them your seat and let them own the mortgage. Think about the windfall received by those few that sold in 2005-2007 and rented. Those left owning loans are feeling major pain. The Federal Reserve exists to foster moral hazard by preventing banks, businesses, and consumers from feeling the ill effects of their poor financial decisions. The Federal Reserve has purchased $1,200,000,000,000 in mortgage-backed securities in an effort to lower interest rates and make the sky-high prices of the bubble affordable. They have printed money through two rounds of quantitative easing, and they help lenders dodge regulation that might expose their insolvency or hinder their business. Given the mission[READ MORE]
Recap of Past PredictionsFirst, I wrote Predictions for 2008, and last year I wrote Predictions for 2009. Nothing too bold or surprising either time: "Most of the macroeconomic conditions I made in 2008 are still operative, and several of the predictions I made which came true will likely repeat in 2009. These are:
I do not believe 2009 will see median house prices decline as much as 2008, but I do believe they will drop significantly, particularly in high-end neighborhoods.[READ MORE]
- 2008 will see the worst single-year decline in the median house price ever recorded
- One or more of our major financial institutions and one or more of our major homebuilders will fail
- A severe local recession
- I predict we will see many more angry homedebtor’s troll the blog