The foreclosures will get sold in the end, just not for the price either the previous owner or the bank wanted to get. Still doesn’t mean the neighborhood “went to shit”. It means a buyer got a good deal finally.
Yeah, but you aren’t going to lose your savings account. So, yes - fuck the banks.
I guess I just don’t understand why I’m supposed to have sympathy for everyone who got in over his/her head now that they’re in danger of losing their homes. A lot of people don’t even have a home yet. They got priced out of the market and the real-estate industry cheerleaders and the politicians did all they could to make sure the bubble kept inflating as long as possible - I’m not hearing any sympathy for them. Insuring a savings or checking balance when a bank folds seems like a much more legitimate bailout than helping some moron who thought he could afford a million dollar home on 50K a year.
Cite? The credit crunch happened because a bunch of banks and investment houses are sitting on investments they can’t price, let alone sell, and because they’re still figuring out how much money they’ve lost. Merrill restated its losses 3 times, I think.
There are two ways of correcting real estate prices. The first is a free fall 30%, to where it should be. In some counties of the Bay Area prices are already down 16% (and sales are down over 50%). This will mean that millions of people will have negative equity, won’t be able to refinance even if their rates are too high, and at the least they’ll stop buying anything and the economy will go into the toilet, except for what we can unload overseas. Do you want a deep recession just to teach naive home buyers a lesson?
The other way is to accept a reasonable drop, and then let the economy catch up with home prices. They’ll stagnate for a bunch of years, but that’s okay.
Clearly forcing people out of their homes will lead to the first scenario. The economy will no doubt go into a recession anyway, but not as bad. People will stop taking non-existent equity out of their homes, which I think is good, since the last few years have allowed businesses to profit from consumer spending based on borrowing without having to raise wages much.
BTW, neighborhoods with lots of foreclosures don’t go to hell because of the eventual sales prices, but because houses are basically abandoned until the bank can get around to selling them. If you think abandoned properties don’t cause trouble, try reading about the South Bronx 20 years ago.
BTW, one of the main people ignoring signs of trouble was Greenspan - including predictions of problems from within the Fed. Was he stupid or senile? Don’t think so. My guess is that he knew cracking down on lenders would result in the halt of the runup, which would reduce the amount of money available to consumers, which would slow down the economy, which would make the Republican administration look bad. Are you aware that the Fed prohibited states from independent regulation? Some at least might have required that lenders only lend to people who could afford the loan, and the industry would have slowed down.
And how does that contradict my point? The market was ripe for a downturn, and the credit crunch was the catalyst that made the downturn happen. You’re just telling us the reason for the credit crunch, which I never disputed.
What exactly does “free fall” mean? I don’t really understand the difference between “free fall” and prices just going down. Have you ever looked at a graph of housing prices over the last 50 years? It’s a relatively steady progression upwards with a HUGE spike right around 2003 or so that is just utterly out of step with anything before it. (Pretty much looks like the stock market during the tech bubble). What do you think is going to happen? Do you think prices will stay disconnected from fundamentals forever? That NEVER happens. Prices go up, then they go down. It’s not new. It’s happened before, and it will happen again. You can’t have the biggest run up in history, and then just stay there, and everyone lives happily ever after. It just doesn’t work that way.
I know one thing. If everyone keeps saying there’s going to be a recession, it will become a self-fulfilling prophecy.
But the run-up was not reasonable, so how can the decrease be reasonable? It has to get back to normal somehow.
It’s not “forcing people out of their homes”. They’re free to keep their homes, but they do have to pay for them. Do you think it’s unreasonable to expect people to pay for things that they purchase? There’s a lot of shit I’d like to have, but I don’t expect it for free.
Tons of neighborhoods were gentrified during the housing bubble. That doesn’t mean there aren’t poor people anymore. They just got displaced to even shittier neighborhoods. So yeah, if prices go down, homes may be vacant for awhile, and some of them might move back into the neighborhoods where yuppies had bought all the homes. Poor people have to live somewhere.
Ha, ha - do you think I’m a republican? I suspect you are absolutely correct. Like I’ve said many times before, the powers-that-be were highly motivated to keep the bubble inflating, because it made them look good. It made the economy look much better than it really was. But it was all a house of cards, based on equity that existed only on paper. Now, all of a sudden, they’re crying that the sky is falling, as if nobody could have seen this coming. Total bullshit.
Prices had stalled, and were even going down, before the crunch. The crunch accelerated the decline, that I agree with. But the crunch came when banks discovered that people couldn’t afford their reset mortgages, and the stall in prices made it difficult or impossible to refinance. (Plus prepayment penalties.)
Owning a house in California bought in 1996, I’m quite familiar with the increase in prices. Who exactly gets helped from a sudden decline in prices by this magnitude. Not homeowners, not merchants, not banks, not local governments (who are already seeing budget issues.) The only people I can think of are the few who stayed out of the market. They’ll still do well, just a bit less well.
There was a necessary correction in 1929 also, more like the housing one because people bought stuff on margin. The government let the correction happen with no major countermeasures, no doubt to teach the investors a lesson. Lots of people who never invested got hurt.
If we could somehow be sure only the guilty get hurt here, I’d be fine with leaving things alone. But plenty of people who never went near the housing market are going to lose their jobs.
Recessions happen. This one would have happened a while ago except for the money pumped into the economy from house equity. Do you think the market will collapse with no impact to the broader economy?
There is no law saying the rate of decrease must equal the rate of increase. But the big problem is really credit. I just missed the Texas/Louisiana oil collapse of 1980. There was less impact then because of no fooling around with credit.
People who qualify for an interest rate of X were sold a rate of X+3 by being classified as subprime. They took it because of the teaser, and are now paying their loan. They can pay the teaser rate, they might be able to pay the rate they really qualified for, they can’t pay X+3. How is this expecting anything for free? They came in to the lender so they were asking for it, were they? People who could afford the mortgage they should have gotten but not the one they were sold, especially under prepayment penalty and the crunch caused by crooked lenders and idiot raters are most certainly being forced from their homes.
The new regulation forbids lenders from selling loans the borrowers can’t afford. Are you for or against this? Do you think it is odd it is now required? Do you think it is being proposed for no reason?
Are you accusing me of saying the neighborhoods will go to hell because poor people will move in? Wrong. Insulting too. Poor people aren’t going anywhere in the current environment for one thing, for another, anyone who can afford a house in a neighborhood is welcome there in my book. The problem is that when stuff isn’t selling, and people are moving out, no one will be living there.
Fine, then, You were quoting Greenspan as if he was part of the solution, and not part of the problem, and I was misled.
Again, you are stating the reason for the crunch, which I did not dispute. The fact that the crunch had a cause doesn’t mean it wasn’t the catalyst that precipitated the market downturn. You seem to be arguing against a point that was never made. Yes, prices stalled before the credit crunch, and now, after the credit crunch started, they have gone negative. But going negative was an inevitability, what with sales down almost 50%. You can’t have a huge reduction in demand without having an effect on prices.
Yet even so, pundits were trying to spin it like there wasn’t going to be a downturn. And now, many are trying to spin this as though the credit crunch somehow came out of nowhere and wreaked havoc on the housing market. This is a fundamentally flawed position. See what I’m saying? The credit crunch didn’t cause the market to weaken - it was already extremely weak, and ripe for a downturn. Or if you like, you could say the downturn already started. Depends how you look at the data. What isn’t questionable is that it was going to happen, credit crunch or no.
Why did you leave “buyers” out of your list? Typical homeowner attitude - “I got mine and I’m swimming in equity - fuck everyone else”. You’re relegating everyone who wants to buy their first home to “the few who stayed out of the market”? It’s not a “few”.
What would you have them do? “O.K., everyone who lost their ass in the stock market gets all their money back so you have as much as you did when your stock was at its highest value”. Really? Would that work? Where’s my refund for all the money I lost in 2000 in the stock market?
Do you think bailing out dumbasses who bought million dollar homes with ARMs with teaser rates will save the broader economy? Look, they milked the housing bubble as far as it could go. The ride’s over, yet they’re still trying to hang on to it. Ridiculous.
Sure there is. The law of economics. When prices are out of step with fundamentals, the prices will eventually return to where they should be. The decrease won’t match the increase exactly, because there has been inflation in the meantime. But prices will return to something that makes sense for where we are now in time. That process hasn’t finished yet. In the 1990’s, it took about 5 years if I recall correctly.
Well, if I agree to pay more interest later, in exchange for paying less interest now, but then later comes and I say, “Fuck you, I’ll just keep paying what I was paying before”, that certainly sounds like wanting something for free to me. What does it sound like to you? If people gambled that equity from a rising market would bail them out, and then it didn’t, all I have to say is: “You shouldn’t gamble. Or if you do, you have to be prepared to lose”.
Like I said in the other thread, if fraud actually took place, the guilty parties should be prosecuted as the criminals that they are. If I go to my local WalMart and get cheated, do you give money to everyone who ever shopped at any WalMart, or do you investigate the one that was actually cheating people?
I’m not against reasonable regulations. Sorry that I wasn’t clear - I may be confusing this thread with the other thread about blanket bailouts to borrowers. i do think the regulations are too little too late, though. If they wanted to do something, they should have done it while all the damage was being done, not now after the fact. Lenders aren’t even making those risky loans anymore. In fact, we have the opposite problem now - they’re hardly loaning money to anyone.
Then it’s only a temporary problem. The houses won’t stay vacant forever. But like I said, the market won’t recover until it hits bottom. In California for example, sales are down almost 50% (and that happened long before the credit crunch happened). It’s quite clear that buyers are not going to get in until they know prices have stopped falling. Screwing with the market will only delay that point in time.
Even a stopped clock is right twice a day. I think he makes a good point in this case.