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The American Dream Downpayment Act of 2003 was a small but symbolic law whose passage by Congress signified victory for George W. Bush in his war on traditional mortgage credit standards such as downpayments and income disclosure that began with the 2002 White House Conference on Increasing Minority Homeownership. Bush signed the bill in late 2003, signaling to the real estate and finance industries that both the White House and Congress were cool with manic mortgage lending.

The Housing Bubble thus inflated in 2004 and metastasized in 2005, leading to the collapse that started in the subprime industry in 2007 and spread to much of Wall Street in 2008, setting of the great recession that took down Main Street in 2009.

So, it’s worth looking at the diversity rhetoric Bush used to justify his bill.

President Bush Signs American Dream Downpayment Act of 2003

Remarks by the President at Signing of the American Dream Downpayment Act

Department of Housing and Urban Development Washington, D.C.

December 16, 2003

THE PRESIDENT: Thank you all. … I am here today because we are taking action to bring many thousands of Americans closer to owning a home. Our government is supporting homeownership because it is good for America, it is good for our families, it is good for our economy.

One of the biggest hurdles to homeownership is getting money for a down payment. This administration has recognized that, and so today I’m honored to be here to sign a law that will help many low-income buyers to overcome that hurdle, and to achieve an important part of the American Dream. …

This administration will constantly strive to promote an ownership society in America. We want more people owning their own home. …

The rate of homeownership in America now stands a record high of 68.4 percent. Yet there is room for improvement. The rate of homeownership amongst minorities is below 50 percent. And that’s not right, and this country needs to do something about it. We need to — (applause.)

We need to close the minority homeownership gap in America so more citizens have the satisfaction and mobility that comes from owning your own home, from owning a piece of the future of America.

Last year I set a goal to add 5.5 million new minority homeowners in America by the end of the decade. That is an attainable goal; that is an essential goal. And we’re making progress toward that goal. In the past 18 months, more than 1 million minority families have become homeowners. (Applause.)

And there’s more that we can do to achieve the goal. The law I sign today will help us build on this progress in a very practical way. Many people are able to afford a monthly mortgage payment, but are unable to make the down payment. So this legislation will authorize $200 million per year in down payment assistance to at least 40,000 low-income families.

Obviously, the amount of money was a pittance, but Bush fought for the bill as a symbol that Congress was on board with his anti-downpayment stance.

… And thirdly, we want to make buying a home simpler. Many first-time buyers look at the paperwork from a loan application, and frankly, get a little nervous about all the fine print. Those forms can be intimidating to the first-time home buyer. They can be intimidating to the second or third-time home buyer, too. (Laughter and applause.) So this administration has proposed new rules to simplify the forms home buyers and homeowners fill out when they apply for a loan or close on a mortgage.

In other words, to allow sketchier documentation.

 
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  1. Were I so positioned I’d build this little gal:

    I’d call her American Dream.

    She would not be bogus.

    But back to the topic.

    Greenspan’s talk to the Press Club in November of ’99–while Bubba was still president–laid out the whole plan (and may not have been the earliest flight of this balloon):

    To get more people into houses, then get them out of those houses and convert them to rental units. Banksters would hand out risky new mortgages to people clearly not qualified to service a mortgage or maintain a house. The inevitable foreclosure would lead to them becoming units in the emerging rentier economy, where “creative destruction” would be easier (for the banksters).

    http://www.federalreserve.gov/boarddocs/speeches/1999/19991102.htm

    Earlier that year Greenspan had talked about how immigrants had bolstered housing, how Boomers’ kids weren’t forming new households, and how “the new technology” would help the banksters gamble on risk more lucratively:

    http://www.federalreserve.gov/boarddocs/speeches/1999/199903082.htm

    Greenspan on the wonders of “creative destruction”:
    http://www.federalreserve.gov/boarddocs/speeches/1999/19990506.htm

    And Alice Rivlin telling Minnesotans how to keep the cancer alive:
    http://www.federalreserve.gov/boarddocs/speeches/1999/19990513.htm

    With Greenspan weighing in a few weeks later:
    http://www.federalreserve.gov/boarddocs/speeches/1999/19990930.htm

    The best place to hide things, of course, is right out in the open.

    • Replies: @bomag
    @Olorin

    Thanks for the links. Reminds one of the importance of history.

    I mostly remember Greenspan's quip, regarding national debt repayment, that we can guarantee an amount, but we can't guarantee buying power. I'd say that applies to the whole economy, and it serves as a metaphor for all social transactions; e.g. we can promise you a certain number of immigrants, but we can't guarantee their social buying power.

  2. Yet one more reason to grow depressed in contemplating the Bush II presidency.

  3. I never read beyond the expression “American Dream”. Did Steve have anything interesting to say?

    • Replies: @Achmed E. Newman
    @dearieme

    In defense of Mr. Sailer, he has been writing for a long time about the anti-"red-lining" and basically affirmative-action type program(s) that were not all, but some of, maybe the condensation nucleus for, the housing bubble and subsequent crash in late '07 - early '08 (the crash part). I have followed this and other aspects of what is termed Global Financial Stupidity, first on housing sites, and later on zerohedge.com for many years.

    Once the banks got told they'd better lend to the untrustworthy borrowers or else, but they'd get backed by the US Feral Gov't to make it happen, they just slowly realized they should give in to Big Brother. They would make the stupid loans, based on miniscule down-payments and outside all of the previous limits of prudential lending, to make the government happy, and with nothing to lose anymore. I think they began to believe their own bullshit after a while, probably by the early 00's, that housing prices did ALWAYS GO UP, and any borrower who had to use about all his income just for a payment, could defer the big payments until later and all would be well, as the price would go up enough to cover all, AND leave enough left over for a Home Equity Line O' Credit for an SUV AND a Vegas trip.

    Though the "American Dream" turned to "American Nightmare" wasn't by any means solely a Black/Hispanic deadbeat thing, I think Bush-the-moron's push of this aspect got the bubble blowing. Later non-deadbeats got their breaths in on this bubble.

    Replies: @Buck Turgidson

  4. @dearieme
    I never read beyond the expression "American Dream". Did Steve have anything interesting to say?

    Replies: @Achmed E. Newman

    In defense of Mr. Sailer, he has been writing for a long time about the anti-“red-lining” and basically affirmative-action type program(s) that were not all, but some of, maybe the condensation nucleus for, the housing bubble and subsequent crash in late ’07 – early ’08 (the crash part). I have followed this and other aspects of what is termed Global Financial Stupidity, first on housing sites, and later on zerohedge.com for many years.

    Once the banks got told they’d better lend to the untrustworthy borrowers or else, but they’d get backed by the US Feral Gov’t to make it happen, they just slowly realized they should give in to Big Brother. They would make the stupid loans, based on miniscule down-payments and outside all of the previous limits of prudential lending, to make the government happy, and with nothing to lose anymore. I think they began to believe their own bullshit after a while, probably by the early 00’s, that housing prices did ALWAYS GO UP, and any borrower who had to use about all his income just for a payment, could defer the big payments until later and all would be well, as the price would go up enough to cover all, AND leave enough left over for a Home Equity Line O’ Credit for an SUV AND a Vegas trip.

    Though the “American Dream” turned to “American Nightmare” wasn’t by any means solely a Black/Hispanic deadbeat thing, I think Bush-the-moron’s push of this aspect got the bubble blowing. Later non-deadbeats got their breaths in on this bubble.

    • Agree: Triumph104
    • Replies: @Buck Turgidson
    @Achmed E. Newman

    One reason we need industrial-sized immigration from anywhere and everywhere is to ensure that housing demand *never* goes down and that there always is upward pressure on housing prices. Same with toilet paper and diaper sales. Because what is America if not increasingly overcrowded third-world urban congestion and crime, housing prices increasingly out of the range of young families, and big profits for companies that sell diapers, TP, and toothpaste? Give me skyrocketing diaper sales, or give me death! What do you think our soldiers gave their lives for over the years, anyway? To preserve a country and a people? Hah hah, the joke is on them!

    Replies: @Jim Don Bob, @Brutusale

  5. Why is it, that American elites consider ‘living the American Dream’ a goal to achieve in providing to everyone except Americans?

  6. This horribly misguided policy also enabled the exploitation of hundreds of thousands of minorities by their racial fellows as well – in my neck of the woods during this era (DC), the airwaves and papers were full of ads by black or latino realtors/mortgage brokers exhorting minorities to let them help acquire their rightful slice of the economic pie. A Latino foreman who worked for me fell for this, which ultimately resulted in he and his wife owning two homes that were foreclosed on and them tens of thousands of dollars in credit card debt.

    Interestingly, just yesterday I read that despite the huge boom in property values in metropolitan Washington over the past 7 years, one area – majority black Prince Georges County – still has a huge percentage of its homes underwater.

    • Replies: @Ed
    @Arclight

    PG & east of the river DC are finally seeing higher home prices. They're still not enough to allow those that purchased/refinanced during the height of market to break even.

    At the end of the day, blacks simply lack the fundamentals as a group to support areas of above average home values. First only 25% of blacks have prime credit. So few have the traits of a responsible homeowner. Few blacks, even middle income blacks, have significant savings/investments to carry them through job loss. Thus these areas are at higher risk of shock if there is a major downturn in economy.

    Then there is the academic performance of their kids which render their schools poor performing. The AJC found a few years ago that the high school graduation rate of blacks in suburban Atlanta is below 70%. The average SAT scores for PG high schools are around 750-800.

  7. Bush was on Kimmel last night. Treacle and nausea.

    One part of the “fine print” that minority and not so minority borrowers tended to miss was closing costs. I once helped close a loan and could explain every line item to the mullets making the loan except for a substatial charge that made no sense. I called the loan processor about it and put her on speaker. She explained that “we put that charge there because we can.” The mullets gulped, shrugged and signed.

  8. @Olorin
    Were I so positioned I'd build this little gal:

    http://www.culturechange.org/cms/images/stories/JSlocumspray.jpg

    I'd call her American Dream.

    She would not be bogus.

    But back to the topic.

    Greenspan's talk to the Press Club in November of '99--while Bubba was still president--laid out the whole plan (and may not have been the earliest flight of this balloon):

    To get more people into houses, then get them out of those houses and convert them to rental units. Banksters would hand out risky new mortgages to people clearly not qualified to service a mortgage or maintain a house. The inevitable foreclosure would lead to them becoming units in the emerging rentier economy, where "creative destruction" would be easier (for the banksters).

    http://www.federalreserve.gov/boarddocs/speeches/1999/19991102.htm

    Earlier that year Greenspan had talked about how immigrants had bolstered housing, how Boomers' kids weren't forming new households, and how "the new technology" would help the banksters gamble on risk more lucratively:

    http://www.federalreserve.gov/boarddocs/speeches/1999/199903082.htm

    Greenspan on the wonders of "creative destruction":
    http://www.federalreserve.gov/boarddocs/speeches/1999/19990506.htm

    And Alice Rivlin telling Minnesotans how to keep the cancer alive:
    http://www.federalreserve.gov/boarddocs/speeches/1999/19990513.htm

    With Greenspan weighing in a few weeks later:
    http://www.federalreserve.gov/boarddocs/speeches/1999/19990930.htm

    The best place to hide things, of course, is right out in the open.

    Replies: @bomag

    Thanks for the links. Reminds one of the importance of history.

    I mostly remember Greenspan’s quip, regarding national debt repayment, that we can guarantee an amount, but we can’t guarantee buying power. I’d say that applies to the whole economy, and it serves as a metaphor for all social transactions; e.g. we can promise you a certain number of immigrants, but we can’t guarantee their social buying power.

  9. Prior to WW2 homeownership in the US had been stuck at around 50% for decades. The post war boom and the ability to commute via new highways allowed more people to buy homes as new housing could be built outside urban centers. It had more to do with housing supply than finance. US housing peaked in 1972 at over 2 million. It didn’t reach that level again even during the housing mania of the early 21st century despite the US having added 100 million in total population.

    It may seem strange today but places like Palo Alto were full of orchards and vacant land that could be turned into 3 bedroom starter homes in the 1960’s. That kept housing prices down and made it possible for young families to afford a house. We’ve built out the inner suburbs and the exo suburbs impose commute costs that make housing there not so desirable.

  10. Dusty Rhodes begs to differ.

    • Replies: @Achmed E. Newman
    @Discordiax

    Haha, can't believe that guy's still on TV. He fought hard back in the late 1970's when it was WWF, and my older brother still thought this stuff was real. "Hey, how come that guy always misses coming right down on Mr. Wrestling #2's neck, and how come they think they can bounce of the freakin' ropes?", I wondered. "Naaah, it's real man!"

    Replies: @Njguy73

    , @Autochthon
    @Discordiax

    Professional wrestlers remind me of Donald Trump for some reason.

  11. I bought a my first house in 2002. At the transfer I was presented with a document titled something like “Truth in Lending Disclosure” for the first time. It had within a bold box a large-type interest rate that was different from every view of the rate I would be paying that I had seen.

    I asked my lawyer, what does this rate mean? He had no idea. Of the half dozen people in the room, all unlike me in that they were attending their umpteenth closing, no one knew what that document or rate meant.

    • Replies: @Lot
    @David

    The point of the TILA rate disclosure is to show the effective interest rate including various hidden fees. Those fees are less common now, especially for middle and upper class borrowers, but still exist in subprime.

    This kind of regulation, involving standardized disclosure format, kind of works, especially for the financially literate, who are able to use them for apples to apples loan shopping.

    While banks prefer no regulation, disclosure regulations are common compromises that still allow financially innumerate people to be ripped off.

    Replies: @David

  12. @Discordiax
    Dusty Rhodes begs to differ.

    https://www.youtube.com/watch?v=9py4aMK3aIU

    Replies: @Achmed E. Newman, @Autochthon

    Haha, can’t believe that guy’s still on TV. He fought hard back in the late 1970’s when it was WWF, and my older brother still thought this stuff was real. “Hey, how come that guy always misses coming right down on Mr. Wrestling #2’s neck, and how come they think they can bounce of the freakin’ ropes?”, I wondered. “Naaah, it’s real man!”

    • Replies: @Njguy73
    @Achmed E. Newman

    Dusty Rhodes died in 2015.

    https://en.wikipedia.org/wiki/Dusty_Rhodes_(wrestler)

    Replies: @Autochthon

  13. These people always return to their own vomit.
    Don’t have any of your own money for down payment=no skin in the game.

  14. No (explicit) reference to this?
    https://www.congress.gov/bill/115th-congress/house-bill/1084?r=36

    H.R.1084 – Today’s American Dream Act

    Introduced in House (02/15/2017)

  15. When did “down payment” become one word?

  16. So what could be better than expanding home ownership to people who currently see no responsibility in raising their children, let alone, maintaining the upkeep on a piece of property.

    • Replies: @Neuday
    @Buffalo Joe


    So what could be better than expanding home ownership to people who currently see no responsibility in raising their children, let alone, maintaining the upkeep on a piece of property.
     
    It's quite obvious that owning a house leads to middle-class behavior, just like going to college leads to intelligence, attentiveness, diligence and class attendance, wearing yoga pants results in an attractive backside, and moving Somalians to St. Paul makes Minnesotans. If you shortcut to the Effect, then the Causes naturally fall into place.

    Replies: @Buffalo Joe

    , @Kyle McKenna
    @Buffalo Joe

    Yep. The ubiquitous online "rent vs buy" calculators either give short shrift to--or ignore entirely--the ongoing costs of repairs, maintenance, and updating which are part and parcel of responsible home ownership.

    In my experience, these expenses, along with taxes and insurance, can easily exceed the cost of maintaining a mortgage. Retailing the "American Dream" to overextended borrowers who are also totally inexperienced in the fundamentals of ownership is a recipe for the wholesale conversion of neighborhoods into slums.

    Since we have so much other evidence that our political and financial elite want to turn the USA into a third world country, all of this must surely be considered a feature, not a bug.

    Replies: @E. Rekshun

  17. @Discordiax
    Dusty Rhodes begs to differ.

    https://www.youtube.com/watch?v=9py4aMK3aIU

    Replies: @Achmed E. Newman, @Autochthon

    Professional wrestlers remind me of Donald Trump for some reason.

  18. and this manipulation of the housing was all wrapped up in an anti-racial bow. So if you are against this scheme, you are wacist and should excommunicate yourself from civil society.

  19. Joe Sobran once commented that anything labeled a “program” should automatically be ruled unconstitutional.

    • Replies: @Mr. Anon
    @Steve from Detroit


    Joe Sobran once commented that anything labeled a “program” should automatically be ruled unconstitutional.
     
    I agree.
  20. I remember driving through the Poconos in 2007, which was one of the East’s ground zeros for liar loans and real estate speculation. One of the homes had a professionally done sign out front that said “Oh No We Di-Int.” That was my “shoeshine boy” moment when I realized this home ownership thing had spiraled out of control. If only I had gotten out of all my financial stocks in time.

    • Replies: @Daniel H
    @Bragadocious

    >>I remember driving through the Poconos in 2007, which was one of the East’s ground zeros for liar loans and real estate speculation.

    It's good to note that all these new East Pennsylvania ex-ex-ex-urbs were marketed to people who lived and worked near and in New York City. The anticipation was that they would still continue to work in New York City. Travel there by commuter bus: a 2 1/2 hour trip each way. 5 hours commuting per day. How could people be so foolish as to think that this was somehow even in the outermost orbit of the good life. And people - the builders, marketers, buyers - all knew this.

    My brother has a house out there in some downscale vacation community, he says that a lot of these houses are now being filled with Section 8 renters. Ha, one would think that anticipating a housing collapse, mortgage holders defaulting and then moving poor folk from New York city to these rural ex-urbs was part of a plan, almost.

  21. “One of the biggest hurdles to homeownership is getting money for a down payment.”

    This is what happens when you lose sight of why a standard exists. Why do banks traditionally require 20% down payments to begin with? We all know the answer: because it demonstrates self-control, ability to afford the home and, most importantly, gives the home buyer some skin in the game.

    But George Dumbass Bush and his assorted fellow-travellers just looked at that requirement the way they looked at our borders: as an inexplicable barrier. They never thought to question why it was there. Just erase it and everything will be hunky dory.

    Whether it’s a home or a country, the “owners” need to have skin in the game.

    • Replies: @anon
    @Wilkey

    Down payments of 20% (low by global standards) would have eliminated a lot of excesses, low down payments were used successfully since WW 2. GI loans required little or no money down. 10% down and an extra 50 basis points would get you private mortgage insurance and a conforming mortgage.

    But those required an absence of fraud. Real appraisal. Documented income. Traditional amortization. Vanilla securitization -- absent the higher math required to develop toxic asset backed securities (CDO squared for example).

    By Jan, 2008 -- which was before the panic -- demand for bad loans had evaporated. 2008 vintage lending had good experience.

    So, out of the list -- if we insisted on the down payment of 20%, then there was no need to tighten every other standard. Or, conversely, if the other things were fixed, then lower down payments are ok. The point being that by insisting every weak spot be addressed, and then every weakness be buttressed by more regulation and punishment -- the net result was to freeze 'good enough' borrowers out of credit markets. And on top of that, bank capital ratios were raised to unprecedented levels, which also discouraged lending. And the capital rules included 'risk based' weightings, further discouraging lending.

    Elizabeth Warren and her ilk spent the better part of a decade building a Maginot line to defend against credit abuses of 2004-2006.

    Intelligent management and regulation of a financial system needs to have 'counter cyclical' processes, policies, and impacts. Instead, the 'reformers' were sincerely but ignorantly promoting action that were seriously 'pro cyclical' and suppressed access to credit by anyone but those that needed it the least. And bloviated endlessly about greed. It is a real but unacknowledged reason that the recovery seemed to drag on forever. Any sign of animal spirits was beaten down like a rented mule.

    This isn't to criticize the original comment. It is true.

    But there were and are multiple levels of controls and safeguards. If one of them had been totally solid, it would have sufficed. But the Maginot line approach .... it just hampered recovery.

  22. anon • Disclaimer says:

    Everyone was making money on real estate. It was the hedge fund for the common man. A conventional loan requires 20% down — which is 5 to 1 leverage.

    So why not let minorities in on it. 5% down? 3% down? How about a charity underwritten by the sellers. To simply ‘gift’ the down payment. Zero down. And lets encourage them to ‘invest’ in their own neighborhoods. The worst, of course. What could go wrong? Throw in tax breaks, and even the most jaded private equity shark would drool over the opportunity.

    Another year or two, and the worst housing projects would have been turned into luxury condos. With better timing, they would have turned Cabrini Green into luxury condos.

  23. @Buffalo Joe
    So what could be better than expanding home ownership to people who currently see no responsibility in raising their children, let alone, maintaining the upkeep on a piece of property.

    Replies: @Neuday, @Kyle McKenna

    So what could be better than expanding home ownership to people who currently see no responsibility in raising their children, let alone, maintaining the upkeep on a piece of property.

    It’s quite obvious that owning a house leads to middle-class behavior, just like going to college leads to intelligence, attentiveness, diligence and class attendance, wearing yoga pants results in an attractive backside, and moving Somalians to St. Paul makes Minnesotans. If you shortcut to the Effect, then the Causes naturally fall into place.

    • Replies: @Buffalo Joe
    @Neuday

    Neuday, Thank you for the reply and of course you are absolutely correct. And as an aside, women should need to obtain a permit before they can buy yoga pants.

    Replies: @Brutusale

  24. anon • Disclaimer says:
    @Wilkey
    "One of the biggest hurdles to homeownership is getting money for a down payment."

    This is what happens when you lose sight of why a standard exists. Why do banks traditionally require 20% down payments to begin with? We all know the answer: because it demonstrates self-control, ability to afford the home and, most importantly, gives the home buyer some skin in the game.

    But George Dumbass Bush and his assorted fellow-travellers just looked at that requirement the way they looked at our borders: as an inexplicable barrier. They never thought to question why it was there. Just erase it and everything will be hunky dory.

    Whether it's a home or a country, the "owners" need to have skin in the game.

    Replies: @anon

    Down payments of 20% (low by global standards) would have eliminated a lot of excesses, low down payments were used successfully since WW 2. GI loans required little or no money down. 10% down and an extra 50 basis points would get you private mortgage insurance and a conforming mortgage.

    But those required an absence of fraud. Real appraisal. Documented income. Traditional amortization. Vanilla securitization — absent the higher math required to develop toxic asset backed securities (CDO squared for example).

    By Jan, 2008 — which was before the panic — demand for bad loans had evaporated. 2008 vintage lending had good experience.

    So, out of the list — if we insisted on the down payment of 20%, then there was no need to tighten every other standard. Or, conversely, if the other things were fixed, then lower down payments are ok. The point being that by insisting every weak spot be addressed, and then every weakness be buttressed by more regulation and punishment — the net result was to freeze ‘good enough’ borrowers out of credit markets. And on top of that, bank capital ratios were raised to unprecedented levels, which also discouraged lending. And the capital rules included ‘risk based’ weightings, further discouraging lending.

    Elizabeth Warren and her ilk spent the better part of a decade building a Maginot line to defend against credit abuses of 2004-2006.

    Intelligent management and regulation of a financial system needs to have ‘counter cyclical’ processes, policies, and impacts. Instead, the ‘reformers’ were sincerely but ignorantly promoting action that were seriously ‘pro cyclical’ and suppressed access to credit by anyone but those that needed it the least. And bloviated endlessly about greed. It is a real but unacknowledged reason that the recovery seemed to drag on forever. Any sign of animal spirits was beaten down like a rented mule.

    This isn’t to criticize the original comment. It is true.

    But there were and are multiple levels of controls and safeguards. If one of them had been totally solid, it would have sufficed. But the Maginot line approach …. it just hampered recovery.

  25. Tax reform in the 1980s eliminated the deduction for credit card interest, but interest on a second mortgage was still deductible. So as house values rose, people “took equity’ out of their houses using the misnamed home equity loans and spent it on pizza, vacations, whatever. What they were really doing was paying for current consumption over 30 years often at a floating interest rate. When house values fell, many “homeowners” found themselves not only with no equity in their houses, but owing more than the house was now worth. This is known as being “under water”. Many people still are.

    I think Dubya was a good man, but more and more his presidency looks pretty stupid.

  26. @Steve from Detroit
    Joe Sobran once commented that anything labeled a "program" should automatically be ruled unconstitutional.

    Replies: @Mr. Anon

    Joe Sobran once commented that anything labeled a “program” should automatically be ruled unconstitutional.

    I agree.

  27. I thought that the “The American Dream” is supposed to be liberty. It stands to reason therefore that politicians, pundits, etc. should not be telling us what “The American Dream” is. I hate the whole idea of “American Exceptionalism” and everything tied up with it – “The American Dream”, the “Shining City on a Hill”, the “Nation of Immigrants” – all of it – a pox on all of it.

  28. @Neuday
    @Buffalo Joe


    So what could be better than expanding home ownership to people who currently see no responsibility in raising their children, let alone, maintaining the upkeep on a piece of property.
     
    It's quite obvious that owning a house leads to middle-class behavior, just like going to college leads to intelligence, attentiveness, diligence and class attendance, wearing yoga pants results in an attractive backside, and moving Somalians to St. Paul makes Minnesotans. If you shortcut to the Effect, then the Causes naturally fall into place.

    Replies: @Buffalo Joe

    Neuday, Thank you for the reply and of course you are absolutely correct. And as an aside, women should need to obtain a permit before they can buy yoga pants.

    • Replies: @Brutusale
    @Buffalo Joe

    You haven't seen anything until you've seen some of the new first-of-the-year members of any gym who've bought the spin instructor's advice to get bike shoes and bike shorts! Talk about 10 pounds of potatoes in a 5 lb. bag.

    I do long bike rides with the girlfriend when she's training for charity events and I have bike shorts, but I wear the ones sewn inside loose gym shorts, as I would never subject polite society to the sight of my fat ass in bike shorts!

    Anyone with a butt bigger than my girlfriend's should be banned from wearing bike shorts.

  29. What’s fascinating is that the authorized down payment assistance of $200 million for 40,000 homebuyers is $5,000 per home–which doesn’t get you much of a home (assuming 5% down and PMI). Median price of a new home was $187,900 in June 2003.

  30. Anything with “American Dream” in the Title Is Bogus

    Any guy who has “Bush” in his title is Bogus.

  31. Check out this video about the mortgage meltdown:

    After Words with Peter Wallison 
    “Peter Wallison talked about his book Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again , in which he argues that government housing policies caused the 2008 financial crisis. Mr. Wallison spoke with Sudeep Reddy, deputy global economics editor at the Wall Street Journal.”

    https://www.c-span.org/video/?324300-1/words-peter-wallison

  32. The shift from 20 to ten percent down payments has been a disaster in Australia and New Zealand. Forty years ago median house prices were about four times average annual income, now they are eight to nine times average annual income.

    Liberal laws for overseas investors don’t help either, but thanks to chronic trade deficits its economically essential to sell off land and housing to foreigners. That’s the dirty economic secret of the Anglosphere that the neo-liberal economists refuse to admit – to pay for all our imports we are selling off our assets to foreigners.

    • Replies: @Jack Hanson
    @unpc downunder

    My understanding with NZ is that its more several other factors.

    1) Auckland is where EVERYTHING, and I mean EVERYTHING is. Its also on a peninsula, and there's one major bridge to get you there if you're coming from the south. So that drives the price of land through the roof, along with

    2) Chinese immigration and the Chinese dumping money into real estate ala California and British Columbia artificially drives the prices through the roof.

    Outside of Auckland housing prices are semi-reasonable, depending on where you go. The problem is your options are either you can live in San Francisco or Brawley, CA, with little in between.

  33. @Buffalo Joe
    So what could be better than expanding home ownership to people who currently see no responsibility in raising their children, let alone, maintaining the upkeep on a piece of property.

    Replies: @Neuday, @Kyle McKenna

    Yep. The ubiquitous online “rent vs buy” calculators either give short shrift to–or ignore entirely–the ongoing costs of repairs, maintenance, and updating which are part and parcel of responsible home ownership.

    In my experience, these expenses, along with taxes and insurance, can easily exceed the cost of maintaining a mortgage. Retailing the “American Dream” to overextended borrowers who are also totally inexperienced in the fundamentals of ownership is a recipe for the wholesale conversion of neighborhoods into slums.

    Since we have so much other evidence that our political and financial elite want to turn the USA into a third world country, all of this must surely be considered a feature, not a bug.

    • Replies: @E. Rekshun
    @Kyle McKenna

    the ongoing costs of repairs, maintenance, and updating which are part and parcel of responsible home ownership.

    Yes, very true. And repairs and maintenance usually can't be financed.

    I bought a well-located 3/2 foreclosure on a golf course in 2011 at a very good price. In six years, Including repairs, maintenance, insurance, taxes, and opportunity cost, I've put a not-unexpected $40K cash into it, doing most of the work myself. That's about ten hours of labor each weekend, and probably 3000 trips to Home Depot! A new, high-quality metal roof is going on next week.

    I've calculated my total cost of home ownership over the eleven years I've owned a home ('92 - '97 and '11 - present). Including insurance, taxes, repairs, maintenance, opportunity cost, and net sale proceeds, home ownership has run me $600 per month, excluding current (large) equity gain. That's half the cost of renting, but a lot of work involved!

    Replies: @Kyle McKenna

  34. (Laughter and applause.)

  35. @Bragadocious
    I remember driving through the Poconos in 2007, which was one of the East's ground zeros for liar loans and real estate speculation. One of the homes had a professionally done sign out front that said "Oh No We Di-Int." That was my "shoeshine boy" moment when I realized this home ownership thing had spiraled out of control. If only I had gotten out of all my financial stocks in time.

    Replies: @Daniel H

    >>I remember driving through the Poconos in 2007, which was one of the East’s ground zeros for liar loans and real estate speculation.

    It’s good to note that all these new East Pennsylvania ex-ex-ex-urbs were marketed to people who lived and worked near and in New York City. The anticipation was that they would still continue to work in New York City. Travel there by commuter bus: a 2 1/2 hour trip each way. 5 hours commuting per day. How could people be so foolish as to think that this was somehow even in the outermost orbit of the good life. And people – the builders, marketers, buyers – all knew this.

    My brother has a house out there in some downscale vacation community, he says that a lot of these houses are now being filled with Section 8 renters. Ha, one would think that anticipating a housing collapse, mortgage holders defaulting and then moving poor folk from New York city to these rural ex-urbs was part of a plan, almost.

  36. …so more citizens have the satisfaction and mobility that comes from owning your own home

    Huh? Home ownership freezes mobility.

    So this legislation will authorize $200 million per year in down payment assistance to at least 40,000 low-income families.

    That’s $5000 per low-income family, but add that to the mostly-bogus EITC that Bush increased a couple of years prior, and a low-income family has a nice-size down payment.

    The Housing Bubble thus inflated in 2004 and metastasized in 2005, leading to the collapse that started in the subprime industry in 2007 and spread to much of Wall Street in 2008, setting of the great recession that took down Main Street in 2009.

    And in 2010, three members of my immediate family, all well-off millionaires, each received an $8000 also-bogus home buyer tax credit!

  37. Americans, more so than Europeans, have their life savings wrapped up in the value of their home.

    Americans are not reproducing at greater than replacement rate.

    Less than replacement rate means low demand for housing.

    Low demand means prices fall.

    Prices falling means American’s life savings diminishes.

    Life savings diminishing means a bleak retirement.

    The Magic Solution is to import huge numbers of foreigners who will buy homes which creates demand and thereby keeps home prices from falling which guarantees a comfortable retirement for oldsters when they cash in their chips because otherwise they will be selling pencils and apples in the streets..

    However, the glitch was that one-year-here Hispanics had neither enough money with which to make a down payment nor did they have a history that demonstrated a steady income stream.

    All the “American Dream” b*llshit, the relaxing standards follows from the above.

    Oh, and don’t forget to include the stimulus added by lawn mowers, garden rakes, dishwashing machines etc. All of which would of course have had to have been made in the United States by American workers working for an adequate wage to have had a positive-feedback effect. But since our Fearless Leaders have no intention of preserving and/or reimporting these jobs, the stimulus inherent in the housing boost was still born. Aren’t our Leaders Glorious?

  38. @David
    I bought a my first house in 2002. At the transfer I was presented with a document titled something like "Truth in Lending Disclosure" for the first time. It had within a bold box a large-type interest rate that was different from every view of the rate I would be paying that I had seen.

    I asked my lawyer, what does this rate mean? He had no idea. Of the half dozen people in the room, all unlike me in that they were attending their umpteenth closing, no one knew what that document or rate meant.

    Replies: @Lot

    The point of the TILA rate disclosure is to show the effective interest rate including various hidden fees. Those fees are less common now, especially for middle and upper class borrowers, but still exist in subprime.

    This kind of regulation, involving standardized disclosure format, kind of works, especially for the financially literate, who are able to use them for apples to apples loan shopping.

    While banks prefer no regulation, disclosure regulations are common compromises that still allow financially innumerate people to be ripped off.

    • Replies: @David
    @Lot

    The loan in question had a teaser rate that adjusted to market rate over a period of three years. The disclosed rate was a weighted average of the teaser and the ultimate rate (assuming then current rates remained unchanged.) I didn't know this at the time but knew it by the end of the day. My point was that if no one involved in the process, from agent to bank to lawyer, knows what a document means, it's useless to disclose.

    But I agree that if such a document were presented as the "real rate" in the shopping around phase it could be quite useful.

  39. When I sold RE, you would see a married couple that both had good paying jobs, maybe one kid, and they couldn’t save a dime to get a down payment together so they could get out of the apartment.

    It was a near total lack of control over spending. No deferred gratification. If they wanted it; they bought it.

    That’s exactly the behavior a home owner can never have and keep the house long term. No money in the bank, so one major unanticipated expense and they’re toast.

    • Agree: Triumph104
  40. @Achmed E. Newman
    @dearieme

    In defense of Mr. Sailer, he has been writing for a long time about the anti-"red-lining" and basically affirmative-action type program(s) that were not all, but some of, maybe the condensation nucleus for, the housing bubble and subsequent crash in late '07 - early '08 (the crash part). I have followed this and other aspects of what is termed Global Financial Stupidity, first on housing sites, and later on zerohedge.com for many years.

    Once the banks got told they'd better lend to the untrustworthy borrowers or else, but they'd get backed by the US Feral Gov't to make it happen, they just slowly realized they should give in to Big Brother. They would make the stupid loans, based on miniscule down-payments and outside all of the previous limits of prudential lending, to make the government happy, and with nothing to lose anymore. I think they began to believe their own bullshit after a while, probably by the early 00's, that housing prices did ALWAYS GO UP, and any borrower who had to use about all his income just for a payment, could defer the big payments until later and all would be well, as the price would go up enough to cover all, AND leave enough left over for a Home Equity Line O' Credit for an SUV AND a Vegas trip.

    Though the "American Dream" turned to "American Nightmare" wasn't by any means solely a Black/Hispanic deadbeat thing, I think Bush-the-moron's push of this aspect got the bubble blowing. Later non-deadbeats got their breaths in on this bubble.

    Replies: @Buck Turgidson

    One reason we need industrial-sized immigration from anywhere and everywhere is to ensure that housing demand *never* goes down and that there always is upward pressure on housing prices. Same with toilet paper and diaper sales. Because what is America if not increasingly overcrowded third-world urban congestion and crime, housing prices increasingly out of the range of young families, and big profits for companies that sell diapers, TP, and toothpaste? Give me skyrocketing diaper sales, or give me death! What do you think our soldiers gave their lives for over the years, anyway? To preserve a country and a people? Hah hah, the joke is on them!

    • Replies: @Jim Don Bob
    @Buck Turgidson

    Right. http://www.zerohedge.com/news/2017-03-06/half-americans-cant-write-500-check

    , @Brutusale
    @Buck Turgidson

    My small city north of Boston is the first visibly majority white town near the terminus of the MBTA line. It has no undeveloped lots and hasn't for a few years now, absent chicanery with zoning or perc tests. It's in all the RE sites as one of the "hottest" zip codes in New England.

    There's been a steady stream of contractors buying the older housing stock from people cashing out of an overheated market. The builders are replacing the single-family homes with multi-unit housing with as many units as the city will approve. This leaves the remaining single-family houses that much more valuable; there are bidding wars on properties that were overpriced to begin with, and the banks are already backing paper at the higher end of the market that is iffy already, never mind the extra 25K-50K over asking.

    The nice white folks buying houses in town to get out of Boston and start a family in the 'burbs are finding that the proliferation of multi-unit housing, leading to a quintupling of Section 8 housing vouchers over the past 10 years, finds them living among pretty much the same sorts of populations they lived with in Boston. As little as five years ago I never had to dodge the phlegm of Chinese spitting on the sidewalk, had the coffee shop I frequent invaded by gentlemen of indeterminate ethnic derivation spending 5 hours over a small espresso while ogling the white women and making lewd comments or had to worry about my belongings being stolen at the gym with the increase vibrancy leading to an explosion of missing phones and iPods.

    If this can happen in my town, I can only imagine what it's like in less tony areas.

  41. @Achmed E. Newman
    @Discordiax

    Haha, can't believe that guy's still on TV. He fought hard back in the late 1970's when it was WWF, and my older brother still thought this stuff was real. "Hey, how come that guy always misses coming right down on Mr. Wrestling #2's neck, and how come they think they can bounce of the freakin' ropes?", I wondered. "Naaah, it's real man!"

    Replies: @Njguy73

    • Replies: @Autochthon
    @Njguy73

    How fitting; so did the American Dream, give or take a few years.

    Now let's sell some Pampers!

  42. I apologise for piling on, but, like unto doughnut, my tramadol and my stir craziness have inspired recall of the single most salient, true, incorruptible, inexorable, and i-Steve-ish American Dreams of all:

    They came on boats from across the sea
    From faraway places and far distant lands
    And still they come to a place where they’re free
    They fly in on planes with hope in their hands

    Sometimes it feels like we’re stuffed to the seams
    But it’s everyone’s God given right to follow their dreams

    My American Dream
    Will come true for me
    My American Dream
    For all to see
    Every woman and man has their own destiny
    To dream American Dreamz
    Dreamz with a z.

    “Emma Lazarus, eat your heart out!” —Mandy Moore

  43. @Njguy73
    @Achmed E. Newman

    Dusty Rhodes died in 2015.

    https://en.wikipedia.org/wiki/Dusty_Rhodes_(wrestler)

    Replies: @Autochthon

    How fitting; so did the American Dream, give or take a few years.

    Now let’s sell some Pampers!

  44. Yes let’s get some more Chinese Mexicans Vietnamese El Salvadoreans and Filipinos in here because all that toilet paper isn’t going to sell itself! We didn’t win WWII and the Cold War to see toilet paper sales drop, people!!

  45. At least in California housing prices have soared since about 2011. From what I observed, housing prices did not go down at all in upper and middle income White areas. Nor did they go down in those mostly Hispanic farm towns as both the Hispanics and Whites had the income to keep up the payments.

    The houses that did go way way down were the new developments knocked up in the desert specifically to take advantage of the no down payment, no income no job no assets Hispanic and black buyers.

    I never understood the concept of underwater. Once you buy a house the payments, taxes and your income remains the same. You still live there and renting something similar would cost the same.
    House flippers would be concerned that they can’t sell for a profit 18 months after purchase. But flippers know enough to just hold on to a house until prices rise again.
    As far as I am concerned it wasn’t a problem for Whites and sensible Hispanics and blacks.

    housing prices have recovered and are going up. I don’t see why the author wrote about something that happened 9 years ago.

    • Replies: @Achmed E. Newman
    @Alden

    Because, out there on the west coast especially, it is the middle of housing bubble 2.0 right now, so we may as well learn some lessons from the last time so as to get ready for the burst. This time, it's Chinese money that is a big part of the bidding up of houses.

    As to the underwater thing, there are at least 2 ways that people's payments went up, and I'm putting it all on the stupid buyers, not the banks.

    A) Adjustable-rate mortgages can often start with low payments. People were approved for loans that were barely within their budgets even on the lower payment schedules Thinking people may worry about how the payments can be met later on, but unthinking people don't worry about it. Back during bubble 1.0, even most thinking people thought (since they can think, right) "it doesn't matter, if the payments get high, the price will have risen 10-20% and we're still ahead - we can sell if we have to".

    B) Home Equity Loans or Lines-of-Credit let people take out additional loans against the new, higher "value" of their houses for necessities, you know, like Las Vegas vacations, boats and SUVs. Add the old loan payment to the new one, or add the old principal owed to the HELOC amount, and if the price was to mysteriously not go up, how are you going to sell without coming up with a chunk of cash, when the average of these buyers probably had less than $5000 in the bank.

    Replies: @stillCARealist

    , @ScarletNumber
    @Alden


    Once you buy a house the payments, taxes and your income remains the same.
     
    In most places property taxes go up every year.
    , @wrd9
    @Alden

    The problem was compounded during the Great Recession because several million people lost their jobs. And Obama did nothing about it except make it worse. He still allowed over a million legal foreign workers in the country every year. Illegals were allowed to keep their jobs. Many Americans lost their jobs, their homes, and their savings. It was despicable.

  46. anonymous • Disclaimer says:

    When did the term “The American Dream” become popular? It must go back a long ways.

    Wikipedia claims it was popularized by historian James Truslow Adams and his 1931 book Epic of America, namely this passage:

    “…But there has been also the American dream, that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to his ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.

    The Epic of America, James Truslow Adams.

    “American Dream” must have been a common phrase in WWII, based on the times it occurs in the speech of people that old.

    It would be an interesting experiment to take the motor cars and high wages out of it, leave in the “fullest stature; innately capable” stuff, and see what would really happen. Do it some place where you couldn’t cheat, sort of a Falklands Islands type place without the promise of riches. I’d bet that for a lot of people the American dream is that magic dirt automatically makes them rich. These days, for some, it might be that it lets them become part of (and marry into) what they think (or hope) is a world-wide white overclass.

    An even worse hackneyed phrase is “The Beautiful American Dream”.

  47. anonymous • Disclaimer says:

    “At least in California housing prices have soared since about 2011.

    …housing prices have recovered and are going up…”

    Maybe there’s more to it than raw housing prices and maybe housing prices going up is not an unalloyed good, if you take the big picture, invisible hand or not. There also are scale issue. Something that can be good and fill a demand can be a fail if everyone does it and it’s not easy to undo. A system can get trapped in a sub-optimum state. Drudge has this story highlighted:

    “Tech workers find communal living a solution for high rents”, Gabrielle Lurie and Melissa Fares, Reuters, Mar 11, 2017:

    “…Zander Dejah, 25, pays $1,900 a month rent to live in a downtown San Francisco house with at least 40 other people, many of whom sleep in bunk beds…

    …It has three floors and roughly 50 rooms…

    …”I thought New York was expensive,” said Dejah, who quickly landed a job as a virtual reality engineer … “It’s basically an extension of college. We sort of live in a frat house.”…

    …Housing advocates have complained that this new dorm-like style of living has pushed up rents and forced longtime residents to move out…

    …The …company runs nine communal properties, three of which are in San Francisco… The …properties, generally in run-down, low-income neighborhoods, are restructured to accommodate a large number of tenants…

    …occupants leave buildings being converted to communal homes and cannot afford to move back in…”

  48. @Alden
    At least in California housing prices have soared since about 2011. From what I observed, housing prices did not go down at all in upper and middle income White areas. Nor did they go down in those mostly Hispanic farm towns as both the Hispanics and Whites had the income to keep up the payments.

    The houses that did go way way down were the new developments knocked up in the desert specifically to take advantage of the no down payment, no income no job no assets Hispanic and black buyers.

    I never understood the concept of underwater. Once you buy a house the payments, taxes and your income remains the same. You still live there and renting something similar would cost the same.
    House flippers would be concerned that they can't sell for a profit 18 months after purchase. But flippers know enough to just hold on to a house until prices rise again.
    As far as I am concerned it wasn't a problem for Whites and sensible Hispanics and blacks.

    housing prices have recovered and are going up. I don't see why the author wrote about something that happened 9 years ago.

    Replies: @Achmed E. Newman, @ScarletNumber, @wrd9

    Because, out there on the west coast especially, it is the middle of housing bubble 2.0 right now, so we may as well learn some lessons from the last time so as to get ready for the burst. This time, it’s Chinese money that is a big part of the bidding up of houses.

    As to the underwater thing, there are at least 2 ways that people’s payments went up, and I’m putting it all on the stupid buyers, not the banks.

    A) Adjustable-rate mortgages can often start with low payments. People were approved for loans that were barely within their budgets even on the lower payment schedules Thinking people may worry about how the payments can be met later on, but unthinking people don’t worry about it. Back during bubble 1.0, even most thinking people thought (since they can think, right) “it doesn’t matter, if the payments get high, the price will have risen 10-20% and we’re still ahead – we can sell if we have to”.

    B) Home Equity Loans or Lines-of-Credit let people take out additional loans against the new, higher “value” of their houses for necessities, you know, like Las Vegas vacations, boats and SUVs. Add the old loan payment to the new one, or add the old principal owed to the HELOC amount, and if the price was to mysteriously not go up, how are you going to sell without coming up with a chunk of cash, when the average of these buyers probably had less than $5000 in the bank.

    • Replies: @stillCARealist
    @Achmed E. Newman

    Also, your property taxes will go down with the falling value. it takes a while to catch up, but it can be a nice little savings.

    The problem is when people see that they owe 600k on their home and the valuation comes in at 400k. This can go on for years and be quite dispiriting. I know people who right now are still underwater since 2007 peaks. My home just recently came up to what we paid in 2008.

    And yes, the equity loans being used for other purchases was ubiquitous. We got one to buy a car. It turned out great and we still have the car 15 years on, but we could just as well have gone on an expensive vacation or two and had nothing to show for a lot of extra debt.

  49. Ed says:
    @Arclight
    This horribly misguided policy also enabled the exploitation of hundreds of thousands of minorities by their racial fellows as well - in my neck of the woods during this era (DC), the airwaves and papers were full of ads by black or latino realtors/mortgage brokers exhorting minorities to let them help acquire their rightful slice of the economic pie. A Latino foreman who worked for me fell for this, which ultimately resulted in he and his wife owning two homes that were foreclosed on and them tens of thousands of dollars in credit card debt.

    Interestingly, just yesterday I read that despite the huge boom in property values in metropolitan Washington over the past 7 years, one area - majority black Prince Georges County - still has a huge percentage of its homes underwater.

    Replies: @Ed

    PG & east of the river DC are finally seeing higher home prices. They’re still not enough to allow those that purchased/refinanced during the height of market to break even.

    At the end of the day, blacks simply lack the fundamentals as a group to support areas of above average home values. First only 25% of blacks have prime credit. So few have the traits of a responsible homeowner. Few blacks, even middle income blacks, have significant savings/investments to carry them through job loss. Thus these areas are at higher risk of shock if there is a major downturn in economy.

    Then there is the academic performance of their kids which render their schools poor performing. The AJC found a few years ago that the high school graduation rate of blacks in suburban Atlanta is below 70%. The average SAT scores for PG high schools are around 750-800.

  50. @Kyle McKenna
    @Buffalo Joe

    Yep. The ubiquitous online "rent vs buy" calculators either give short shrift to--or ignore entirely--the ongoing costs of repairs, maintenance, and updating which are part and parcel of responsible home ownership.

    In my experience, these expenses, along with taxes and insurance, can easily exceed the cost of maintaining a mortgage. Retailing the "American Dream" to overextended borrowers who are also totally inexperienced in the fundamentals of ownership is a recipe for the wholesale conversion of neighborhoods into slums.

    Since we have so much other evidence that our political and financial elite want to turn the USA into a third world country, all of this must surely be considered a feature, not a bug.

    Replies: @E. Rekshun

    the ongoing costs of repairs, maintenance, and updating which are part and parcel of responsible home ownership.

    Yes, very true. And repairs and maintenance usually can’t be financed.

    I bought a well-located 3/2 foreclosure on a golf course in 2011 at a very good price. In six years, Including repairs, maintenance, insurance, taxes, and opportunity cost, I’ve put a not-unexpected $40K cash into it, doing most of the work myself. That’s about ten hours of labor each weekend, and probably 3000 trips to Home Depot! A new, high-quality metal roof is going on next week.

    I’ve calculated my total cost of home ownership over the eleven years I’ve owned a home (’92 – ’97 and ’11 – present). Including insurance, taxes, repairs, maintenance, opportunity cost, and net sale proceeds, home ownership has run me $600 per month, excluding current (large) equity gain. That’s half the cost of renting, but a lot of work involved!

    • Replies: @Kyle McKenna
    @E. Rekshun

    Congrats. You've done a lot better than I have. I broke even on my first house and lost a ton on my second. All told, though, they cost about the same as renting. I didn't figure in opportunity cost.

    Fortunately I do enjoy much of the work, and there has been a ton of that. But then, I even completed home-improvement projects (on my own dime) when I rented. So it's probably better that I own.

    Congrats also on installing a metal roof. I'm a big believer in those. Not cheap, but when maintained properly they will last almost forever. And they make a heavenly sound when it rains.

  51. Jack Hanson says:
    @unpc downunder
    The shift from 20 to ten percent down payments has been a disaster in Australia and New Zealand. Forty years ago median house prices were about four times average annual income, now they are eight to nine times average annual income.

    Liberal laws for overseas investors don't help either, but thanks to chronic trade deficits its economically essential to sell off land and housing to foreigners. That's the dirty economic secret of the Anglosphere that the neo-liberal economists refuse to admit - to pay for all our imports we are selling off our assets to foreigners.

    Replies: @Jack Hanson

    My understanding with NZ is that its more several other factors.

    1) Auckland is where EVERYTHING, and I mean EVERYTHING is. Its also on a peninsula, and there’s one major bridge to get you there if you’re coming from the south. So that drives the price of land through the roof, along with

    2) Chinese immigration and the Chinese dumping money into real estate ala California and British Columbia artificially drives the prices through the roof.

    Outside of Auckland housing prices are semi-reasonable, depending on where you go. The problem is your options are either you can live in San Francisco or Brawley, CA, with little in between.

  52. @Achmed E. Newman
    @Alden

    Because, out there on the west coast especially, it is the middle of housing bubble 2.0 right now, so we may as well learn some lessons from the last time so as to get ready for the burst. This time, it's Chinese money that is a big part of the bidding up of houses.

    As to the underwater thing, there are at least 2 ways that people's payments went up, and I'm putting it all on the stupid buyers, not the banks.

    A) Adjustable-rate mortgages can often start with low payments. People were approved for loans that were barely within their budgets even on the lower payment schedules Thinking people may worry about how the payments can be met later on, but unthinking people don't worry about it. Back during bubble 1.0, even most thinking people thought (since they can think, right) "it doesn't matter, if the payments get high, the price will have risen 10-20% and we're still ahead - we can sell if we have to".

    B) Home Equity Loans or Lines-of-Credit let people take out additional loans against the new, higher "value" of their houses for necessities, you know, like Las Vegas vacations, boats and SUVs. Add the old loan payment to the new one, or add the old principal owed to the HELOC amount, and if the price was to mysteriously not go up, how are you going to sell without coming up with a chunk of cash, when the average of these buyers probably had less than $5000 in the bank.

    Replies: @stillCARealist

    Also, your property taxes will go down with the falling value. it takes a while to catch up, but it can be a nice little savings.

    The problem is when people see that they owe 600k on their home and the valuation comes in at 400k. This can go on for years and be quite dispiriting. I know people who right now are still underwater since 2007 peaks. My home just recently came up to what we paid in 2008.

    And yes, the equity loans being used for other purchases was ubiquitous. We got one to buy a car. It turned out great and we still have the car 15 years on, but we could just as well have gone on an expensive vacation or two and had nothing to show for a lot of extra debt.

  53. @Alden
    At least in California housing prices have soared since about 2011. From what I observed, housing prices did not go down at all in upper and middle income White areas. Nor did they go down in those mostly Hispanic farm towns as both the Hispanics and Whites had the income to keep up the payments.

    The houses that did go way way down were the new developments knocked up in the desert specifically to take advantage of the no down payment, no income no job no assets Hispanic and black buyers.

    I never understood the concept of underwater. Once you buy a house the payments, taxes and your income remains the same. You still live there and renting something similar would cost the same.
    House flippers would be concerned that they can't sell for a profit 18 months after purchase. But flippers know enough to just hold on to a house until prices rise again.
    As far as I am concerned it wasn't a problem for Whites and sensible Hispanics and blacks.

    housing prices have recovered and are going up. I don't see why the author wrote about something that happened 9 years ago.

    Replies: @Achmed E. Newman, @ScarletNumber, @wrd9

    Once you buy a house the payments, taxes and your income remains the same.

    In most places property taxes go up every year.

  54. @Buck Turgidson
    @Achmed E. Newman

    One reason we need industrial-sized immigration from anywhere and everywhere is to ensure that housing demand *never* goes down and that there always is upward pressure on housing prices. Same with toilet paper and diaper sales. Because what is America if not increasingly overcrowded third-world urban congestion and crime, housing prices increasingly out of the range of young families, and big profits for companies that sell diapers, TP, and toothpaste? Give me skyrocketing diaper sales, or give me death! What do you think our soldiers gave their lives for over the years, anyway? To preserve a country and a people? Hah hah, the joke is on them!

    Replies: @Jim Don Bob, @Brutusale

  55. @E. Rekshun
    @Kyle McKenna

    the ongoing costs of repairs, maintenance, and updating which are part and parcel of responsible home ownership.

    Yes, very true. And repairs and maintenance usually can't be financed.

    I bought a well-located 3/2 foreclosure on a golf course in 2011 at a very good price. In six years, Including repairs, maintenance, insurance, taxes, and opportunity cost, I've put a not-unexpected $40K cash into it, doing most of the work myself. That's about ten hours of labor each weekend, and probably 3000 trips to Home Depot! A new, high-quality metal roof is going on next week.

    I've calculated my total cost of home ownership over the eleven years I've owned a home ('92 - '97 and '11 - present). Including insurance, taxes, repairs, maintenance, opportunity cost, and net sale proceeds, home ownership has run me $600 per month, excluding current (large) equity gain. That's half the cost of renting, but a lot of work involved!

    Replies: @Kyle McKenna

    Congrats. You’ve done a lot better than I have. I broke even on my first house and lost a ton on my second. All told, though, they cost about the same as renting. I didn’t figure in opportunity cost.

    Fortunately I do enjoy much of the work, and there has been a ton of that. But then, I even completed home-improvement projects (on my own dime) when I rented. So it’s probably better that I own.

    Congrats also on installing a metal roof. I’m a big believer in those. Not cheap, but when maintained properly they will last almost forever. And they make a heavenly sound when it rains.

    • Agree: E. Rekshun
  56. @Buffalo Joe
    @Neuday

    Neuday, Thank you for the reply and of course you are absolutely correct. And as an aside, women should need to obtain a permit before they can buy yoga pants.

    Replies: @Brutusale

    You haven’t seen anything until you’ve seen some of the new first-of-the-year members of any gym who’ve bought the spin instructor’s advice to get bike shoes and bike shorts! Talk about 10 pounds of potatoes in a 5 lb. bag.

    I do long bike rides with the girlfriend when she’s training for charity events and I have bike shorts, but I wear the ones sewn inside loose gym shorts, as I would never subject polite society to the sight of my fat ass in bike shorts!

    Anyone with a butt bigger than my girlfriend’s should be banned from wearing bike shorts.

  57. @Buck Turgidson
    @Achmed E. Newman

    One reason we need industrial-sized immigration from anywhere and everywhere is to ensure that housing demand *never* goes down and that there always is upward pressure on housing prices. Same with toilet paper and diaper sales. Because what is America if not increasingly overcrowded third-world urban congestion and crime, housing prices increasingly out of the range of young families, and big profits for companies that sell diapers, TP, and toothpaste? Give me skyrocketing diaper sales, or give me death! What do you think our soldiers gave their lives for over the years, anyway? To preserve a country and a people? Hah hah, the joke is on them!

    Replies: @Jim Don Bob, @Brutusale

    My small city north of Boston is the first visibly majority white town near the terminus of the MBTA line. It has no undeveloped lots and hasn’t for a few years now, absent chicanery with zoning or perc tests. It’s in all the RE sites as one of the “hottest” zip codes in New England.

    There’s been a steady stream of contractors buying the older housing stock from people cashing out of an overheated market. The builders are replacing the single-family homes with multi-unit housing with as many units as the city will approve. This leaves the remaining single-family houses that much more valuable; there are bidding wars on properties that were overpriced to begin with, and the banks are already backing paper at the higher end of the market that is iffy already, never mind the extra 25K-50K over asking.

    The nice white folks buying houses in town to get out of Boston and start a family in the ‘burbs are finding that the proliferation of multi-unit housing, leading to a quintupling of Section 8 housing vouchers over the past 10 years, finds them living among pretty much the same sorts of populations they lived with in Boston. As little as five years ago I never had to dodge the phlegm of Chinese spitting on the sidewalk, had the coffee shop I frequent invaded by gentlemen of indeterminate ethnic derivation spending 5 hours over a small espresso while ogling the white women and making lewd comments or had to worry about my belongings being stolen at the gym with the increase vibrancy leading to an explosion of missing phones and iPods.

    If this can happen in my town, I can only imagine what it’s like in less tony areas.

  58. @Lot
    @David

    The point of the TILA rate disclosure is to show the effective interest rate including various hidden fees. Those fees are less common now, especially for middle and upper class borrowers, but still exist in subprime.

    This kind of regulation, involving standardized disclosure format, kind of works, especially for the financially literate, who are able to use them for apples to apples loan shopping.

    While banks prefer no regulation, disclosure regulations are common compromises that still allow financially innumerate people to be ripped off.

    Replies: @David

    The loan in question had a teaser rate that adjusted to market rate over a period of three years. The disclosed rate was a weighted average of the teaser and the ultimate rate (assuming then current rates remained unchanged.) I didn’t know this at the time but knew it by the end of the day. My point was that if no one involved in the process, from agent to bank to lawyer, knows what a document means, it’s useless to disclose.

    But I agree that if such a document were presented as the “real rate” in the shopping around phase it could be quite useful.

  59. @Alden
    At least in California housing prices have soared since about 2011. From what I observed, housing prices did not go down at all in upper and middle income White areas. Nor did they go down in those mostly Hispanic farm towns as both the Hispanics and Whites had the income to keep up the payments.

    The houses that did go way way down were the new developments knocked up in the desert specifically to take advantage of the no down payment, no income no job no assets Hispanic and black buyers.

    I never understood the concept of underwater. Once you buy a house the payments, taxes and your income remains the same. You still live there and renting something similar would cost the same.
    House flippers would be concerned that they can't sell for a profit 18 months after purchase. But flippers know enough to just hold on to a house until prices rise again.
    As far as I am concerned it wasn't a problem for Whites and sensible Hispanics and blacks.

    housing prices have recovered and are going up. I don't see why the author wrote about something that happened 9 years ago.

    Replies: @Achmed E. Newman, @ScarletNumber, @wrd9

    The problem was compounded during the Great Recession because several million people lost their jobs. And Obama did nothing about it except make it worse. He still allowed over a million legal foreign workers in the country every year. Illegals were allowed to keep their jobs. Many Americans lost their jobs, their homes, and their savings. It was despicable.

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