Obama 7 - now what?

[ScottM]

Re: Obama 7 - now what?

So...the woman in the story gets a loan where the mortgage eats up half her monthly salary and that is a good thing? She can barely pay the 3.5% down and the place is a pig sty but she is happy with this? Does anyone not see the problem here?

The article makes it sound like renting is such a friggin tragedy for her...yeah she could live in a place she could actually maybe afford and perhaps better her situation...nah lets let her live on the edge of her means I am sure that will work out well.

The fiction persists that home ownership is part of "The American Dream", and **** near a fundamental right. FHA and the GSEs have effectively supplanted the private secondary markets as the bearer of mortgage risk. Moreover, well-intentioned, but wholly myopic govt programs for buyers and deadbeats effectively distort the market by subsidizing their risks on the taxpayers' backs.

 

[Kepler]

Re: Obama 7 - now what?

The American Dream does include things like home ownership, a better life for the kids, maybe a college education and/or starting your own business. That's different from fundamental rights of citizenship which include equality under the law, the freedoms that we celebrate and protect and certain entitlements that have been extended to every citizen.

Both are important and there's always a gray area (e.g., health care). In fact, the Cliff Notes of American prosperity and progress is the movement of items from the first set into the second.

 

[blockski]

Re: Obama 7 - now what?

The fiction persists that home ownership is part of "The American Dream", and **** near a fundamental right. FHA and the GSEs have effectively supplanted the private secondary markets as the bearer of mortgage risk. Moreover, well-intentioned, but wholly myopic govt programs for buyers and deadbeats effectively distort the market by subsidizing their risks on the taxpayers' backs.

If the government really wanted to put their money where their mouth is, they could roll back the mortgage interest tax exemption. Or put in a similar exemption for rent.

Without that, there's not a huge reason for many people to own homes. Home ownership in and of itself doesn't mean much - it's only a good idea in certain situations.

 

[ScottM]

Re: Obama 7 - now what?

Without that, there's not a huge reason for many people to own homes. Home ownership in and of itself doesn't mean much - it's only a good idea in certain situations.

If you listen to Brad Hill or Barney Frank, as well as many in the GOP, home ownership is the best avenue for many people to generate "wealth". Then they treat their homes like an ATM, overleverage themselves, the market collapses, they lose their jobs and they lose their home at some point. Foreclosure moratoria, required mediation and meddling by predatory loan modification outfits notwithstanding. Fortunately places like California, Arizona and Nevada are showing some stabilization ... for now.

 

[Kepler]

Re: Obama 7 - now what?

One theory is that home ownership is a path to "giving a ****." People treat things they own better than things they rent or are given. Anybody with teenagers quickly recognizes this.

Anyway, that's the theory, but there's probably a lot of cause-effect confusion, as in, people only get to own things because they're responsible, and a lot of people never become responsible enough to own things. Anybody with neighbors quickly recognizes this.

 

[moe24]

Re: Obama 7 - now what?

If you listen to Brad Hill or Barney Frank, as well as many in the GOP, home ownership is the best avenue for many people to generate "wealth". Then they treat their homes like an ATM, overleverage themselves, the market collapses, they lose their jobs and they lose their home at some point.

Those two statements don't necessarily HAVE to go together. You can use your home as a way of generating wealth (in reality it's potential wealth) without over leveraging... IF you are patient and wise with your home purchase.

 

[Kepler]

Re: Obama 7 - now what?

Those two statements don't necessarily HAVE to go together. You can use your home as a way of generating wealth (in reality it's potential wealth) without over leveraging... IF you are patient and wise with your home purchase.

Correct, but its primary function shouldn't be wealth-generation, it should be a place to live. The only guaranteed balance-positive aspects of owning as opposed to renting are paying yourself by buying back equity and the mortgage interest deduction.

 

[ScottM]

Re: Obama 7 - now what?

Correct, but its primary function shouldn't be wealth-generation, it should be a place to live. The only guaranteed balance-positive aspects of owning as opposed to renting are paying yourself by buying back equity and the mortgage interest deduction.

Precisely. I've always viewed my house as my home, with a plain fixed-rate 30 year mortgage. Not an ATM, nor a substitute for currency or junk bond trades. I know a number of people who are still employed, and yet aggrieved, that the value, real or perceived, of their house has fallen and they are still making the same mortgage payments they were a few years ago. The fact they don't plan to sell or refi anytime soon makes little difference in their calculus.

Oh, and it related news the Treasury is announcing yet another program to keep people out of foreclosure ...

 

[dropthatpuck]

Re: Obama 7 - now what?

Horrifying. This country was built on hard work and pursuit of the American Dream through either education or using your two hands to make something of yourself or both.

Since making your American Dream a reality using your hands went out of fashionability, we still had education for a while. But we have devalued education to make sure everyone gets one...instead of making the people who actually want something out of their educations the priority!

Amazingly, I agree with this.

That's the second part of my essay of why America has gone downhill.

The price of college and graduate school has radically increased way past the rate of inflation.

It's a paradox, unless you go to college you probably can't get a good job these days. But if you don't go to a good school you usually have trouble getting a good job. And the good schools are usually very expensive and you spend half of your life just trying to pay those student loans off. And unless you go to a good state school, you're not getting that good job AND avoiding paying for the school for life.

You need to go to college to get a good job, but even if you get a good job you spend most of the rest of your life paying for it.

Sort of....go back to your first point above. There's a reason the percentage of young peeps who want to work with their hands has dropped dramatically over the years - thus increasing college enrollment (demand). IMO, it's our culture of entitlement and the lazy *** kids who think college is a ticket to not having to work as hard (broad generalization).

Best advice I can offer youngins' these days is go get your degree so you have it in your back pocket, then go work in a trade to make $. This, of course, doesn't make any practical sense, but that's the world we're living in.

 

[ScottM]

Re: Obama 7 - now what?

The Wall Street Journal has an interesting article on how the recent spate of "populist" outrage against big business and big government may not benefit either of the major parties.

http://online.wsj.com/article/SB125539072998381441.html?mod=WSJ_hps_MIDDLESecondNews

 

[blockski]

Re: Obama 7 - now what?

One theory is that home ownership is a path to "giving a ****." People treat things they own better than things they rent or are given. Anybody with teenagers quickly recognizes this.

Anyway, that's the theory, but there's probably a lot of cause-effect confusion, as in, people only get to own things because they're responsible, and a lot of people never become responsible enough to own things. Anybody with neighbors quickly recognizes this.

I would suspect that there is a confounding factor. I'd like to see the correlation between ownership and upkeep (i.e giving a ****) based on price point. There are plenty of high-end rentals that don't seem to have maintenance issues, and likewise there are plenty of owner-occupied homes that are in crappy repair.

The larger point is that when people look for housing, ownership shouldn't be the default.

 

[Bob Gray]

Re: Obama 7 - now what?

If you listen to Brad Hill or Barney Frank, as well as many in the GOP, home ownership is the best avenue for many people to generate "wealth". Then they treat their homes like an ATM, overleverage themselves, the market collapses, they lose their jobs and they lose their home at some point. Foreclosure moratoria, required mediation and meddling by predatory loan modification outfits notwithstanding. Fortunately places like California, Arizona and Nevada are showing some stabilization ... for now.

I was talking to a realtor friend last night here in Arizona, and he was telling me that 92 percent of loans going out the door now are FHA loans. That's primarily because with FHA loans you only have to have 3.5 percent down. He also said that as of today in Arizona, there will be no non-FHA loans going out without a minimum of 20 percent downpayment, no exceptions. And given that FHA loans only go up to $350,000, folks who are trying to sell houses above $350,000 are in bad shape, with very few buyers out there with that kind of cash sitting around.

He was also saying that the way appraisals work has totally changed in the last 6 months, with there being some big government clearinghouse for appraisers now, so the appraiser has no direct contact with the realtor, lender, or anyone else.

 

[moe24]

Re: Obama 7 - now what?

Correct, but its primary function shouldn't be wealth-generation, it should be a place to live.

I completely agree. Your house is first and foremost a home. It's only an investment, despite what a Realtor will tell you, if you buy with the express intent on selling as soon as the price goes up.

The only guaranteed balance-positive aspects of owning as opposed to renting are paying yourself by buying back equity and the mortgage interest deduction.

And by being patient and not selling until the mortgage is payed off so you can afford to buy the next home with little to no loan so your retirement money doesn't get spent on another long and costly mortgage.

 

[Kepler]

Re: Obama 7 - now what?

The Wall Street Journal has an interesting article on how the recent spate of "populist" outrage against big business and big government may not benefit either of the major parties.

http://online.wsj.com/article/SB125539072998381441.html?mod=WSJ_hps_MIDDLESecondNews

Quote of the article:

Some don't see government and business as opposing forces. They see a unified elite pursuing one big swindle, as government takes taxpayers' money and bails out powerful companies such as banks and auto makers.

Fiat lux!

 

[ScottM]

Re: Obama 7 - now what?

Quote of the article:

Some don't see government and business as opposing forces. They see a unified elite pursuing one big swindle, as government takes taxpayers' money and bails out powerful companies such as banks and auto makers.

Fiat lux!

I read that, and I wanted to go long on tinfoil hat futures.

 

[Kepler]

Re: Obama 7 - now what?

I read that, and I wanted to go long on tinfoil hat futures.

Doubly effective, as the tinfoil can also be traded after the collapse of fiat currency.

Vance Packard and C. Wright Mills wrote about interlocking board memberships 50 years ago, but most people still don't get that the RNC, the DNC, the media and Wall Street recruit their leadership from exactly the same schools, families, and mindset. These institutions are just machines for shaping public opinion to personally benefit stakeholders. They are innately amoral -- they are merely conduits of power.

We need power to run a modern nation. That power needs to be deliberately controlled (rebutting the Anarchist's fallacy) and the best way is the Founder's method of setting up conflicting institutions which constantly thwart one another (rebutting the Libertarian fallacy). But the distribution of persons among those institutions is basically arbitrary. Rooting for one over another is kind of like pretending that one team's fans are better than another's. It's cute at 9, irritating at 19, and sad at 29.

 

[unofan]

Re: Obama 7 - now what?

The larger point is that when people look for housing, ownership shouldn't be the default.

Why not? Even ignoring the tax benefits regarding mortgage interest, at the least you're paying for ownership of something rather than a mere rental. And, at the end of the day, you hopefully pay off your home and then never have to make mortgage/rental payments ever again (or, if you move, have that much less to pay off on your new house). Might as well start earlier than later to take full advantage.

 

[blockski]

Re: Obama 7 - now what?

Why not? Even ignoring the tax benefits regarding mortgage interest, at the least you're paying for ownership of something rather than a mere rental. And, at the end of the day, you hopefully pay off your home and then never have to make mortgage/rental payments ever again (or, if you move, have that much less to pay off on your new house). Might as well start earlier than later to take full advantage.

Well, my point was to advocate removal or equalization of the tax benefits, so we kinda have to leave those out of the equation...

The basic premise - all else being equal, ownership is better than renting - is wrong because all else is never equal. There's nothing wrong with making an investment in housing and real estate, but the blind encouragement to do so regardless of location, situation, housing stock, etc. was absurd.

Lots of reasons to kill the deduction, from all sides of the political spectrum:

Glaeser - Wilkinson - Klein

 

[Kepler]

Re: Obama 7 - now what?

Lots of reasons to kill the deduction

There are maybe five things that would cause people to literally burn the Capitol Building. That's one of them right there.

 

[blockski]

Re: Obama 7 - now what?

There are maybe five things that would cause people to literally burn the Capitol Building. That's one of them right there.

Oh, it's a political sacred cow, no doubt about that.

Doesn't make it a good policy.

Problem #1: Subsidizing interest payments encourages people to leverage themselves to the hilt to bet on housing markets. The size of the tax benefit is proportional to your debt. The deduction essentially encourages us to make leveraged bets on the swings of the housing market. That leverage means that housing price swings can easily wipe people out. We are currently experiencing the consequences of subsidizing gambles on housing.

Problem #2: The deduction pushes up prices in places where the supply of new homes is constrained, as it is in many coastal markets. Economics 101 teaches us that if we subsidize demand where supply is inelastic then the only effect is to make prices go up. Housing supply is pretty constrained in places like New York City because of land-use restrictions and lack of land. In these places, the deduction doesn’t make housing more affordable. It just transfers money from buyers to sellers, and that makes little sense.

Problem #3: The deduction is wildly regressive. The tax savings for households earning more than $250,000 is 10 times the tax savings for households earning between $40,000 and $75,000 a year, according to recent research by James Poterba and Todd Sinai.

If there ever was a case for small-government egalitarianism, then this is it. Eliminating the home mortgage deduction and replacing it with an across-the-board tax cut would equalize after-tax incomes without a single new government program.

Problem #4: The deduction encourages people to buy larger, single-family detached homes, and that increases carbon emissions and pushes people out of cities. The deduction encourages people to buy more expensive homes, which are generally bigger homes.

Bigger homes use more energy. The deduction is therefore implicitly urging Americans to run higher electricity bills and spend more on home heating. If global warming is a serious problem, then the government should be encouraging us to live in smaller, not bigger, dwellings.

Problem #5: The home mortgage interest deduction is poorly designed to encourage homeownership, which is, after all, the alleged desideratum. Much of the interest deduction’s benefits go to richer Americans who are likely to own homes in any case.