Comments on: Housing on Steroids, Are We Addicted?

By: Bill Hernandez

Bill Hernandez — Fri, 26 Feb 2010 19:39:13 +0000

Interesting post! I agree with you for the most part that what happened to the market previously could effect us again forever. The main issue to me is that Americans as a whole will not live within their means. We are a country full of people wanting more and of that more we always want it bigger and better. Until we learn to be less wasteful and demanding as an entire nation I don’t know when everything will change.

By: What’s morality got to do with it? | Buying your First House

What’s morality got to do with it? | Buying your First House — Thu, 18 Feb 2010 04:37:04 +0000

[...] assumes high property values are in societies best interest. That’s questionable for a variety of reasons, but clearly there is a stronger moral argument for affordability when it comes to home [...]

By: Darryl

Darryl — Thu, 28 Jan 2010 01:26:18 +0000

Sean,

Great post as always! As a real estate broker, I would prefer to see our government not get involved with market manipulation. It’s bad enough that our government today seems to have their hands in everything.

The beauty about the real estate markets is that it’s imperfect and constantly ebbing and flowing. With our government being more involved, the real estate market becomes more like Wall Street, and that’s not a good thing.

The government has entirely overreacted with the banking, financing, and housing sectors (as a small example). I would prefer to have available and sound lending practices return for homeowners and investors, and let’s allow the buyers and sellers dictate the real estate market.

By: Tracy King

Tracy King — Wed, 27 Jan 2010 22:52:36 +0000

While I agree with much of what you say, I disagree that the Tax Relief Act of 1997 encouraged “flipping.” To me, flipping happens within 1 year or less, not after a minimum of living for 2 years as your primary residence in the property. Perhaps a minor point. But the law also came at a time when sellers were extremely reluctant to make a move because of the potential capital gains they faced if they didn’t purchase a home for at least the same or more money than the last one. In fact, it could be argued that the TRA of 1997 actually loosened up the market without encouraging higher prices. Remember, you could take your tax-free $250,000 or $500,000 gain and go rent for the rest of your life if you wanted to with no penalty–and you still can. Before, you had to keep deferring your gain by purchasing another more expensive home. The only escape from the eventual tax was death or if some really creative conversions of primary home to investment properties were accomplished.
It was when the loosened lending rules were made risk-free by the securitizing of “toxic” or subprime mortgages that the bubble really began some 5 years later, at least in my Los Angeles neighborhood.
Great point about debt, though.

By: Indy

Indy — Wed, 27 Jan 2010 22:03:05 +0000

Excellent post. The only thing missing is the interests of home-builders (and the narrowly-skilled workmen they employ) who have their own unique stake in prices. Right now, their industry is in a severe depression and it looks like new building will be strongly suppressed for many years. The latest numbers indicate that building may be only around 20% of its peak level only a few years ago. That is an enormous decline in a major sector of our economy.

While higher prices might mean higher profits per home sold (depending on land, labor, and material costs), home building activity will be suppressed so long as:

1. Excess inventory remains and discounted distressed existing homes dominate sales, and
2. Household numbers continue to decline through doubling-up, subletting, room-mating, etc…

As a (probably idled) builder thinking about the long-term stability of my company after this crisis, I would want policy makers to set the stage for an extended period of sustainable business activity. I would need the payment-to-income ratio to decline enough to encourage new household creation, stimulate demand, spread confidence in consumers that prices have indeed “bottomed”, and clear all the distressed and excess inventory out of the system.

When that equilibrium is eventually met, then I’ll be able to finally emerge from the depression and start building and renovating again at a level consistent with the natural pace of economic and population growth. Until then, conditions will be profoundly dreary.

[Side note: Hello Mr. O'Toole. Sent my resume in and hope your human resources person will be able to take a look at it should any opportunities arise.]