Friday, October 16, 2009

More stimulus, but no more bubbles

Washington Post business columnist Steven Pearlstein gives his recommendations for strengthening the economy:
...More money for extended unemployment benefits; more aid to the states so that they can maintain the most vital public services; and more money to expand mass transit, state college and university systems, efficient energy production and basic scientific research. The economist Paul Krugman estimates that for every dollar in extra debt that will be required to finance this fiscal stimulus, about 40 cents will be repaid almost immediately in the form of tax revenues from higher short-term economic growth. And if the money is invested wisely in quality projects with high returns, the other 60 cents could wind up being a boon to future generations, rather than a burden.

What would surely not be good policy, by the way, is to extend and expand the current tax break for first-time home buyers that is set to expire at the end of the year, as many in Congress are now advocating. Home buyers are already getting a huge benefit from the dramatic drop in house prices, along with the lowest mortgage rates in a generation, thanks to massive government infusions into Fannie and Freddie. For the government to go beyond those efforts and try to induce home sales that otherwise wouldn't have happened — at an estimated $75,000 a pop — would surely be cheered by home builders, real estate agents and the analysts at Goldman Sachs. But in truth it would be nothing more than a misguided attempt to reinflate another bubble.
As I said yesterday, Congress seems intent on reinflating the housing bubble.

44 comments:

  1. As I said yesterday, Congress seems intent on reinflating the housing bubble.

    I dont think they intend on reinflating as much as they just want to establish a floor. That said, the problem is stong economies (like DC area) receive the same benefits intended for (weak places like Las Vegas). Establishing a floor there, could re-establish a bubble here.

    If they plan to keep the stimuli in place - it should be more targeted by area.

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  2. Prices should still drop below this so-called floor, to get to a price that people can afford.

    The government put the fix in so prevent banks balance sheets from going too low when they took ownership of foreclosed houses that lost half their value.

    That's all this tax credit is doing - inflating prices higher, so that banks don't collapse. Well, now the banks are crawling from the wreckage, and can afford to take hit on mortgages.

    Enough with the crutches for bankers.

    Let them crash.

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  3. Wow - what a miserable day outside today.

    Good thing I didnt listen to the doomers and bought in the immunozone. The 8 minute commute makes it all worth it!

    Doomers, have fun commuting on I66 for 1.5-2hrs back out to collapseville!

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  4. Pearlstein is an idiot and his prediction of how the money will be "repaid" is a joke.
    His numbers are pure fantasy.

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  5. For those of you who think the DC area is in the clear, try a search for housing in the $700K+ range. Check out Great Falls and McLean, VA, Bethesda and Chevy Chase, MD, and NW DC. There is a ton of housing stock in this price range with very little moving. It may take a while but the top end of the market is going to fall, and when it does it will crush the middle and low end of the market.

    That being said, there still are some reasonable deals out there...especially when you consider the low interest rates.

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  6. San Antonio Real Estate said...
    "Let the free market work."

    It's great hearing a Realtor say "Let the free market work." Let's hope the Realtors at 500 New Jersey Avenue, NW, Washington, D.C. will listen.

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  7. "The 8 minute commute makes it all worth it!"

    I commuted from an Immundria SFH that rose about 5% (total) from 2006 to 2008. It took me 20 minutes door to door.

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  8. Anon is right. The aim of the first-time home buyer credit was to push more of the sideline sitters into the market to create an artificial floor and suspend the free fall in home values. Stability in the market is beneficial to the whole of the economy where homes can be bought and sold rather than the market conditions that existed prior to this summer where homes where foreclosed and sold. Let's see what happens as the expiration on the credit nears before we determine whether it needs to be extended until the floor is firm enough to tread on.

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  9. "It may take a while but the top end of the market is going to fall, and when it does it will crush the middle and low end of the market."

    Was uttered on October 16, 2009

    and October 16, 2008

    and October 16, 2007

    and October 16, 2006

    and October 16, 2005

    and every day in between.

    FYI - repeating the same thing, over and over, makes it no more true now than it was then.

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  10. "repeating the same thing, over and over, makes it no more true now than it was then."

    It makes it no less false, either.

    Low and middle end have already been hammered. Perhaps not uniformly across the DC area, but prices have come way down...just as predicted way back when.

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  11. "Low and middle end have already been hammered. Perhaps not uniformly across the DC area, but prices have come way down...just as predicted way back when."

    Uniformly - thats the rub isnt it?

    Way back when, we were told, its not "different" anywhere. Back then it was predicted, no place is safe from crushing declines - 40% off peak!!!!

    No longer.

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  12. "Way back when, we were told..."

    It's not all over yet. What do you think would have happened to prices over the past year without the trillions of dollars of gov't stimulus, foreclosure moratoriums, tax credits, artificially low interest rates, etc? These things can't last forever.

    This much is true, so far bubble heads have been far more correct than bubble deniers.

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  13. "This much is true, so far bubble heads have been far more correct than bubble deniers."

    The DJIA drops to 6,547, a half million lose their jobs every month, month after month, and the Immunington and Immundria backlog drops and prices rise.

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  14. the purpose of the tax break was to create some demand. There were many insider specs who didn't get out of the market in time. If the market was left to go much lower(as it will)on its own with all the buyers sitting on the sidelines these guys would have taken a full kick in the bag. This kick has now been transfered to the dumb money. When the late johnnies see their house value decline over the next few years they will cry " government save us". the goverment will be too happy to come to the rescue.

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  15. Anonymous said...

    "It may take a while but the top end of the market is going to fall, and when it does it will crush the middle and low end of the market..."

    followed by

    "Repeating the same thing, over and over, makes it no more true now than it was then"

    Many people foretold the fall of the Roman Empire but depending on which century they lived in, most were wrong and only a few were right. Some would say it only materially effects you if it happens during your lifetime, right? That being said, given all the housing ratio data and trend line analysis data that has been show, I would argue that even Immunington is in for a reset. Are there really that many $250+K income households that can support this type of high priced inventory? Based on my own and the experience of my friends, there are many former $200K income households that are now hanging on for dear life. Simple dollars and sense...

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  16. Yeah, I usually try and resist the urge to make specific predictions about prices of much of anything. There are too many variables.

    That being said, the market fundamentals are still way out of whack for the upper end of the market, so the status quo doesn't seem like it can last forever.

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  17. I love how people quote two single towns in virginia over and over and over and over on this blog.

    As if a stretch of land that you can drive through in 5 minutes, on your way to the dulles airport, is all that important. They actually think world revolves around them and the single street they live on.

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  18. "They actually think world revolves around them "

    You have it bass-ackwards.

    Pre-bubble, we told people to buy what they could afford, close to work and close to services, even if small and old, close in would hold value, location, location, location.

    The counter argument was, "I want it all now, so I will drive until I qualify, even if it means a McMansion in the middle of no where, even if I sit a car for 3 or 4 hours a day, day after day, getting up a 5:00 AM, getting home at 8:00. "I know what I'm doing."


    The bubble done busted, and the mantra became, "Well! You smug types with your smallish places in Immunington and Immundria will get yours, it will come inside the beltway, to your city, your neighborhood, your street, your house."


    5 years, and the prices aren't just holding in Immunington and Immundria, they are climbing.


    There are rationalizations for the joy of the I66 commute, the Greenway, lurching toward the sun. Life is plenty long to spent a quarter of your waking hours in a car.

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  19. I believe that due to this housing bubble and consequent global economic recession the housing market suffered a lot. As a result we have seen a worst scenario in our lives. As you have written that federal government is planning to provide extra fund to tackle this situation then I would say this is the best step the government would take.

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  20. "Are there really that many $250+K income households that can support this type of high priced inventory?"

    In the last month, 22305/Immundia's available-for-sale dropped to 50. This is a low number. Prices are firm to climbing.

    On Novabubble, there are a few who ask, "How, how, HOW can this be?"


    "It must be conspiracy of banks and sellers to FRUSTRATE me and keep me renting, enslaved, and driving I66 into the sun or for two hours on rainy days."


    It never occurs to them that these are old, old neighborhoods. I've been here more than 15 years. Several neighbors, here more than 20 years, have paid off their places.


    No idea how common this is in Immunington and Immundria but I suspect that many homes are owned by long-time residents who have paid them off.

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  21. "Are there really that many $250+K income households that can support this type of high priced inventory?"

    That would be one requirement before it would make sense to buy in an "immune" area, but there is a more important one: is your income $250+K? Also, is it secure? If it's not that high or if it might significantly decline, then you have no business buying there. Whether all your neighbors also have high paying and secure jobs is another matter, which is also critically important, but I suspect that this discussion is of no practical significance to most readers here because they should rule out the "immune" towns based on their own incomes alone.

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  22. Bottom line is this: DC is becoming richer and richer and the poor are being pushed out. This is a fact and it won't change anytime soon.

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  23. "Bottom line is this: DC is becoming richer and richer and the poor are being pushed out."

    Have you actually taken a look at the household income distributions for the metro DC area or are you just talking out your ass.

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  24. "Have you actually taken a look at the household income distributions for the metro DC area or are you just talking out your ass."

    That was insulting and speaks volume about your lack of character. I was talking about DC proper and the gentrification that is going on. I work on 14th street and I have seen the radical transformation of the Thomas circle neighborhood. Even at night it is safe to walk around.

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  25. While tax credits may just be a "shot in the arm" and not necessarily a long-term fix for the housing market, I think they are worthwhile at this point..This is the worst housing market I have seen in the 30 years I have been in the business and it needs some help...The credit has been just enough to help give buyers that are "on the fence" that little nudge they need to move forward, plus gives them a little bit of insurance just in case prices have not bottomed out..There was a study done by the Rosen Group that showed the tax credit has been the primary reason buyers have returned to the market...I included the info from the survery as well as info and a link for Fix Housing First, a coalition that has been working to extend the tax credits, in a post I did at:

    http://realestateconsumernews.com/home-sellers/homebuyer-tax-credit-has-been-primary-cause-of-recent-return-of-buyers-to-market-according-to-study/

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  26. "That was insulting and speaks volume about your lack of character."

    Oh, please, get over yourself. And you still haven't answered my question (even as it pertains to DC proper).

    I don't dispute that certain neighborhoods appear transitional, but are the incomes of the buyers in these areas (and DC in general) high enough to support the high housing prices? Or, are people in hock up to their eyeballs? When it comes time to sell their homes, will there be buyers that can afford to buy them...according to the income statistics.

    My observations, which are just as limited as yours, are that many people bought way more than they could afford, and now can't find buyers for their very expensive homes because lending standards are no longer so lax. Especially, and particularly, in the upper price levels.

    Have you taken a look at sales statistics broken out by price level? Things look much better at the low end than the high end. In other words, the "rich" don't appear to be making out so well.

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  27. Are there really that many $250+K income households that can support this type of high priced inventory?

    Yes - Census indicates that between 2000 and 2007 the number of 200K+ households in Arlington nearly tripled.

    http://factfinder.census.gov/servlet/MetadataBrowserServlet?type=QTtable&id=DEC_2000_SF3_U&table=DEC_2000_SF3_U_DP3&_lang=en

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  28. "Are there really that many $250+K income households that can support this type of high priced inventory?

    Yes - Census indicates that between 2000 and 2007 the number of 200K+ households in Arlington nearly tripled.
    "

    That wasn't on the page that you linked to. Can you provide details on how to get to that information? Tripling doesn't mean much in and of itself - the number of households could have gone from 2 to 6. The graph here suggests that there are a little under 250 households with an income of $200K or more:

    http://www.city-data.com/city/Arlington-Virginia.html

    That's 250 households out of around 100,000, or approximately 0.25% not at $250K but $200K.

    It isn't enough to say that household income is above $200K or $250K either. It has to be securely within that ballpark for that to be a proper foundation for buying. What jobs are secure these days?

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  29. "Bottom line is this: DC is becoming richer and richer and the poor are being pushed out."

    Have you actually taken a look at the household income distributions for the metro DC area or are you just talking out your ass.


    Wow! Rude and completely lacking in reading comprehension skills.

    Touche!

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  30. "That wasn't on the page that you linked to. Can you provide details on how to get to that information? Tripling doesn't mean much in and of itself - the number of households could have gone from 2 to 6."

    Try this page below. It indicates that the # of households in the +200K income group went from 4,725 in 2000 to 12,073 in 2007.



    http://factfinder.census.gov/servlet/ACSSAFFFacts?_event=&geo_id=05000US51013&_geoContext=01000US%7C04000US51%7C05000US51013&_street=&_county=arlington&_cityTown=arlington&_state=04000US51&_zip=&_lang=en&_sse=on&ActiveGeoDiv=geoSelect&_useEV=&pctxt=fph&pgsl=050&_submenuId=factsheet_1&ds_name=null&_ci_nbr=null&qr_name=null&reg=null%3Anull&_keyword=&_industry=

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  31. "Wow! Rude and completely lacking in reading comprehension skills. Touche!"

    Wow! Evasive and completely lacking in substance. It seems that once logically boxed into a corner the tendency is to refine blanket statements to specific neighborhoods or streets or individuals...or complain about rudeness, lack of civility, or character flaws. Sorry if I hurt your feelings.

    Still haven't addressed the question, though. Touche.

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  32. "Still haven't addressed the question, though. Touche."

    oboe is a MASTER at that

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  33. Wireknob! It does not matter what you think... What I think... This country is bankrupt! No one can tell the exact day the USA will default and we will all go to ecominc hell. I am going to southern France when that happens leaving all this mess behind. Have you decided where you going when the Dollar becomes worthless?

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  34. "This country is bankrupt!...Have you decided where you going when the Dollar becomes worthless?"

    Well, I have to admit that I'm worried about the future of this country, and I have given some thought about relocating to another country when we're forced to admit that we've spent ourselves into an abyss of debt over the past 30 years that we'll never climb back out of.

    Strangely enough, because I think the dollar is going to be worth much less in the future (inflation) I want to invest some of my dollars in a home (a tangible asset) now. Of course, if I buy a home around here I would be shackled to the epicenter of the apocalypse.

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  35. "Of course, if I buy a home around here I would be shackled to the epicenter of the apocalypse."

    Dont worry - you can always get a job here - printing money will be our chief industry in the post apocalyptic world.

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  36. "Are there really that many $250+K income households that can support this type of high priced inventory?"

    In my Immundria neighborhood, a retiree, SS + a small pension, owns a paid off $450,000 TH. Another neighbor who only earns just over $100K lives in a paid off, $750K, elegant SFH.

    The secret isn't high income. It's that they bought a long time ago. More than 7 years qualifies as a long time ago.

    They might earn $80K and live in a $500K place that they bought for $200K.

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  37. "The secret isn't high income. It's that they bought a long time ago. More than 7 years qualifies as a long time ago. "

    Exactly. That's the secret to why so many people with modest incomes are living in very expensive homes today (that and the lax lending standards during the bubble). But who is going to buy those homes from the long-timers in the future?

    There just aren't enough people making enough money to buy those homes at those inflated prices now. There are some buyers with the money, but they can only buy so many homes. The prices on the remainder will have to be lowered to match the incomes of the remaining buyers, otherwise they simply won't sell.

    You can still say that the value of the home not selling, or not on the market, is what the comps sold for, only you can't sell it because nobody can afford it. Is the true value of a home what someone with enough money would pay for it, or what the actual, available buyers can/would pay for it?

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  38. "There are some buyers with the money, but they can only buy so many homes. The prices on the remainder will have to be lowered to match the incomes of the remaining buyers, otherwise they simply won't sell. "

    That issue has already been decided. The banks have taken away the punchbowl - liar loans (which were scant inside the beltway to begin with) are gone. No one is buying today unless they can afford it - and apparently there are enough people in those areas to support it.

    The market has spoken - we just dont like what it is saying...

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  39. "The market has spoken - we just dont like what it is saying..."

    I don't mind what it's saying...heck, I stand to benefit if things continue on the current trajectory. But it is way too early to tell what is going to happen. Consider...

    * First, there was a ton of pent up demand (me included).

    * Second, sales numbers and inventory have been relatively low.

    * Third, artificially low interest rates helped push buying power ridiculously, and unsustainably, high (just like during the main bubble).

    * Forth, banks aren't the ones lending and citizens aren't the ones purchasing mortgage bonds (at least not directly); it is primarily the government that is providing the vast majority of mortgage money, taking all the risks, and providing a market for MBS.

    * Fifth, the very expensive homes around here aren't really selling (inventory of expensive homes is climbing and prices dropping).

    I could go on and on, but we've covered this already.

    Can anyone legitimately call what we have had for the past year a "market"? We are awash in props, tricks, scale tipping, etc. Is what we have balanced and sustainable? Does today's market give any indication about what is to come once all the gimmicks are taken away?

    My view is that a mini-bubble has been caused in the DC area by the government's efforts to triage housing markets in California, Florida, Nevada, and Arizona and to provide life support to the rest of the economy. The housing price inflation in the DC area over the past year was as much of an unintended consequence of gov't interference with the markets as were the huge bonuses on Wall Street.

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  40. "My view is that a mini-bubble has been caused in the DC area by the government's efforts to triage housing markets in California, Florida, Nevada, and Arizona and to provide life support to the rest of the economy."

    I agree with you by the way. Trying to boost other weaker areas has indirectly caused quite a bounce here.

    My point was just about incomes. Obviously, the areas that dont seem distressed (we all know which ones they are) are the ones that likely are benefiting from the massive increase in the number of high income individuals in this area.

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  41. We agree, Anonymous@9:28.

    I also have the feeling that the very desirable areas around here will remain relatively high priced because people with the money will flock to higher ground as less desirable areas go under. The real value of better areas may actually increase because other areas are struggling. That is, value depends on circumstances, like water in the desert or high elevation property in a flood zone.

    So, many would be willing to pay more now than they otherwise would for a home where the effects of the bursting bubble have been less severe (these homes are actually more valuable now than they otherwise would be without the bubble). I don't know if that makes vast areas immune to the market correction, but it certainly helps buffer small enclaves of particularly desirable properties from the full forces of correction.

    How much protection that affords in general for homes in the "immunozones" I don't know, but a good case can be made for various opinions.

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  42. "I also have the feeling that the very desirable areas around here will remain relatively high priced because people with the money will flock to higher ground as less desirable areas go under."

    I hadnt thought of that. Thanks for depressing me even further :)

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