Here is my list [it is not in any particuar order]:
- Greenspan & The Feds for the cheap money supply (low interest rates, for too long)
- Parts of the Real Estate Industrial Complex for cheer leading the housing bubble (David Lereah, Gary Watts etc.)
- Irresponsible & crooked lenders for lending to people who can't afford it.
- Appraisers over inflating housing unit values.
- Speculators & Flippers ( for being greedy and fueling this mania)
- Some home buyers (non flippers & speculators) for buying beyond their means and being ill informed.
- Parts of the Media for not informing the public about this issue sooner (finally they are communicating this)
- Fannie Mae & Freddie Mac for bundling up risky loans
- Asian Central Banks & others for buying all these risky bundled loans
- Others ( yet to be determined, please discuss)
Posts
Campers,
ReplyDeleteFor you consideration, the latest post to the "Lance Knows Better" Blog. From the mouth of Robert Schiller (Yale Economics) and well respect author. Thoughts on the bubble (that Lance says does not exist..LOL):
"The U.S. has basically has never been in a bubble like the one we are in now, with the possible exception of the period right after WWII when the soldiers came home and were bidding up home prices. It is a very rare phenomenon. So people who claim to have done statistical analysis - they can't have done it, they haven't had the data!"
But then once again, Lance knows better....LOL
#0. Americans, their willingness to believe lies, and their confusing material wealth with happiness.
ReplyDeleteDavid,
ReplyDeleteIn recent days, I've heard of nervous investors being reassured that Fannie and Freddie do not have a high percentage of subprimes in their portfolios. If that is the case, should they be on the Top 10 Blame List? Are they guilty of bundling a lot of subprimes in the past? It is my understanding that most subprimes were bundled into commercial paper by othr organizations. Does anyone have further information on this?
#1- the consumer
ReplyDeleteThe End
Were there enablers? Yes. Did anyone "force" the consumer to speculate, buy ARM's, take out too much home equity, etc.? No. Frankly, their are too many people that care more about American Idol than their pocket book.
Wake up America!
tCA
I would move "people" up to the top of the list for actually buying into the housing garbage.
ReplyDeleteIrresponsible, alarmist bloggers. [raises hand, smiles...]
ReplyDeleteAll of the above, but mostly the Fed, for creating a monetary illusion that led to all the other behaviors.
ReplyDeleteWe have noone to blame but ourselves.
ReplyDeleteWe have become too content to lay the blame somewhere else in our society... that's what's wrong with us anyway. If homebuyers had taken responsibility for their actions, they wouldn't be losing it.
If we had made political moves and had our voice known, we wouldn't be here either.
The only thing left to do is to protect what little civil liberties we have left to defend ourselves from our politicians. Any talk of a bailout must be squashed and rebuffed. You made your bed, now sleep in it.
We may say that boomer politicians have become soft, self-centered, and egotistical, but they are just a reflection of us.
Chuck Ponzi
www.socalbubble.com
Is that a prioritized list? Any particular order?
ReplyDeleteClinton and his real estate capital gains policy changes in late 90s. Made real estate an obscenely tax favored asset class.
ReplyDeleteLance is to blame for the housing bubble. It's all Lance's fault!
ReplyDeleteOn a serious note, David I think you missed the real estate developer industry. Builders of new homes and condos focused on the higher-income bracket market (singles making $85,000+ or couples with combined incomes of $200,000 or more). Builders used cheap materials and questionable construction methods to put up McMansions and Yuppie-like condos. Anyway, companies like Toll Brothers made HUGE profits durings the housing bubble. Getting wealthier home owners to pony up for new properties is a powerful profitable answer.
Developers ignored the middle-class market. We are talking affordable housing for college-educated couples who don't make a combined $200,000 or more.
I like the list an presume it is in order of culpability. I would point out a couple things however.
ReplyDeleteAs much as a despise the RE complex, they are an industry organization and it is their business (like all businesses)to hustle us to the fullest extent.
I also would point out that speculators and idiots are also acting in their own self interest.
I fault Greenspan big time as he was a public servant and in addition to his lax credit, he failed to regulate bank lending practices, which was in his power.
I also blame the major media big time as it is their job to keep the public informed and tell the truth. Instead they quoted RE sources and other flaks and failed to do any real reporting. They have proven their worthlessness however and clearly Blogs had the story, and had it right, ions ago.
One area I would also point to would be the lack of decent stats in this whole matter. Not sure who's fault that is, but it sure has contributed to problem
Media should be broken into two groups
ReplyDelete7a) "news" outlets for being behind the curve and not informing the public about the bubble -- even more shame heaped on them for not doing their job and seeing the obvious parallel with the previous asset bubble!!
7b) "entertainment" outlets -- what about those dozen idiotic shows with photogenic hosts -- sponsored by Loews or Home Depot -- tellling people to BUY AND FLIP!!
Oh, and wasn't their an article stating that 1/3 of all of Yahoo and Google ad revenue was real estate related?! Shame, Shame
We don't have an independent, critical media.
David asked:
ReplyDelete"One of the big questions is who is to blame for the housing bubble fiasco."
uh ... David, don't we FIRST have to have a "housing bubble fiasco" before we can try to lay blame to someone? I think this is one thing that at least HHs and BHs can agree on, that to date there has been no fiasco. And no, a few subprime mortgages going into foreclosure, though tragic for the inviduals involved, hardly qualifies as a "fiaso" for the bulk of us!
David, you should define what is the bubble. 10% drop, or 20% or 30% drop.
ReplyDeletelance said . . .
ReplyDelete"David, don't we FIRST have to have a "housing bubble fiasco" before we can try to lay blame to someone?"
I'm sure people can go on taking out IO/ARM loans, paying 50% of income and buying houses 5-6x their salary. I'm sure someone making 90-100k a year (pretty good money here) can always afford the 450-500k home. Yes lance, you do know better.
On a different note.
The blame:
We have met the enemy and he is us. Greed and fear, two of the most basic human emotions. We (as a society) can't control our greed and we haven't learned to master our fears.
11. Congress for passing the $500,000 tax free giveaway on home sale profits. (Maybe this should be #1 or #2)
ReplyDelete11. Congress for passing the $500,000 tax giveaway on home sale profits. (This may be #1 or #2.)
ReplyDelete"David, you should define what is the bubble. 10% drop, or 20% or 30% drop. "
ReplyDeleteThere are a huge number of bubble markets across the USA. What is a bubble market?
A bubble market is any area where residential real estate prices will decline more then 20% in real dollars [inflation adjusted] over the course of 3 years. In most bubble markets, the peak price was reached in late summer of 2005.
Many bubble markets will experience real price declines much greater then 20%. Some may experience price declines of 60% in real dollars over the course of 3 years. As learned from real estate history, some bubble markets may keep on declining for more then 3 years.
http://bubblemeter.blogspot.com/
2006/04/bubble-market-defined.html
Lance said...
ReplyDeleteuh ... David, don't we FIRST have to have a "housing bubble fiasco" before we can try to lay blame to someone? I think this is one thing that at least HHs and BHs can agree on, that to date there has been no fiasco. And no, a few subprime mortgages going into foreclosure, though tragic for the inviduals involved, hardly qualifies as a "fiaso" for the bulk of us!
Lance, and I mean this in one of the nicest sort of ways, you are the guy who sells his stock after it has crashed.
Good luck
Do you really anticipate 20 to 60% declines? I'd love to be able to afford a home . . . my fiancee and I make over $100K a year combined and we simply cannot afford these prices.
ReplyDeleteRemember how lance used to go on and on about how anyone who doesn't "own" a house simply has inferior "abilities"?
ReplyDeleteWell... that news story above is a perfect example of the sort of blindingly stupid financial decision Lance has been advocating.
Using "creative" financing to buy a depreciating asset that you can't really afford.
Good things come to those who wait. If lance had had the financial discipline to wait another couple years before buying his retirement home he wouldn't need to be on this blog every day trying to pump real estate...
http://gazette.net/stories/032807/rocknew223824_32326.shtml
ReplyDeleteCheck out this article about the failure of the condos that were to be the heart of downtown Rockville redevlelopment. Looks like the old Rockville Mall revisited.
Blame it on "Builders" who give away TV's, Vacations, 6 months payments, or $10,000 in FREE upgrades, (do we really believe they are giving that stuff away or are they "overinflating" the price. And then they make you finance the house through "their" in house lender. How do these homes appraise?
ReplyDeleteIf we are to blame the buyers, then we also need to add as a cause of the problem: Trusting anyone who makes their living in the Real Estate business.
ReplyDeleteuh ... David, don't we FIRST have to have a "housing bubble fiasco" before we can try to lay blame to someone? I think this is one thing that at least HHs and BHs can agree on, that to date there has been no fiasco.
ReplyDeleteLance...
Too many people are ready to walk from their homes for their not to be a bubble. Look at price to income... Its never been where it is. Now, we've been able to have a good dialog, but the reality is that the bubble is crushing.
Too many companies in the bubble areas cannot retain technical workers. Notice that your doctor's assistant isn't as experienced as a few years ago? Why? They're all moving.
Just look at Florida... the fraction of homes on the market is staggering and only going to get worse.
Everyone I know in banking is scrambling to do damage control. These aren't people who get worried easily. But on bank officer commented to me how their bank would probably lose a few billion in Pheonix alone on construction loans...
We haven't had the crash yet. But the bubble is obviously about ready to crash.
Got popcorn?
Neil
I would blame:
ReplyDelete1. Appraisers who overstated home values.
2. The homebuyers who bought beyond their means.
3. NAR (particularly buyer's agents), for misleading the people whom they are supposed to represent.
4. Much of the media, for their biased reporting on the housing bubble.
But I don't blame organizations (home builders, speculators, etc.) without obligation to represent home buyers who contributed to the bubble in order to attempt to maximize their own profits.
As for Lance's statement that "to date there has been no fiasco," I would say that the current extremely low housing affordability is itself a fiasco.
Lance said...
ReplyDeleteuh ... David, don't we FIRST have to have a "housing bubble fiasco" before we can try to lay blame to someone? I think this is one thing that at least HHs and BHs can agree on, that to date there has been no fiasco.”
Nothing to see here, move along:
http://www.housebubble.com/newspage.pl
I think the American public in general is getting off too easy...Simple greed and the "keep up with the Joneses" mentality (hell..."keep up with the Joneses" doesn't cover it - "rub the Joneses noses in your superiority" is more appropriate) are more to blame than any other one factor. The last time I checked, supply (Fed easy-money policy, builder incentives, lax lenders) doesn't create demand - an irrational sense of entitlement and "consumer hubris" coupled with a chronic lack of ability (or unwillingness) to consider future consequences is at fault. While mortgage fraud, sharp sales practices, and lax lenders are certainly parts of the "culpability pie," people who think they are born entitled to 3,000sf in the best neighborhoods, price be damned, are mostly to blame. Kill the host and the parasites die.
ReplyDeleteThe enormous inflation in home prices between 2002 and 2005, is to blame for the housing crash. It was the price, stupid!
ReplyDeleteThe fuel for the astronomical home price inflation was the easy credit. As prices got higher, Toxic loans were invented, to compensate for the higher prices, while credit was still easy, which drove prices even higher.
In the end, easy credit and exotic loans could not justify the inflated home prices, no matter what the interest rate or loan type. In the end, it was the price, stupid.
Why does the MSM avoid like the plague, talking about the inflated prices of homes, which is the root cause of the housing crash?
How about an extended discussion on the blogs about the actual high home prices, which triggered this crash? If the blog discussions focus on price, the MSM will eventually pick it up.
Without a doubt it is prices that will eventually bring the bubble to an end. Even with the crazy loans and super aggressive borrowing, far too many potential homeowners are being priced out of the market. Once things slowed all the other dominos began to fall...
ReplyDeleteAs for who is to blame? Honestly I put the blame on the government more than anything. Stupid misguided tax breaks for homeowners simply resulted in home prices going higher. Stupid lax oversight of shady lenders allowed them to issue and sell billions of dollars of loans... which will ultimately screw huge numbers of borrowers, not to mention their investors...
A secondary cause is the media... watch HGTV for an hour and you won't be able to avoid them bringing out some stupid numbers to the effect of "lucy and james bought this two bedroom rambler in 2002 for $166k and today it is worth over $400k!" Nobody in the media made a serious effort to discuss the housing market like an adult... instead they limited themselves to regurgitating NAR quotes and posting the newest, always good, statistics.
I want to see a reporter with the balls to come out and say "home prices are falling and that is a good thing. Subprime lenders are failing, and that is a good thing. If you want to see young people, immigrants, or any other first time homeowners move into the housing market you don't need tax breaks, subprime suicide loans or amazing appreciation... you need CHEAPER HOUSES.
I guess this is one of the few instances where I'll agree with Lance and say "What fiasco?"
ReplyDeleteSure, there's a group of people experiencing a fiasco; those who are underwater on their 05 ARM mortgages, mortgage brokers, builders, holders of subprime or alt-a backed paper. Okay, for them it's a fiasco.
But if you bought a house before late 04 and you have a fixed-rate mortgage that you can afford, then no worries. Heck, as long as you have a fixed-rate mortgage you can afford and you like your house and intend to stay there, no worries.
And housing prices are falling, so those of us who were smart enough to stay out of the bubble will see better and better choices at better and better prices.
The only fiasco in my opinion would come if there was some politically motivated bailout of people who got in over their heads trying to buy a house. That's rewarding people for financial foolishness.
But I'm guessing both Lance and Investor would both oppose bailouts for foolish homedebtors, and believe in letting the market punish those who tried to use overly creative financing to buy a house they couldn't afford. Am I right, Investor and Lance?
I also want to add that it's easy to miss the real financial innovations in the midst of the subprime and alt-a problems.
ReplyDeleteEven though lenders are rapidly learning that "no money down" is a bad idea, there still has been a significant innovation in terms of making real estate more liquid. For various technical reasons, I think the credit models broke down in certain areas, but I do believe that good credit modeling has made financing more accessible to people who come up with 5 or 10 percent down and have an excellent credit history and who've always made the rent. I don't think that's going away, and that you shouldn't expect housing prices to fall back to '01 levels.
A brief numerical example.
Let's say a house costs $100,000 and rents are rising at 4% and the liquidity premium (because you have to come up with $20,000 to buy a house) is 2%. That means house prices should rise 6% per year. That would be $6,000 in year 1.
Now, let's say that financial innovation comes along, and people believe that financial innovation eliminates the liquidity premium. That would mean that the long-term return on housing would have to fall to 4%. Since the return is $6,000, that means the house price has to rise to $150,000, so the "coupon" of $6,000 is 4%.
Now, it turns out that the innovation only eliminates half of the liquidity premium, so the long-term return on the house is 5%. That would imply that house prices should have only risen to $120,000, or 20%. So housing prices should fall by $30,000 from 150 to 120, or 20%.
So you should expect some "giveback" from the bubble, but not the whole thing. And if underlying rents continue to rise, this "giveback" can occur through a long period of flatness.
Keith asked:
ReplyDelete"But I'm guessing both Lance and Investor would both oppose bailouts for foolish homedebtors, and believe in letting the market punish those who tried to use overly creative financing to buy a house they couldn't afford. Am I right, Investor and Lance?"
Correct. However, don't make the error of lumping in people who bought with subprime loans into this group. It is an entirely separate group. It is, simply put, people with no credit history or a bad credit history ... and is almost fully made up of people who by and large would be considered disadvantaged. The bailouts I've heard discussed here are for these disadvanted people. Please don't tell me you are envious of help being extended to disadvantaged people? That's low brow ...
lance said "Please don't tell me you are envious of help being extended to disadvantaged people? That's low brow"
ReplyDeleteVolunteer charity, no problem w/ that. Government charity . . . well you can go back to Communist Russia
"However, don't make the error of lumping in people who bought with subprime loans into this group. It is an entirely separate group."
ReplyDeleteActually, no, it isn't. Fairfax county has some of the largest subprime loan penetration in the DC area. A lot of subprime borrowers are not poor, but they are irresponsible.
I'm all for helping the deserving poor. Poor people who buy things they can't afford are not in that group. I'm a lot more sympathetic to ideas like national health care, because that money lands more on people with health problems, than bailouts to foolish gamblers.
Let me say, however, I do have some more sympathy for poor people who were scammed by an unscrupulous broker into refi-ing into a worse mortgage than they already had.
But knowing our political system as I do, I believe that any effort to help this group would expand to an effort to bail out all the irresponsible subprimers in higher income groups...partly to prop up housing prices in areas like Fairfax thanks to political pressure from other homeowners there. And that would be both economically foolish and morally wrong.
Keith said:
ReplyDelete"... partly to prop up housing prices in areas like Fairfax thanks to political pressure from other homeowners there. And that would be both economically foolish and morally wrong."
ha ... you've hit on something I've been trying to convey for some time now. Whether it is fair or not, the "system" will always ensure that those with the capital maintain it. And that is a major reason why once prices go up, they don't go down. Even if we all agreed that bubble could mean drops of anything less than "the bulk" of an item's price, I would still maintain that "the system" will ensure that those that have, keep. That is why I have been trying to tell BHs quit complaining or hoping for a bust ... it ain't gonna happen. They best you can do for yourself is use the system to your own best advantage. Don't waste your time trying to change it. Most of us past our 20s have been there and understand it is not doable. It hasn't been doable ever and never will be. So those "dumb" buyers who locked in a given price ... really weren't so dumb after all. The dumb ones are the ones who really thought that for one moment that the system (i.e., those with the capital) would just play dead and allow gains to be lost .... Get a dose of reality folks. by and large it won't happen. Yes, you might get that townhouse in Gainesville for less, but you won't get the Reston place for less ... or any other desireable place for that matter. Sad but true.
lance said "So those "dumb" buyers who locked in a given price ... really weren't so dumb after all."
ReplyDeleteUmmm, got to love the spin. Okay when you have upwards of 40% of home buyers taking out ARMS and IO, their prices are not locked in.
There is one immutable fact lance, that you cannot address right now. It is much cheaper to rent than to buy right now. It won't always be this extreme, but for right now you can rent a house for half the cost of buying it.
The only way it even comes close to where you might consider buying is if you have 20% down, 30-year fixed rate mortgage and plan to stay there 7+ years (that or you can find a place where it is cheaper to buy rather than rent).
So if you actually eliminated all those who think they can "own" a house (except they can't without some funky mortgage or deal) to those who really can, this market would be drastically different.
The answere : first & primarily it is the nature of fiat monetary systems. There can only be growth -- like a ponzi scheme -- but witht the uniqueness of serial bubbles. It cannot be any other way.
ReplyDeleteEventually, it breaks. As they all do. Never has been an exception.
Dude, how could you not list BUILDERS as one of the the very top on your list?
ReplyDeleteYou don't really know what's going on, do you?
"Whether it is fair or not, the "system" will always ensure that those with the capital maintain it. And that is a major reason why once prices go up, they don't go down."
ReplyDeleteWell, there will be idiot home-overpayers who will want the rest of us to bail them out. The beauty of sites is that we see them for the children they are. In addition, we have a focal point; we can form our own lobby against bailouts, for capitalism, for discipline and saving, for the virtues we bright renters have displayed. The free market will yield its rewards to use at the expense of the idiot overpaying homedebtors, and we will do what it takes to stop the politicians from bailing out the crying weak idiot homedebtors who want to be shielded from their adult responsisbilities.
There seems to be far too much blame placed on "sub-prime" lenders. These loans have been in exsistence since the 70's. True, there were too many 100 percent loans made to people who couldn't afford the payments. Who's fault is that? The lenders? Maybe for buying the loans. But last time I checked, capitalism rules.
ReplyDeleteHow about the borrowers who always rise to the surface to claim ignorance and scream foul when they default on loans they KNEW they couldn't afford. I would blame first and foremost ... BUILDERS! It was they who inflated prices and inticed everyone into buying homes like they were cars. Why didn't the Fed's move in and put a "ceiling" on the price jumps from one phase to the next? Because profits were high and people were working. Thank the Clinton Administration for that. But let's not forget our good friend G. W. for turning his back on his own nation and the mounting catastrophe that we are seeing. You don't see a sharp rise in exsisting home prices without the builder deluge.
Sub-prime loans are not the Devil in a blue dress here. These loans are neccessary because not everyone has a 680 credit score. In fact, half of the nation is BELOW 670. Where will the loans be for them? This is where defaulted mortgages will come into play.
Let us also not forget the dreaded OPTION-ARM loans. These were NOT sub-prime loans. They were ALT-A loans and their default rate hasn't been realized yet. Where will we be when there aren't any solutions to negative recasts that will start occuring in the next 6 to 12 months? We need to have a solution for these people who too greedy to see that someone has to pay the piper.
I propose that ALL loan officers be required to hold at the very least, an A.A. in Business and Real Estate. I also believe that ALL brokers be required to have a B.A. and not just have "work experience" in order to qualify to take the test. You need a degree to be an Attorney, an Accountant and a Doctor because you are dealing with peoples livleyhoods. Why not in this business? You are dealing with the only asset that most people will EVER have. And while we're at it, let's reduce the commission amounts on Real Estate to 3 to 4 %. Paying 6% is insane!
I have been in the industry for 15 years, all of it in sub-prime. I have NEVER been a fan of Stated Income loans for a Wage Earner. As I said earlier .... there will always be sub-prime lending. We just need to be smarter about it. New Century had poor and greedy leadership and now that leadership will be prison bound.
Let's wish the Builder Industry a sharp decline so that we can get back to normal.