How easy it is to address foreclosures, however, depends on what the reason is for the foreclosure. Are people missing payments because changed circumstances mean that they can't afford them, or are people missing payments because they don't want to make payments on a house that was worth $500,000 when they bought it, but is now worth $300,000?
That's actually a complicated question, because many people bought a house they couldn't really afford on the assumption that rising markets would give them the equity to refinance into a mortgage they could afford. This turned out to be a bad bet.
But people with ARMs are not, by and large, actually in the position of having suddenly seen their interest rate jump by double-digits. They're in the position of having seen their interest rate go from a low teaser to a still pretty low adjustable rate. The interest rate indices generally used to set ARM payments are actually quite low right now, though of course, the rates are often lagged. Still, the problem is not that people got caught out by surprisingly high rates.
That leaves us with two questions: how low a rate are we willing to provide in order to produce a workout? And what if the problem is, as even some liberal commentators are arguing, that people don't want to make payments on a house where the value has dropped by half?
I don't think that the US government can provide price protection against falling home values, for several reasons. The first is the moral outrage. It's one thing to help people who got caught out by bad life circumstances by reducing a crushing interest rate, especially when the government has, as now, such low borrowing costs. It is quite another thing entirely to simply give someone tens of thousands of dollars in home equity on an unaffordable house they bought without any substantial downpayment. Are those people going to be allowed to profit from their heavily subsidized houses if the market recovers?
People who bought homes they could afford, or people like me who rented because they thought housing was in a bubble, won't stand for it. Especially since propping up those peoples' home values will not only require substantial tax contributions from me, but also make it harder for me to buy a house.
But the other reason I don't think the government can deal with the falling equity problem is the sheer magnitude of it. Check out this graph, which I stole from this site:
The dotted green line is my contribution. It suggests that there's a small rising trend since 1975, but that if houses revert to (optimistic) trend, the average price needs to fall back towards and inflation-adjusted $175,000. That means at least another 15% price drop is in order.Now for a less optimistic assessment: look at house prices since 1890
Again, the green lines and the associated commentary is mine. What if we assume that the last major innovation in the housing market was the long-term amortizing mortgage, and that prices have to return to that trend? That suggests an average of around $125,000. Which means that house prices need to fall by about 40% to get back to their normal value.Is that crazy? Well, let's ask this question: what happened in 1997 to make housing worth so much more? You can't even blame credit scoring and securitization, which became big trends earlier in the decade. It looks like a big, fat, credit bubble. And while the government can manage the decline of a bubble, it can't keep us all collectively insane forever.
But say that credit scoring and securitization did make our houses worth somewhat more--say, $150,000 by enabling mortgages to new borrowers and thus expanding the market. Let us further assume that the financial reforms we are being promised do not involve effectively outlawing securitization. That still leaves us with a long, long way to go.
Is the government going to guarantee approximately 70 million owner-occupied homes in America against a 25% price drop? No, because that's $3.5 trillion dollars, if my mental arithmetic serves. Or is it only going to give the money to the least responsible homeowners: the ones with small (or no) downpayments, houses they could only afford at short-term teaser rates, and a long string of missed payments? The numbers, and the political arithmetic, don't add up. Indeed, any such program would positively encourage people to default, in order to get the government to cram down their loans.
Perhaps the government could work out some program that allows shared participation in price appreciation after a cramdown, but I fear that would simply encourage people to get the cramdown, then sell into the down market--creating exactly the cascade that people are worried about with foreclosures. We may have found an industry that's too big not to fail.
That's a fair graph, but it looks perhaps even more interesting if you split it out by states. States like TX, NC, WV show home prices that closely track that overall trendline, while states like CA, FL, NV, and AZ have an even more dramatic swing than the national average. (E.g., see this figure.) So TX and NC prices may not have far to fall at all, but some places that have already seen the most dramatic falls may have a lot farther to go.
None of which speaks well for the bubble states. There's still a lot of room for it to get worse in the bubble states. And there are some bubble states that haven't started crashing much yet, simply because their supply is still so restricted. But are those high home prices sustainable, or will they eventually crash, or suffer a long, slow decline?
Is the government going to guarantee approximately 70 million owner-occupied homes in America against a 25% price drop?
The problem is that it may more like guarding half as many homes in a few states against a further 40% price drop, while homes in other states don't drop. Not only will people like you and me who rented because we thought it was a bubble be mad, but homeowners in non-bubble states and areas will be as well.
what happened in 1997 to make housing worth so much more?
That would be the year that we went from one-time capital gains exemption to every-two-years capital gains exemption. See here.
There's nothing bad about low house prices anyway. The same house still gives the same level of comfort and protection. If anything, low prices are good. And yes I do own a home and have a mortgage.
In Britain we still get exemption from tax on capital gains from the sale of our Principal Residence. But it's years since we got any income tax benefit from paying a mortgage. And still our house prices soared.
I don't think most home prices are too high. In fact, most new home prices are pretty cheap, if you consider what the inputs cost.
On another issue, I was shocked to find (if Megan's math is to be credited) that it would only take $3.5 trillion to guarantee all owner-occupied homes against a 25% price drop. If you look only at those homes for which there is any issue at all, that would be a lot less than a trillion dollars. We're already spending that much, between the ex-TARP and the share of "$8.5 trillion in guarantees" that will have to be made effective.
Lastly, I agree with the moral outrage argument. I would demand compensation for buying a modest house, if government if to aggressively backstop people who bought immodest ones.
Megan,
How many? The problem of falling home prices is largely a local one, with four states - CA, NV, AZ, and FL - leading the way. Excluding those four states from the data, foreclosures are up only 1.61% over November 2007. Including those four states, foreclosures are up 28.22% over November 2007. This is not a systemic problem. It's a local one.
Mark Perry, economics professor at UM-Flint, has a post on this:
http://mjperry.blogspot.com/2008/12/without-az-ca-fl-and-nv-foreclosures.html
I listened to much of the interview last night and, IMO, it was terrible. TG asked no challenging questions (as is her wont) and EW's extended line of argument the whole time was "Lenders are mean and we need to help consumers."
Ex 1: Subprime borrowers. She says we need to renegotiate underwater mortgages. I concede that it's one thing to lose your job or get hit with medical bills and fall behind, but people who simply bought too much house shouldn't be bailed out at the expense of people who didn't buy and are priced out of the market because of the buyers' collective folly.
Ex 2: Credit card issuers are raising rates, so her Congressional oversight committee needs to hold their feet to the fire. Sure, maybe if the issuers are breaking laws. But I reckon they're not. Instead of berating banks for working within the laws that Congress wrote (title 12 section 85), the committee needs to tell Congress to get off its ass and fix the law. Or browbeat DE and SD to fix their laws. Or punish the states using the federal purse strings a la drinking age laws.
Pet peeve not limited to EW: if I'd heard her say "strategy" one more time I would have smashed my radio.
Whatever happened to personal responsibility? 5 years ago, when times were good, if you defaulted on your mortgage it was your fault, no question. Now suddenly we should be rescuing people from their own foolishness or unfortunate circumstances?
If you got an ARM and can't afford it now that it's adjusted, you're an idiot. You should have gotten a fixed rate or kept renting. You must bear the consequences.
If you got a really exotic mortgage like an Option ARM, Interest Only, or Reverse Amortization, you're an idiot, full stop. You must bear the consequences.
If you're upside down on an otherwise sensible mortgage because prices collapsed, you made a bad investment decision, it happens. You must bear the consequences.
Good choices earn profits and bad choices earn losses, that's how markets work. Bailing these people out undermines the entire market order. Yes there may be social costs which are painful to bear, that's the point. Like touching a hot stove, it's what teaches us our lesson.
Thanks for the very informative plots and discussion!
Looking at this, it strikes me that the nominal value has been accelerating upwards since the 1970s except for a hiccup at the recession of the early 1990s. The difference is that the jump in the 1970s and 1980s tracked inflation, and so "didn't count."
I wonder if the recent housing bubble is partially due to false expectations set during this 70s-80s period of rapid inflation. When it comes to a long-term asset like a house, people are probably more responsive to changes in nominal price than in inflation-adjusted price. Someone who hears that a house bought in 1970 quadrupled in price by 1990 probably doesn't quite do the inflation math in their head. It seems like that kind of phenomenon might have contributed to the newfound perception of houses as get-rich-quick investments.
"People who bought homes they could afford, or people like me who rented because they thought housing was in a bubble, won't stand for it."
As long as there are more people who are irresponsible than responsible, and as long as we live in a democracy where each vote counts, people like you (which includes me) will stand for it because you (we) will be outvoted. Sorry.
Sk
Thanks for the second graph, Megan - I've been looking for a graph that shows the impact of the 30-year loan.
Here's my stab at a multi-part explanation of your question mark.
1. As you postulate, The enablers of the housing price rise were the securitization of housing and the subsequent de facto relaxation of lending requirements due to the misalignment of incentives that comes from lenders selling debt to third-parties.
2. We had an incredible bull market from 1995-2001. Everyone felt richer and a bit giddy, and during this time span, retail investment (Vanguard in particular) really took off. People began to plow a lot of money into turn-key real-estate investment funds. Institutional investors saw this incredible uptick in housing asset prices, and placed more money in that asset class. The Baby Boomers were entering their peak earning years, 40s and 50s. Perhaps there is no good explanation why 1997 was the year we began exponential growth, but the combination of these factors made a housing bubble very likely. There was a lot of money available for home buyers.
3. But why did house-buyers feel driven to start a bidding war on houses with all this easy credit? Most of it can simply be attributed to the natural human desire for a better house in a better neighborhood. But perhaps there is more. A bit of a pet theory for me, but the late 1990s were the years when the educational arms race really began in ernest. Two-income professional families began to worry about schools and neighborhoods. Areas with high concentrations of young professional families (SF, Boston, NYC, DC, Atlanta, Seattle) had very rapid price growth, particularly in elite school districts. US News college rankings, Kaplan SAT prep, learning Mandarin and piano, etc... all these things became part of the upper-middle class consciousness during this time.
One easy way to test this theory is to check the neighborhood-by-neighborhood housing prices after the introduction of vouchers.
One thing that has changed is aggressive zoning regulation, sometimes called smart growth. This drastically reduces the availability of land owners to expand capacity, especially in urban areas that are experiencing the largest population growth. It's no surprise that California had the largest increase in prices during the boom, it's the hardest place to get a building permit to build new housing or upsize existing houses to apartments. I live in LA, and it's insane to see 1/2 acre single family homes in the middle of a dense urban neighborhood. In every other urban area in the country, the land is far more valuable as multifamily housing, but the LA zoning regulations are some of the strictest in the country and don't permit that.
Compare that to a city like Houston which saw only moderate price increases during the boom - when prices rose, developers just built more houses to satisfy the demand.
Can't find a link at the moment, but I read somewhere that of the 18 states where the housing bubble really walloped the economy, 17 went for Obama. The 18th was Arizona.
And states where housing prices hadn't dropped so dramatically went for McCain. Not quite as strong a correllation, but pretty strong.
So, I think there is a chance that Obama will risk the wrath of states that went red anyway in order to placate the ones that voted for him. He'll want to keep Florida and Virginia in 2012.
I am sick and tired of the culture of entitlement and corruption in this country. Those who follow the rules are now being taken to the cleaners by the crooks.
Idiotic consumers who had no business getting mortgages; the people who sold the mortgages to them; the unethical management of the mortgage companies pushing their employees to doctor and lie on documentation; the scumbags who securitized these mortgages; the republican idiots who wanted no oversight in the name of open markets; the idiots (Gramm et al) who repealed Glass Steagall; the democrat idiots who goaded Fannie & Freddy into supporting a house of cards...all are responsible. The breadth and depth of the rot is amazing.
Then you get to Wall Street; Lehman, Goldman, Madoff et al were feeding at the trough and running out of control while buying off Congress.
Blagojevich, Stevens, Cunningham, Jefferson, Ryan, Dodd, Spitzer...the list goes on.
Corporate management enriching themselves unethically, outsourcing, and screwing shareholders and employees.
the underlying root to much of this is a complete lack of ethics in our society today. Gee, I wonder how that happened.
Perhaps one solution is to create a limited guarantee plan similar in concept to the FDIC insurance which insures up to $100K of your bank account balance?
For mortgages, they could create a similar plan that covers no more than $100,000 of your mortgage balance. I am estimating this would cover the major portion of many of the mortgages that are currently "underwater".
Spitzer...the list goes on.
Spitzer got nailed for nailing a beaky hooker, not for corruption or any lack of oversight of the financial markets.
BTW, Elizabeth Warren is a socialist far left liberal who has not been right about anything in years. She is the one who blames 50% or more of bankruptcies on medical bills. That is way Wrong!
Here's my soft landing solution:
My idea for softening the landing probably has ridiculously high overhead cost as well, but it might help more than it costs.
The idea is to go ahead with foreclosure or make the occupant sell the property. Part of the loan is paid down. The bank can then collateralize the remaining portion of the debt with properties it is unable to sell, preserving the value of these properties and incentivizing pay off of the remaining debt. It could quickly reshuffle the existing housing inventory.
It seems impractical, but it could be made to work by creating a housing lottery and not actually giving the liability holder an actual property, but a different asset which can be used to buy lottery tickets for certain property classifications.
It could possibly match potential buyers and seller more quickly than foreclosure auctions. The chance element eliminates the need for the buyer to do extensive research or be familiar little known foreclosure auction market.
Tickets can also be sold and bought for cash.
Spitzer was an extortionist as AG who accomplished nothing of substance in his witch hunts on Wall Street.
Spitzer was an extortionist as AG who accomplished nothing of substance in his witch hunts on Wall Street.
Oh, I don't dispute that. I once wrote a paper in which I attempted to calculate the average impact on a company's market cap of a Spitzer press release.
That said, it's very weird to put him on the same list as people who took actual bribes, or in Dodd's case, who encouraged financial irresponsiblity.
I have no big suggestion for the TARP. I would like to suggest that future housing support efforts include the Veterans Department housing program for Veteran's. Take the VA home loans and subsidize the interest rate of these mortgages to well beow market levels to both stimulate buyers and to reward military veterans for valuable service to the nation. Whether or not one agrees with the policies being pursued these veterans have earned any aid given them. The program already exists and needs only rate modification to operate. This would not be welfare but rewards for national service.
This is true. Before the bubble crashed, home price appreciation was a pretty good predictor of presidential vote in 2000 and 2004 as well, but not quite so good. (What with VA and FL and so on.)
It really does come down to housing market strategies of letting people build versus not. The more Republican-voting states that still had a housing bubble tend, overall, to be the ones that allowed building in at least some areas but still had a bubble, whether because of Californians moving in and driving up prices with unrealistic expectations, or just normal bubble processes. (In Northern Virginia, what happened is that land use restrictions in Fairfax, Alexandria, and Arlington pushed people out to Prince William, Loudon, and Farquier. This encouraged sprawl. Prices went up for a while, but eventually enough was built farther out to stimulate the correction. Red Virginia is mostly pro-building; Blue Virginia has restrictions on building. In this case, this just caused the housing to move farther out and sprawl to increase, in addition to contributing to the bubble.)
The solution is easy:
* Make new construction more difficult by introducing stifling environmental regulations.
* Liberalize our immigration policies.
It solves both the supply problem and the demand problem, no? What could possibly go wrong???
This paper by Gary Gorton (http://www.kc.frb.org/publicat/sympos/2008/Gorton.08.04.08.pdf) gives a pretty thorough background on the structure of the mortgage business as it led to the current crisis. The fundamental issue in the non-conforming space is that lending was done on a short-term (i.e., the initial loan terms expired in 3 to 5 years) and unorthodox (i.e., not a fixed rate) because the lending banks knew based on income history and poor credit habits that the borrowers would not be able to sustain traditional long term mortgages of such size. In other words, the lenders were fully aware of the objective fact that the borrowers could not actually afford to pay back the loans. But lenders could live with that fact because they viewed the mortgages as holding a call option on the house -- after the initial period, the lender could choose to end the arrangement and call the home. The borrower might be able to then re-finance, but this re-financing would also be on non-standard terms due to the risk of default. The ability to re-finance relied on housing prices going up (absent some miraculous change in income circumstances) as did the banks comfort with holding the call option. To shore up foreclosures in a falling market, someone would have to craft loan terms that the non-conforming borrower could meet despite the fact that the non-conforming borrower objectively cannot repay on standard terms. Absent outright buying of homes on behalf of folks who took out non-conforming loans that they now cannot re-pay, I don't see how you do that.
w/r/t ARMS, my ARM is resetting in February, but is getting pegged to its index next week. Currently, my interest rate is going to go *down* by 1-1.5 points. I couldn't believe this was right, as I was steeling myself for one of those huge increases you hear about, but I called my mortgage company and it was confirmed.
If it had reset a month ago, my interest rate would have stayed about the same--but if it had reset 3 months ago, my rate would have gone up by 3%. I'm frankly amazed at how well this has worked out for me. We were responsible, buying a house at the very low end of the range of prices for which we were pre-approved, but still, I figured, "I've got an ARM I've got a huge hit coming down the pike." We even figured our 2009 monthly budget assuming a 10-20% increase in our monthly payment. Looks like the kids will actually be getting XMas presents this year after all!
Reading that again, I realize it sounds a bit like gloating, and might be considered a bit tin-eared given the current economic climate. Apologies. I'm just wondering how on earth this happened. (Not really, I understand why, just find it amazing)
When I watched the debates in a bar, I seemed to be the only one cringing at talk of propping up house prices or paying down mortgages. A large number of people feel that homeownersip should be profitable. I fear that such thinking outpolls the views here by a fair margin.
The interview with Warren was horrible. I turned it
off several times only to tune back in to see how
much worse it was getting. Warren blasts the
Treasury for not helping homeowners with mortgage
mods and then says the only things in the way
are bankruptcy and contract law: as if Paulson
could change them himself. A homeowner bailout
would switch the fight from Main vs. Wall to
neighbor vs. neighbor. Why doesn't Warren see that?
Why couldn't the interviewer ask?
I guess I'm pretty cynical by now, but what about all the other STUFF these mortgages bought?
Everyone addresses this problem as if all these people did was try to keep a roof over their heads.
I believe many of these people bought their house when prices were LOW. Over the years they kept refinancing, using the money to buy their cars, flat screen TVs, European vacations, etc. Now that the value is headed back down, they find themselves upside down and unable to pay for all their STUFF.
It's one thing to ask me to help someone keep their home. It's quite another to ask me to pay for their STUFF!
OK, I will admit it. My wife and I indulged in a "McMansion", actually, it is pretty nice and not really in a cookie cutter neighborhood, but when we built it we expected it to be worth about 900K to a million. We paid cash for half and borrowed the other half. I wonder if the govt will give us the cash we lost back? No, I don't wonder it at all. I know they wont. Just like they aren't building an icewater pipeline to Hell. It all just goes to show that the best laid plans gang aft aglay.
Fortunately, it is a servicable home and we arent' expecting to live anywhere else the rest of our lives. Still, the security would have been nice.
This whole home price thing is not a problem a huge dose of inflation couldn't cure though. That "inflation adjusted" graph would normalize pretty quick. Take the money from the savers. We all know it's coming.
As for "stuff" One of the reasons this has hit so hard is the number of people who used paper equity from their home to buy cars. That source of buyer is now gone from the market and the door is slammed and locked behind them.
The other thing is that as an asset class stocks split houses do not - I think this results in people over-estimating the returns on real estate and under-estimating the returns on stock.
For example Microsoft went public at $21 a share and it's now 19.36 a share. Some might say - see you would have lost money. But, Microsoft has split 9 times and 1 share in 1986 is now 288 shares. So, 21 invested in 1986 is now $6048.
Megan,
You're missing the point. Politicians cannot abide a 25% reduction in property values because that represents their "fun money." Property values = taxes. If the value of my house goes down 25%, the state I live in gets less tax revenue from me.
That is why they are panicked.
There's a no-cost way to solve the housing crisis if only anyone in government had any business acumen:
1) Substantially increase, temporarily, the number of immigrants allowed to emigrate into the United States. Announce a special program where people have to apply for 10 million spots. In 1 week, you will have 50 million applicants.
2) Substantially decrease, temporarily, the number of homes allowed to be constructed by not issuing building permits for new construction (or limiting it substantially.)
In 1 week, demand will increase. Supply will decrease.
Voila ... home values rise at no cost to the taxpayer and everyone is happy again.
Now suddenly we should be rescuing people from their own foolishness or unfortunate circumstances?
Suddenly? We've been doing this for years. These programs are known by many names, Welfare, Social Security, WIC, Charity. Surely you've heard of them. And they will be known by others, Universal Health Care comes to mind. Not all of these people were thieves and idiots. IMHO the majority were simply optimistic. They were optimistic about getting a raise or a promotion or their business growing. And why not? Things were great if you recall. Not everyone bought a home to use as a piggybank. Most bought one so they could have a piece of the US to call their own. I have a difficult time faulting them for that.
Hmm, stuff. Yeah, I'm sure it was all European vacations, flat screens and fancy cars right, couldn't have been eating out at Applebee's or going to the movies or remodeling. Nah, couldn't have been, because, well hey, the latter things benefit Muricans, not furriners and we certainly wouldn't want to admit that the money might have been spent on something that supported your job, heck no, your job was supported by the wages of honest folk paying cash only right?
You people sound like the left did during the heat of the Iraq war. No discussion about how things could be worked out so that everyone could benefit, no, just complaints about past events. What I asked for from the Left was ideas and got none but pull-out. Now I'm asking the Right for ideas about this mess and what do I hear? I hear "screw those people". You sound just the same.
Those of us who were prudent and can afford it are gonna pay for those who can't. Always have, always will. Will it be appreciated? No, never has, never will. But I'm not going to be party to kicking people to the curb with nothing but their "stuff", no place to go, no money for a rental deposit and kids to feed. Raise my taxes if need be. I'll sleep the sleep of the righteous.
My plan? I don't have one. But I like this one http://online.wsj.com/article/SB122291076983796813.html
taxguy -- doesn't that only happen if the state/local gov. decides to re-appraise?
All4One--
I hate that plan. First, let home prices drop. The vast majority of people affected are not going to have "no place to go, no money for a rental deposit."
If people need money and don't have it for a rental deposit, fine, give them welfare or housing vouchers or whatever. But rewarding them for buying a house that they couldn't afford-- and keeping them in it-- by taking money from people who chose not to buy a house, and by keeping housing unaffordable for people who don't have one now? Unforgiveable.
That plan is another case of stealing from the poor to give to the rich.
No, people shouldn't be forced to live on the street. But there's no reason to keep people in houses that they can't afford, and make people who live in smaller houses that were within their means subsidize them.
Let prices go down so that people who didn't live outside their means can have a chance to buy them.
"Those of us who were prudent and can afford it are gonna pay for those who can't. Always have, always will. Will it be appreciated? No, never has, never will. But I'm not going to be party to kicking people to the curb with nothing but their "stuff", no place to go, no money for a rental deposit and kids to feed. Raise my taxes if need be. I'll sleep the sleep of the righteous."
As I understand it, it takes quite a while (3 months, 6 months, even a year) for the foreclosure process to work. There are laws in place in many states, plus the banks are choked with processing distressed properties. So, while the foreclosure is being processed, the homeowner can save the money that they were using for the mortgage and save for a rental deposit.
The article that you linked to talked about "stabilizing" house prices. House prices aren't going to "stabilize" until a substantial downpayment and house prices of 3 times yearly income become the norm. Downpayments tether house prices and keep them from becoming unaffordable, which in the long run is going to be a lot healthier for American families.
I agree completely with Megan's points.
But, although there is no real moral case for bailing out homeowners, there may still be a practical one. There's no moral case for bailing out GM or AIG, but some (certainly not all) smart people think we'll all be better off if we hold our nose and do it.
Now, I have no idea if significantly reducing the foreclosure rate would be likely to make the recession shorter and shallower, but that seems like the only reason to consider a homeowner bailout.
---Indeed, any such program would positively encourage people to default, in order to get the government to cram down their loans.
Not *would*. already *is*. Look at what's happening In CA, where the state basically forced banks to renegotiate. You're a sucker if you're not delinquent on your loan, because the delinquents are getting their loans written down.
The Mayer Hubbard plan isn't just about fending off foreclosures, it's about allowing everyone to get into a home under a 30 yr. mortgage with a low interest rate (although that interest rate isn't that low now). Once people are comfortable that they won't need a sizeable chunk of coin in the bank to cover possible adjustments to their rate they will be more comfortable buying a car or eating out or having the home recarpeted. I like that plan because it doesn't just help the folks in over their heads, it helps those that are OK, but worried, worried enough not to buy a new car or eat out etc. etc. They start buying and then we prudents don't have to worry so much about our jobs. It works on a psychological level as well as financial level.
Looking too far back into history is going to give you bad results on home prices--a home in the 1890s was likely smaller, and probably didn't have air conditioning.
I think that an analysis based on the price of whole houses is not totally informative. Houses are much less uniform than most goods. The biggest cost (and therefor price) variable is size. The size of the average house has increased from less than 1000 square feet in 1950 to about to 2400 in recent years. That in and of itself would cause about a $90,000 price increase. Another thing is the changing income patterns of families. There are many more two earner families who can afford a more expensive house.
@Rob Lyman
Spitzer got nailed for nailing a beaky hooker
What means "beaky"?
Gene: having a large nose. At least, that's what my wife calls me.
A home is not an investment. It is where you live. Even if you have an expectation of appreciation in value, like any investment, the expectation is that this increased value will be realized over the long term (10, 20 even 30 years). Bailing out on mortgage payments for no reason other than you owe more than the property is worth is financially foolish and morally repugnant.
Expecting short-term appreciation is speculation. That is no different than gambling or day trading. Plenty of people who visit Las Vegas would love to be bailed out of their bad "investments."
A lot of people have lost a lot of money in their 401(k)'s and other stock market investments. Since they lost a substantial value of their investments, are we going to bail them out, too? What if you leveraged the equity in your house before the bubble burst and bought stocks, whose value tanked as the stock and housing markets collapsed? Are you then entitled to two bailouts?
What we are seeing is market corrections. Real estate speculation, fueled by relaxed lending practices, created this bubble. Government programs helped create the bubble, and government intervention to bail out everybody and their brother is only going to make recovering for this mess worse for the overall economy in addition to taking longer.
Thank you, John Thacker. My thoughts exactly.
I've been interested in buying for many years, but I'm not stupid or desperate. I could buy anytime, but I feel like the government is treating me like an idiot: they want to keep the stupid people in their too-expensive homes and keep home prices inflated (I live in Los Angeles) at my expense. Uh uh. If they want me to buy out one of the stupid people, at this point and at these sticky-high prices, they're going to have REALLY sweeten the deal.
Which probably isn't going to happen. So, they're going to have make due with my taxes.
There were a large amount of mergers in the Real Estate industry creating national agencies with a single message and a single level of service.
Coldwell banker for example on the retail side was busy gobbling up smaller agencies.
There was also a large amount of mergers on the commercial side driven by wall st money.