During President Obama’s State of the Union Speech tonight, he didn’t talk long about the housing market.
But, what he did say speaks volumes about his policy intentions and the questionable philosophy of his economic advisers.
Obama:
Now, the price of college tuition is just one of the burdens facing the middle-class. That’s why last year I asked Vice President Biden to chair a task force on Middle-Class Families. That’s why we’re nearly doubling the child care tax credit, and making it easier to save for retirement by giving every worker access to a retirement account and expanding the tax credit for those who start a nest egg. That’s why we’re working to lift the value of a family’s single largest investment – their home. The steps we took last year to shore up the housing market have allowed millions of Americans to take out new loans and save an average of $1,500 on mortgage payments. This year, we will step up re-financing so that homeowners can move into more affordable mortgages. And it is precisely to relieve the burden on middle-class families that we still need health insurance reform.
Barney Frank had already semi-officially declared high home prices to be government policy. But this is different…this is from the President.
They are working to “lift home values, allowing “millions of Americans to take out new loans“…do they not remember how we got in this mess in the first place?
It is true that rising prices increase equity and that equity can be withdrawn and spent. This mortgage equity withdrawal (MEW) can provide a short-term boost the economy, but the long-term results are obviously disastrous.
Continuing to borrow more money as home prices rise, hoping to someday sell and cash out before the inevitable collapse, is quite literally a Ponzi scheme. This was the economy from 2002-2007.
It doesn’t take an MBA to realize that this path does not lead to economic prosperity.
Who benefits from high home prices?
-
Banks – who take a greater share of our paychecks
-
State and Local Budgets – who take a greater share of our paychecks
Who is hurt by high home prices?
- Homebuyers – who can’t afford a decent house
- Homeowners – who pay too much in interest and taxes
- Every other shop or business where that extra money could have been spent
- The whole economy as this excess money is wasted on taxes and interest rather than on innovation and starting small businesses
So…why does the government want to lift up housing prices?
The answer: to restore enough homeowner confidence to prevent a stampede of strategic defaults that could cripple the economy.
For example: if Obama had said that the government was working to keep our banking system solvent while the housing market continues its natural market correction, millions of underwater homeowners might decide it’s not worth trying to fight anymore and walk away.
I would have preferred that Obama announce a principal reduction program that would have helped ease the debt-burden for millions of homeowners. Or, more simply, he could have announced support for bankruptcy cram-downs, allowing judges to reduce mortgage debt. This is the kind of help that homeowners actually need.
Instead, he proudly announced that the government will continue to spend billions to make owning a home far more expensive than it should be.
Greg Fielding
San Diego Real Estate: All one has to do is look at the immense amount of high end inventory hitting the market in La Jolla, Rancho Santa Fe etc. These homes are the reason for the Median price increase. This is misleading. This huge amount of inventory will be dropping in price over the next year or so. This will pull down the entire San Diego housing market. Do not be fooled.
These are the people who treat their mortgages like a business deal and not a moral obligation. They will walk. Understanding this will save you hundreds of thousands. The cliff is approaching.
Kobio, You are so Figgen RIGHT! WTF!!! OBAMA HAS A BRAIN THE SIZE OF AN OLIVE! I sent him 100 business, economics, psychology and philosophical books. Did I get a 44cents stamp thanks? No! Nothing! Now as a 3rd Generation American, I can say that Obama is a Ungrateful black man, just like the rest of them! For sure his is not a smart white man!
Wow…just wow!
You are the one with the brain the size of an olive. I’m a 10th generation black American and I don’t owe you squat. Apparently, “smart white” people have clearly never graced your presence either.
Obama, another President sells us out. I hope people are finally getting it that the dems and the Republicans are the SAME. Corporations and the Fed don’t give a crap about anything except what politicians they can buy. We the people are screwed and on our own. maybe it’s time to move out of the country and live on a small island.
don
fromnowtozen.com
Good story and excellent analysis!
So, the President of the United States of America, Barack Obama, has finally spelled out that real estate speculation means more to the economy than production, thrift and enterprise!
Doesn’t that explain many things?
The people forget but hopefully the govt. does not: the value of an abode is not in its mud and thatch but in the occupants.
But this is a recursive i.e. without a decent abode you cannot become a worthwhile entity and naturally you want worthwhile entities in abodes.
It ain’t that hard to unnerstand, you know it anyway{don’t u}.
I don’t mean to quibble, but I can’t find the quote attributed to Obama in the official version of the text. The quote I remember is as follows:
“Second, we have launched a housing plan that will help responsible families facing the threat of foreclosure lower their monthly payments and re-finance their mortgages. It’s a plan that won’t help speculators or that neighbor down the street who bought a house he could never hope to afford, but it will help millions of Americans who are struggling with declining home values – Americans who will now be able to take advantage of the lower interest rates that this plan has already helped bring about. In fact, the average family who re-finances today can save nearly $2000 per year on their mortgage. ”
This is a very different phrasing than the quote shown above. While I empasize with the authors feelings about Obama’s economic policies, materially misquoting him is disingenuous.
Oliver
Oliver, who’s being disengenuous? You care to share your link?
Here is the transcript of the speech. http://www.businessinsider.com/its-time-to-get-serious-2010-1
And, I rewound and watched that part of the speech over again several times to make sure I was hearing it correctly. This is exactly what he said.
I’d check the source of your quote.
“3.Every other shop or business where that extra money could have been spent”
Consuming like idiots is a very ‘wise’ thing to do…
Change the system!
‘Shoring up house prices’ is just Obama’s pillowtalk for ‘debasing the currency’.
Just watch how the price of gas and food starts rising when they start pumping all their newly counterfeited money into the economy via all these government makework jobs programs that are on the horizon.
They are going to claim that it’s all because of the improving economy and a sign that employment conditions are better.
And the sheep are going to love it not realizing they were just fleeced by their government.
[...] wants overpriced housing Why Obama Wants High Home Prices | Danville Real Estate Trends In this article the author makes the case that government wants and is working to make housing [...]
If you think that principal reductions are good for the housing market and the economy by extension, then I think you would want the President to announce that he is terminating all efforts to assist borrowers. Nothing is going to focus the attention of note holders on underwater property as much as the realization that only their actions will determine the value of their loan. Right now every lender is holding on to principal because they have an expectation that “other people’s money” is out there waiting to shrink this problem for them. Once they were to recognize that there is no “other people’s money” for this purpose, they might decide that a $50K principal reduction isn’t so bad compared with 10 months of zero payments, followed by a sale 6 months later at $80K under the loan value (with $17K of realtor fees, $8K of maintenance and $9K of property taxes). Lenders do not owe borrowers principal reductions. It is only going to happen if it is in the lenders interest. Prospects of government programs are hindering the ability of anyone to understand what their interest actually is. Doing less is doing more but the biggest impediment is that public officials just hate not spending “other people’s money”.
Yes I would like the Gov’t to stop trying to “help” homeowners. If they pulled out their support…you are right…the banks would be forced to do more on their own.
My personal preference would be to allow bankruptcy cram-downs. Mortgage-banking lobbyists wrote their own exemption to bankruptcy law and I believe that exemption should be removed.
Then people in trouble certainly could keep their homes, blight from foreclosures would be reduced, and the banks wouldn’t lose any more money than they are anyway.
Over many years incomes have been stagnant. Homes, cars utilities, health care, education and just about everything went up in price. This left the average American unable to afford necessities. Americans turned to home equity and credit cards just to afford the basics for their families. Now, credit is frozen. This means that if the sources of these goods and services want to stay in businesss, prices will have to come down. We will be in a shrinking, deflationary economy for a long time. Companies will be cutting personnel for an extended period in order to get their prices in line with this new, reduced but realistic economy.
Don’t forget that one-third of all homes do not have loans. When homes are unencumbered by debt, the owners live with security. When homes are foreclosed, families are uprooted, children are shuttled to new schools and there is turmoil and uncertainty in the family. Home prices, along with everything else, need to fall substantially so that the average American can live a secure life with certainty.
We need policy that supports high inflation to smoothly transition out of this mess- a level that is not as high as the late 70s/early 80s but higher than than the 90s. The govt made it dummy proof to sell your primary residence during the last decade and earn a tax free sizable profit. (Sorry if you missed that golden opportunity and you really have no one else but yourself to blame if you did). Long term homeowners that siezed the (retirement) opportunity can then put that money into risk free CDs earning 10-12% while stabilising the banking system. I can envision this group being semi-retired, eg being hired by a company as a Consultant, thus having another stream of income but also flexibilty. Many sunbelt locations have already dropped 50% from peak levels which is making these locations more and more attractive for this group (or even young workers) to move to. Higher inflation (thus higher mtg rates) increases home afforability to the middle class and the FTHB- since prices and rates generally move in opposite directions- thus shoring up those ends as well. What we DONT need are the same policies of the last decade. If the same flawed ponzi system does continue the young educated worker will simply put off family formation (which many have done already), decide that America is overrated and overvalued (which many are concluding) and move to a different country (which many are comtemplating). Thus America will change to a much higher blend of retirees, and unskilled workers/immigrants but with a substantially smaller middle class or tax base.
A pretty decent article, but the using italics, colors, bold text and text-underline makes it hard to take any of what you wrote seriously.
You’re right…I should focus more on style than substance.
Sorry, I didn’t mean for you to take offence. I was just trying to give you honest critique about your formatting. I agree with most of what you wrote, though I’m hardly an expert at the subject. I’m sure you’re an excellent writer, but I usually think simplicity in formatting makes for better reads, since I’m not ‘told’ what to look at, which can be distracting.
Anyway, it wasn’t meant as an attack, just a suggestion.
[...] encouraging another housing bubble.. Why Obama Wants High Home Prices | Danville Real Estate Trends That’s why we’re working to lift the value of a family’s single largest [...]
Why would you want to reduce principles on loans that these deadbeats owe? They were happy spending their withdrawn equity on toys vacations cars tuition etc … all the while looking down at renters and bragging what financial geniuses they were. Now it’s time to pay the piper, and you want the taxpayers to subsidize all these irresponsible debtors? That’s absurd and my guess is you’re advocating this because you’re one of them. Let the irresponsible take their lumps so that all the people who’ve not succumbed to self entitlement may prosper.
Amen to that. I am a fool to have been saving 10’s of thousands in the bank and maxing my 401k and 529’s in hope there was light ar the end of this inflated tunnel. Now I have to listen to this nonsense? Obama is NOT stupid, he just knows most of the country is…therefore he feels a need to calm hysteria. I wish he was above this.
Nice article but it clearly neglects the real reason why our government is continuously attempting to keep housing prices up!
hint: Bonds…SWAPS…derivatives…foreign investments!
Toxic assets held by banks which have not been dealt with…in essence, Global Financial collaps!
Kobio, You are so Figgen RIGHT! WTF!!! OBAMA HAS A BRAIN THE SIZE OF AN OLIVE! I sent him 100 business, economics, psychology and philosophical books. Did I get a 44cents stamp thanks? No! Nothing! Now as a 3rd Generation American, I can say that Obama is a Ungrateful black man, just like the rest of them! For sure his is not a smart white man!
You are wrong. I walked away from a $300,000 house in a shit neighborhood and bought a bank-owner foreclosure for $50,000. My wife and I will save $36,000 annually, without a mortgage. I am a Black Man, and I am grateful. I may not be as smart as you but I sure will be saving more money you 3rd generation white man.
While I don’t believe in Obamas tactics, I really think your off base, when you talk about principal reductions and bankruptcy cram-downs. You are essentially advocating for people to be forgiven debt they willingly incurred. Its no wonder our society has turned into a bunch of whining babies. “Its everyones eles’s fault. Whoa is me!!!!
In a bankruptcy, other debt is destroyed or set to be paid back as a judge sees fit. This wouldn’t be simply debt forgiveness for everyone who wasted home equity on vacations and escalades.
Bankruptcy cram-downs would give a judge a chance to weigh the options and decide what is right.
Because bankruptcy brings lots of other scars and complications, I doubt that this would be overly-abused by people who could easily keep paying.
I am not advocating that people be given a free pass. I am advocating a solution that would reduce blight and foreclosures in our neighborhoods and give a judge the chance to review each individual case to make a ruling.
It’s either a judge or some schmuck in the BofA loss mitigation department…
[...] he didn’t talk long about the housing market. But, what he did say speaks volumes about his policy intentions and the questionable philosophy of his economic advisers. “That’s why [...]
Its funny how all of these people are now martars. They all looked down their noses at us renters and now want us to pay for their lack of ….well essentially basic math and economics. I say they should be forced to pay a higher income tax rate for the next ten years to compensate those of us who were responsible. I can’t tell you how many a-holes said I was an idiot when I told the market was severly overpriced. “IT BASIC MATH PEOPLE” Incomes aren’t rising and neither should median price.
Same here. I was trying to expose the insanity during the bubble run-up to others at work, and with friends and family. Fell on deaf ears. Everyone thought they were going to make a killing. Why listen to me, a contrarian and “stupid renter.” My Secretary defaulted and lost her home last year. She just looked at me and said, “you were right, bet you’re glad you waited.” Tried to convince a good friend not to buy in 06′. He went ahead and paid 420K (at the urging of his fiance’) for a 3/2 bungalow that they’re now upside down on for…hold your hats…220K!!
The irresponsible home speculators should not be bailed out! If you couldn’t put 20-30% down *and* have a substantially rainy day fund with an affordable mortgage payment, as far as I am concerned you were a speculator! It is ridiculous for judges to be given cram down powers. The government and –yes banks — shouldn’t be forced to pay a penny to bail out homeowners. **** that. Let them lose their homes. That is the ONLY way folks learn. And more importantly, it is the fair thing to do for the *millions* of renters and for the folks who were prudent enough to only buy homes that they could afford.
Local governments should tighten their damn belts and eliminate the massive amount of fraud and ridiculous retirement benefits for way too many government employees.. I realized how ****** up California was when they couldn’t even run a balanced budget without bonds when home prices were inflated by about 100%!
That statement just shows how Obama just doesn’t get it in terms of economic data. He somehow thinks that government policy can dictate how things are, not sound economics. It absolutely is the worlds biggest ponzi scheme, and like all ponzi schemes it will eventually collapse…
He also stated over and over that we need to make credit more accessible. Really, we need people to learn to live within their means and actually save money before they spend.
if Obama had said that the government was working to keep our banking system solvent while the housing market continues its natural market correction, millions of underwater homeowners might decide it’s not worth trying to fight anymore and walk away. mira mesa ca
“Or, more simply, he could have announced support for bankruptcy cram-downs, allowing judges to reduce mortgage debt.”
I believe he has supported “cramdown.”
But it does not have the votes in the Senate – every Republican and several Democrats oppose it.
http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=111&session=1&vote=00174
They oppose it because the banks bribe them to oppose it.