Governments Dumbfounded By Home Prices
The housing dilemma has central planners fumbling for answers, especially in California. Could it not be argued that making loans easily available has fueled home prices, making housing less affordable? As the ContraCosta piece says, "Welcome to the strange world of housing policy."
"Federal housing policy..is much more generous to middle and upper-class home owners than to low-income renters (and) is a long-standing approach with wide support from both major parties. In California, the state's official bank for lending for affordable housing can't find takers for all the money it has to lend to first-time home buyers." That says a lot.
"By overstating the potential benefits of homeownership, today's policy makers risk diverting resources away from more effective means of addressing many of the most critical problems that confront low-income and low-wealth households," said William Apgar.
John Perkins of the Home Builders Association of Northern California, predictably wants the government to butt out, or does he? "Such efforts have 'been well-intentioned but (with results) very different than those who created the policy envisioned.' Government should 'get out of the way of the enterprises that create housing, that is, the region's home builders. The members of my association would like nothing more than to produce housing for the most needful people in the market. The government needs to find a way that makes economic sense.'"
More of this, Mr. Perkins? "Since 1996, developers have exercised program options that allowed them to convert 16,300 of the state's subsidized apartment units into market-rate units, and as many as 73,200 more could be converted."
Here's a solution. Require 20% down and housing will be affordable in 6 months.
6 Comments:
There's no doubt that both government and private lenders have created this bubble. Cheap and easy money have supplied the oxygen. The Fed cut interest rates to levels not seen since the 1950s, and the mortgage lenders decided to provide loans to anyone with a beating heart. No money down, interest-only...stuff that was unheard of just 10 years ago. It's a ticking time bomb just waiting for a spark to set off the mother of all real estate busts.
Why did they abandon generations of sound banking standards? Greed.
Greed is infectious. My guess is that the mortgage guys were jealous about how much dough their credit card bretheren were raking in, so they adopted many of the same tactics. Witness the latest craze, the "option" mortgage in which you can simply make a minimum payment in a particular month. Of course, the minimum payment doesn't even cover the interest on the loan, so the difference is added to the principal and you have negative amortization. Which is exactly the same tactic used by the credit card suppliers to keep their customers in bondage. The mortgage guys have also borrowed a trick used by car dealers forever -focusing on monthly payment rather than the total cost of the loan. Use tricks like adjustable rate, interest-only loans to fool the buyer into thinking the loan is affordable each month. This will all end very badly.
(Here's a solution. Require 20% down and housing will be affordable in 6 months.)
And make them finance with a 30 year fixed mortgage. That would eliminate 80% of the BS that goes on in the housing market now.
(That would eliminate 80% of the BS that goes on in the housing market now)
Everybody is jumping through hoops trying to "solve" the affordability crisis, when the answer is right in front of us. The problem is the powers that be are addicted to credit and to make a simple move as we suggest would expose their racket. Thanks for the comment.
The quote from Theresa Parker is priceless: "What we're trying to do is create a loan product that would help people that don't really have sufficient income to qualify for these expensive houses."
How hard is it for doofi like Parker to see that creating these types of products is exactly what is driving this mania?
If we tightened credit instead of loosening it, the market would stop dead in its tracks. Yes, some would get hurt (mostly speculators and banks/mortgageco's that overstretched). But sanity would return to the housing market. And folks wouldn't have to be committing 35-45-55+% of their gross annual income towards housing.
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