Family would need almost $200K/yr to afford MEDIAN SF Bay Area House, & GOVT wants to make it WORSE?

The one thing America does NOT need is a SUBSIDY to keep the prices of homes artificially high. The price gainst between the years 2001-2006 were almost entirely driven by shady loans to people with insufficient income to buy the overpriced homes they got into. Median home prices were at 3X local median income for most of the century, and it wasn't until the funny money came in that they reached 5X to 8X median income and made houses utterly unaffordable to all but the rich and those willing to use crazy borrowing vehicles without documentation.

The real estate market needs to be allowed to CORRECT to historic trends so that NORMAL, RESPONSIBLE, MIDDLE INCOME people can afford homes again.

People will get foreclosed upon. It sucks. It's traumatic, and it hurts neighhorhoods, but these people had no business buying these homes in the first place because they could NOT AFFORD THEM.

There are worse things in the world than having to move into a rental, and those ticky-tacky stucco McMansions WILL eventually find owners as builders cut back on construction.

And when the market has been allowed to correct, housing will be more affordable to a lot more people.

The bailout ideas, and this expansion of Fannie/Freddie's lending to cover upper-middle-class home buyers is WRONG. Those programs were created to help working class people to get into homes, not people with 6 figure incomes!


That being said, all it will do is postpone the inevitable. Prices will not reach 2006 levels again for many years, if not decades, barring runaway inflation on all commodities. The people that are being given 30-day reprieves on their foreclosures won't be able to afford their homes a month or a year from now, and eventually the market WILL correct, but these subsidies will just make the correction slower and more costly to taxpayers.

And I'm afraid that a lof of folks who buy in the near future under the new Fannie/Freddie standards in these still-bubble-inflated areas will be quite disappointed in another 2 years when the home they thought they had bought at the bottom has dropped in value from $700K to $450K.






http://www.nytimes.com/2008/02/23/business/23real.html?_r=3&hp=&pagewanted=all&oref=slogin&oref=slogin&pagewanted=all&oref=slogin


Stimulus Plan Aids Buyers of High-Priced Homes

By KATIE HAFNER
Published: February 23, 2008
SAN FRANCISCO — Elizabeth and Ben Kilgore are back in the real estate market. All it took was a little-publicized section of the economic stimulus package President Bush signed into law last week that lowered the borrowing cost of buying a more expensive home.


The Kilgores, who live in Tiburon, Calif., just north of San Francisco, are looking for a larger home in town for their growing family. Three years ago, when they bought their first home, they resigned themselves to buying a condominium because it meant taking out a mortgage they knew they could manage.

“This will push us into a price range that’s now financially possible,” said Ms. Kilgore, a real estate agent in Marin County.

And if the limit on loans backed by a government-backed housing finance entity like Fannie Mae is raised from $417,000 to the full $729,750 she has been hearing about, Ms. Kilgore said, “we will be able to get a 30-year fixed mortgage for less than what we’re paying now plus our homeowner’s dues.”

will stay in this trailer forever. (As it falls apart around our ears. LOL)

homes in the first place because they could NOT AFFORD THEM."

I worked as a loan officer for 11 years and it was my job to deny a loan if the borrower had a high debt ratio or poor credit.

If lending standards had been upheld industry-wide, there never would have been a bubble, or a bust.

Looks like its about $777k for a house in San Fran.

I think that beats Miami.

I'm waiting for prices to come down but I feel bad because I know it will cause a lot of pain.

Foreclosure auctions are so frequent and many that the state courthouse doesn't have enough personnel, even paying them overtime, to handle the auctions. The backlog is huge and they're going fast as they can.

"If lending standards had been upheld industry-wide, there never would have been a bubble, or a bust"

disclaimer: i make my $$$ trading futures, so i have an opinion here.

there is not a market that exists that does not see bubbles and busts. period. it happened with tulip bulb, it has happened (more than once ) with real estate, stocks, gold, oil, ANYthing that is subject to supply/demand curves.

and it's not a bad thing. i absolutely agree that if lending standards had been tighter, the bubble would have probably (note: probably) have been less severe, but there is no way anybody can (or should try) to artificially prevent these sort of things.

all markets are there, among other reasons, for price discovery over time. and they significantly go over or under "fair value" (however you measure it) for periods of time. ultimately, they regress to a mean.

when you have high demand, and limited supply - price goes up. period. it has to.

like i said, i spend hours every day poring over charts and watching multiple markets, so i have a holistic view.

also, bubbles and crashes are not bad. they are part of the cycle. smart investors can make money off of both. but for those who did not overleverage themselves by buying more home than they could afford, the crash won't hurt them (much). with a stock when it goes down in value, you get no utility from it. with a house, it is still a roof over the head.

last i checked, approximately 10% of home loans were for a value greater than the value of the home (due mostly to depreciation).

i detest predatory lenders, but they are not to blame for the bubble. to some extent, they are a result OF it. it's kind of a feedback loop.

also note that many of the policies of the last 15-20 years helped the bubble by encouraging through subtle and not so subtle means increased home ownership among demographics that had previously not generally been home owners. that's good, and bad. just like most market swings. +'s and -'s.

in layman's terms, bubbles happen because of the "greater fool theory". this the theory that no price is too high to pay for an asset, if a greater fool will pay you more for it in the future. and that's exactly why people were paying absurd prices and overleveraging houses when they were going well beyond their means, because leverage can't hurt you IF the price keeps going up. it magnifies gains. it also magnifies losses. that's a double edged sword that is a homeowners responsibility to manage.

look at gold. everybody hated gold in the late 90's, it was often sub $300 an ounce. everybody was saying tech stocks were the greatest thing ever, and none of the hordes were buying gold. in fact, it was a great time to lighten up stock holding and starting to move into the asset that people HATED or ignored. now, gold has more than tripled, and the nasdaq... well :)


there has been a historical formula that you should not pay more than certain multiple of your income for a home. period. and people violated that because they felt "prices can only go up". when any huckster (read: real estate agent in this case) tells you you can;'t lose, prices will keep going up it;s guaranteed, etc. etc. run for the door.