A man is not a whole and complete man," wrote Walt Whitman, "unless he owns a house and the ground it stands on
Started by Riversider
about 17 years ago
Posts: 13573
Member since: Apr 2009
Discussion about
http://online.wsj.com/article/SB10001424052970204409904574350432677038184.html t wasn't until government stepped into the housing market, during that extraordinary moment of the Great Depression, that tenancy began its long downward spiral. Before the Crash, government played a minuscule role in housing Americans, other than building barracks and constructing temporary housing during wartime and,... [more]
http://online.wsj.com/article/SB10001424052970204409904574350432677038184.html
t wasn't until government stepped into the housing market, during that extraordinary moment of the Great Depression, that tenancy began its long downward spiral. Before the Crash, government played a minuscule role in housing Americans, other than building barracks and constructing temporary housing during wartime and, in a little noticed provision in the 1913 federal tax code, allowing for the deduction of home mortgage interest payments.
Until the early 20th century, holding a mortgage came with a stigma. You were a debtor, and chronic indebtedness was a problem to be avoided like too much drinking or gambling. The four words "keep out of debt" or "pay as you go" appeared in countless advice books. As the YMCA told its young charges, "If you can't pay, don't buy. Go without. Keep on going without." Because of that, many middle-class Americans—even those with a taste for single-family houses—rented. Home Sweet Home didn't lose its sweetness because someone else held the title.
In any case, mortgages were hard to come by. Lenders typically required 50% or more of the purchase price as a down payment. Interest rates were high and terms were short, usually just three to five years. In 1920, John Taylor Boyd Jr., an expert on real-estate finance, lamented that "increasing numbers of our people are finding home ownership too burdensome to attempt." As a result, there were two kinds of homeowners in the United States: working-class folks who built their own houses because they couldn't afford mortgages and the wealthy, who usually paid for their places outright. Even many of the richest rented—because they had better places to invest than in the volatile housing market.
The Depression turned everything on its head. Between 1928, the last year of the boom, and 1933, new housing starts fell by 95%. Half of all mortgages were in default. To shore up the market, Herbert Hoover signed the Federal Home Loan Bank Act in 1932, laying the groundwork for massive federal intervention in the housing market. In 1933, as one of the signature programs of his first 100 days, Frankin Roosevelt created the Home Owners' Loan Corporation to provide low interest loans to help out foreclosed home owners. In 1934, F.D.R. created the Federal Housing Administration, which set standards for home construction, instituted 25- and 30-year mortgages, and cut interest rates. And in 1938, his administration created the Federal National Mortgage Association (Fannie Mae) which created the secondary market in mortgages. In 1944, the federal government extended generous mortgage assistance to returning veterans, most of whom could not have otherwise afforded a house. Together, these innovations had epochal consequences.
Easy credit, underwritten by federal housing programs, boosted the rates of home ownership quickly. By 1950, 55% of Americans had a place they could call their own. By 1970, the figure had risen to 63%. It was now cheaper to buy than to rent. Federal intervention also unleashed vast amounts of capital that turned home construction and real estate into critical economic sectors. By the late 1950s, for the first time, the census bureau began collecting data on new housing starts—which became a leading indicator of the nation's economic vitality.
It's a story riddled with irony—for at the same time that Uncle Sam brought the dream of home ownership to reality—he kept his role mostly hidden, except to the army banking, real-estate and construction lobbyists who rose to protect their industries' newfound gains Tens of millions of Americans owned their own homes because of government programs, but they had no reason to doubt that their home ownership was a result of their own virtue and hard work, their own grit and determination—not because they were the beneficiaries of one of the grandest government programs ever. The only housing programs prominently associated with Washington's policy makers were underfunded, unpopular public housing projects. Chicago's bleak, soulless Robert Taylor Homes and their ilk—not New York's vast Levittown or California's sprawling Lakewood—became the symbol of big government.
Federal housing policies changed the whole landscape of America, creating the sprawlscapes that we now call home, and in the process, gutting inner cities, whose residents, until the civil rights legislation of 1968, were largely excluded from federally backed mortgage programs. Of new housing today, 80% is built in suburbs—the direct legacy of federal policies that favored outlying areas rather than the rehabilitation of city centers. It seemed that segregation was just the natural working of the free market, the result of the sum of countless individual choices about where to live. But the houses were single—and their residents white—because of the invisible hand of government.
But by the 1960s and 1970s, those who had been excluded from the postwar housing boom demanded their own piece of the action—and slowly got it. The newly created Department of Housing and Urban Development expanded home ownership programs for excluded minorities; the 1976 Community Reinvestment Act forced banks to channel resources to underserved neighborhoods; and activists successfully pushed Fannie Mae to underwrite loans to home buyers once considered too risky for conventional loans. Minority home ownership rates crept upward—though they still remained far behind whites. Even at the peak of the most recent real-estate bubble, just under 50% of blacks and Latinos owned their own homes. It's unlikely that minority home ownership rates will rise again for a while. In the last boom year, 2006, almost 53% of blacks and more than 47% of Hispanics assumed subprime mortgages, compared to only 26% of whites. One in 10 black homeowners is likely to face foreclosure proceedings, compared to only one in 25 whites.
During the wild late 1990s and the first years of the new century, the dream of home ownership turned hallucinogenic. The home financing industry—at the impetus of the Clinton and Bush administrations—engaged in the biggest promotion of home ownership in decades. Both pushed for public-private partnerships, with HUD and the government-supported financiers like Fannie Mae serving as the mostly silent partners in a rapidly metastasizing mortgage market. New tools, including the securitization of mortgages and subprime lending, made it possible for more Americans than ever to live the dream or to gamble that someone else would pay them more to make their own dream come true. Anyone could be an investor, anyone could get rich. The notion of home-as-haven, already weak, grew even more and more removed from the notion of home-as-jackpot.
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Response by memito
about 17 years ago
Posts: 294
Member since: Nov 2007
I get the impression that many of the real estate bulls on this board probably started to invest in the 1990s-2000s - when, as the article notes, real estate when from "home-as-haven" to "home-as-jackpot". And as long as our government continues to inflate and manipulate the market to support such homebuyers/sellers, they will continue to have certain advantages over investors in asset classes other than real estate.
The real estate risk/reward equation has been distorted by government and will probably continue to be so given there is no political will to take such subsidies away from groups and individuals that will fight tooth and nail to keep them.
The bigger question is what are the long-term consequences of keeping housing inflated with public money - either via ballouts of banks or simple tax credits? Are we going to bankrupt our nation just to keep a certain investor class and its supporting industries (finance, home-building, etc) happy?
Or should we bite the bullet and allow this asset class to correct and operate without government interference?
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Response by kylewest
about 17 years ago
Posts: 4455
Member since: Aug 2007
Interesting POVs. All I can say is that my personal financial decisions were made by not focusing on market timing, never spending beyond me means which means never over-extending myself, by having long-term goals, excruciatingly researching my RE purchases, and adhering to slow-and-steady-wins-the-race philosophy. I've played by the rules (I don't make them, I accept them and operate within them). I don't cut corners or get fancy with my accounting. But in a capitalist society, exploiting market inefficiencies is how money is made--that's no sin. I started buying RE in the 1989--so sue me? No, I don't think so. As a result of the above approach, I tap this out from a sunny deck in the country after a nice vacation, will return to a renovated apt I love in GV on Sunday p.m. in a comfortable automobile, and feel blessed that I can do all this while still working at a job that I feel passionately about and in which I get to "do good" but doesn't earn me a king's ransom. I've never been much of a philosopher--I'm more a realist. Look at what is going on around you and what you want from life and act accordingly.
One of the great successes of the United States in this century has been the partnership forged by the National Government and the private sector to steadily expand the dream of homeownership to all Americans. In 1934, President Roosevelt created the Federal Housing Administration and made homeownership available to millions of Americans who couldn't afford it before that.
Fifty-one years ago just this month, Harry Truman rewarded service men and women with the GI bill of rights, which created the VA Home Loan Guarantee Program. That extended the dream of homeownership to a whole new generation of Americans. For four decades after that, in the greatest period of expansion of middle class dreams any country has ever seen anywhere in human history, homeownership expanded as incomes rose, jobs increased, the educational level of the American people improved.
But in the 1980's, as the Vice President said, that dream began to slip away. I ran for President in large measure because I wanted to restore that dream, to grow the middle class, shrink the under class, promote the mainstream values of work and responsibility, family and community, and reform Government in a way that would enhance opportunity and shrink bureaucracy.
We've made good progress, but we have to do a lot more. I ask all of you just one more time to look at that chart. And I wish I had a lot of other charts to show you that would reinforce that. Homeownership declines then stabilizes at a lower level. At the same time, more and more American families working harder for the same or lower wages every year, under new and difficult stresses. It seems to me that we have a serious, serious unmet obligation to try to reverse these trends. As Secretary Cisneros says, this drop in homeownership means 1.5 million families who would now be in their own homes if the 46 years of homeownership expansion had not been reversed in the 1980's.
Now we have begun to expand it again. Since 1993, nearly 2.8 million new households have joined the ranks of America's homeowners, nearly twice as many as in the previous 2 years. But we have to do a lot better. The goal of this strategy, to boost homeownership to 67.5 percent by the year 2000, would take us to an all-time high, helping as many as 8 million American families across that threshold.
This is the new way home for the American middle class. We have got to raise incomes in this country. We have got to increase security for people who are doing the right thing, and we have got to make people believe that they can have some permanence and stability in their lives even as they deal with all the changing forces that are out there in this global economy.
As the Vice President and I said in a book we put out in the election campaign in 1992, our economic strategy includes a commitment to work to provide decent, safe, affordable homes to all Americans, and to do it with an alliance of the public and private sector.
I want to say this one more time, and I want to thank again all the people here from the private sector who have worked with Secretary Cisneros on this: Our homeownership strategy will not cost the taxpayers one extra cent. It will not require legislation. It will not add more Federal programs or grow Federal bureaucracy.
So how was this real estate bubble created in the first place?
In 1994, the Clinton Administration went directly to the Department of Housing and Urban Development (HUD), and promoted an initiative called The National Homeownership Strategy, which pushed for looser and more creative lending guidelines from both the public (FHA & Fannie Mae/Freddie Mac) and private sector's lending institutions. They released a document, called "The National Homeownership Strategy: Partners in the American Dream," and here's a telling excerpt:
"For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership."
And it worked: from 1994 to 2004, the percentage of U.S. homeowners rose from roughly 64% to roughly 69%. Loose lending guidelines, continued and exacerbated by the Bush Administration and its artificially low interest rates, made money cheap, easy, and available to everyone, which created a buying frenzy, which, of course, drove up real estate prices, creating the real estate bubble. Never mind the fact that many of these borrowers were simply not qualified for homeownership, and subsequently defaulted, leading to an avalanche of foreclosures, which burst that real estate bubble.
Incidentally the National Homeownership Strategy document was posted on HUD's website until 2007, when HUD removed it, presumably out of embarrassment and fear of denouncement.
The U.S. government specifically condoned and encouraged the subprime mortgage
industry, despite its current cries of outrage. This is our government, that we created, out of complacency and foolishness. We wanted cheap money, they made it a reality, and now we want someone to blame, so we can sleep at night feeling like innocent victims. Look in the mirror, and look at your politicians."
President Bill Clinton has linked increasing homeowner-ship to the
challenge of expanding opportunity for work-ing families. Speaking to
the National Association of Realtors in November 1994, he expressed a
national consensus that "more Americans should own their own
homes, for reasons that are economic and tangible, and reasons that are
emotional and intangible, but go to the heart of what it means to
harbor, to nourish, to expand the American Dream."
*******
To reverse this trend, President Clinton directed HUD Secretary Henry
G. Cisneros to work with leaders in the housing industry,
representatives of nonprofit groups, and officials at all levels of
government to develop a National Homeownership Strategy that would
increase ownership opportunities among populations and commu-nities
with lower than average homeownership rates.
**************
Homeowners also enjoy important tax advantages. The value and
distribution of Federal tax preferences for homeownership, such as the
deductibility of property taxes and mortgage interest and the one-time
exclusion of capital gains, are currently a matter of contentious
debate. It is estimated that three-fourths of the $100 billion foregone in
Federal tax revenues in 1994 due to these preferences will benefit the
wealthiest 20 percent of all households. However, some economists
reply that the comparative benefit would show a tilt toward less affluent
owners if these calculations included the ad-vantage that
owner-occupants enjoy over landlords by not being taxed on the return
on investment they receive by essentially renting to themselves.
Thus the economic evidence is clear in affirming that homeownership is
a good investment that increases wealth for families of all races and
incomes. However, critics of homeownership point out that the
economic benefits of homeownership for lower income and minor-ity
families should also be balanced against its financial risks. The lower
average incomes and educational attainment of these groups make them
particular vulner-able to economic downturns that can result in job loss
and, eventually, foreclosure. Indeed, newly published research on
FHA-insured mortgages indicate that default risk is higher among black
and lower income borrowers, although the explanation for this finding
is far from clear.
******************
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Response by Riversider
about 17 years ago
Posts: 13573
Member since: Apr 2009
HELLO SUBPRIME!!
MAKING FINANCING MORE AVAILABLE, AFFORDABLE, and FLEXIBLE. The
inability (either real or perceived) of many younger families to qualify
for a mortgage is widely recognized as a very serious barrier to
homeownership. The National Homeownership Strategy commits both
government and the mortgage industry to a number of initiatives
designed to:
Cut transaction costs through streamlined regulations and
technological and procedural efficiences.
Reduce downpayment requirements and interest costs by making
terms more flexible, providing subsidies to low- and
moderate-income families, and creating incentives to save for
homeownership.
Increase the availability of alternative financing products in housing
markets throughout the country.
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Response by sidelinesitter
about 17 years ago
Posts: 1596
Member since: Mar 2009
"A man is not a whole and complete man," wrote Walt Whitman, "unless he owns a house and the ground it stands on"
Application of this advice to Manhattan real estate: never buy in a land lease building
n 1997 Congress made the first $500,000 of capital gains on the sale of a home tax-free for a married couple and $250,000 tax-free for a single person. This gave real estate a distinct advantage over other capital investments and distorted investment decisions from that time on. I'm sure you could find a graph that would show the beginnings of the housing bubble in 1997. I'm not blaming the entire crisis on this tax change or on the Clinton Administration but it definitely constituted a significant Governmental puff into the housing bubble.
“Tonight, I propose a new tax cut for homeownership that says to every middle-income working family in this country, if you sell your home, you will not have to pay a capital gains tax on it ever — not ever.”
— President Bill Clinton, at the 1996 Democratic National Convention
Ryan J. Wampler had never made much money selling his own homes.
Starting in 1999, however, he began to do very well. Three times in eight years, Mr. Wampler — himself a home builder and developer — sold his home in the Phoenix area, always for a nice profit. With prices in Phoenix soaring, he made almost $700,000 on the three sales.
And thanks to a tax break proposed by President Bill Clinton and approved by Congress in 1997, he did not have to pay tax on most of that profit. It was a break that had not been available to generations of Americans before him. The benefits also did not apply to other investments, be they stocks, bonds or stakes in a small business. Those gains were all taxed at rates of up to 20 percent.
The different tax treatments gave people a new incentive to plow ever more money into real estate, and they did so. “When you give that big an incentive for people to buy and sell homes,” said Mr. Wampler, 44, a mild-mannered native of Phoenix who has two children, “they are going to buy and sell homes.”
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Response by Riversider
about 17 years ago
Posts: 13573
Member since: Apr 2009
By favoring real estate, the tax code pushed many Americans to begin thinking of their houses more as an investment than as a place to live. It helped change the national conversation about housing. Not only did real estate look like a can’t-miss investment for much of the last decade, it was also a tax-free one.
Together with the other housing subsidies that had already been in the tax code — the mortgage-interest deduction chief among them — the law gave people a motive to buy more and more real estate. Lax lending standards and low interest rates then gave people the means to do so.
Referring to the special treatment for capital gains on homes, Charles O. Rossotti, the Internal Revenue Service commissioner from 1997 to 2002, said: “Why insist in effect that they put it in housing to get that benefit? Why not let them invest in other things that might be more productive, like stocks and bonds?”
The provision — part of a sprawling bill called the Taxpayer Relief Act of 1997 — exempted most home sales from capital-gains taxes. The first $500,000 in gains from any home sale was exempt from taxes for a married couple, as long as they had lived in the home for at least two of the previous five years. (For singles, the first $250,000 was exempt.)
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Response by nyc10022
about 17 years ago
Posts: 9868
Member since: Aug 2008
> Application of this advice to Manhattan real estate: never buy in a land lease building
Actually, the application to Manhattan would be... don't buy an apartment. Certainly not co-ops, where you just own shares in a corporation. Or even a condo.
You have to buy a townhouse and the land. Of course, you barely get any. I figure you need a freestanding house for this to apply.
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Response by aboutready
about 17 years ago
Posts: 16354
Member since: Oct 2007
riversider, i will definitely agree that the change in the tax treatment of profits on sales of homes encouraged sales. on the one hand it provided mobility, which is good. on the other hand, it discouraged viewing home ownership decisions as a part of long-term financial planning, which, as we have seen, was very bad.
i've always believed that we had more than one real estate "bubble" over the past ten or so years. the first one i distinctly noted in around 1998, and lasted until 2001. and then the mother of all bubbles started to take off a couple of years later. it seems to have been an additive phenomenon.
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Response by Rhino86
about 17 years ago
Posts: 4925
Member since: Sep 2006
Does a man really own, if the loan is 90% of the value or more? What if he owns shares in a corporation that grant him the use of a specific apartment unit?
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Response by petrfitz
about 17 years ago
Posts: 2533
Member since: Mar 2008
Riversider is correct all of the disaster caused over the last 8 years of unchecked republican rule is Bill Clintons fault. It's either his fault or the fault of the gays and Mexican
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Response by Riversider
about 17 years ago
Posts: 13573
Member since: Apr 2009
Bill Clinton filled up the caboose with Coal and told the Engineer to full throttle. George W failed to tell the Engineer to hit the brakes.
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Response by Riversider
about 17 years ago
Posts: 13573
Member since: Apr 2009
riversider, i will definitely agree that the change in the tax treatment of profits on sales of homes encouraged sales. on the one hand it provided mobility, which is good
A.R. i don't see your point. Under the old rules I could sell in NY move to California and buy a home of equal or greater value. No I think the new rules weren't to facilitate job mobility but to encourage the home as an investment which we now know meant higher housing turn-over and flipping.
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Response by columbiacounty
about 17 years ago
Posts: 12708
Member since: Jan 2009
still don't follow...it would seem that the prior law which necisitated buying another house in order to avoid cap gain would have been encouraging to purchasing as well.
Interesting graph. New Home Sales really took off around 1997
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Response by aboutready
about 17 years ago
Posts: 16354
Member since: Oct 2007
i didn't say they were created to facilitate mobility, i said that was one of the benefits. and it isn't always so easy to sell and buy at the same time. many people rent for a year or two when making major moves, particularly when children and schools are involved, so not having to purchase within a certain time frame to avoid taxes would allow for greater mobility.
in parts of the there was a bubble create in the late '90s. but if you look at income/home price ratios, they really don't begin to skew to the ridiculous until underwriting standards flew out the door in 2003-04ish. i bought a condo in NYC in 2000 (closed in 2001) with 10% down and needed and got mortgage insurance. the 10% HELOC at closing had not yet reared its ugly head, and for NYC at least, the effect of that beast on condo sales cannot be understated.
home ownership has been encouraged in this country, fairly or unfairly, wisely or unwisely, for years. but only in the bush era did the concepts of LTV, documentation, affordability, income/mortgage ratios go down the toilet. now, with FHA doing some lovely underwriting, the government has firmly entrenched itself where most banks will no longer tread.
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Response by Rhino86
about 17 years ago
Posts: 4925
Member since: Sep 2006
"in parts of the there was a bubble create in the late '90s. but if you look at income/home price ratios, they really don't begin to skew to the ridiculous until underwriting standards flew out the door in 2003-04ish"
This is the WHOLE story. This is what bulls do not understand. Without this, 2002-2003 is a normal cycle top. With normal underwriting standards, this is the least downside the correction should expect, if not an overshoot.
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Response by aboutready
about 17 years ago
Posts: 16354
Member since: Oct 2007
rhino, you're preaching to the converted. people just think i'm insane when i call for a possible return to 1998ish pricing. but it could take awhile. never underestimate the determination of the powers that be to keep a bubble afloat, even as it floats down. i think even california is in for a world more hurt. fundamentally, i don't see how long they can continue to be successful, until after the mid-term elections, maybe?
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Response by sidelinesitter
about 17 years ago
Posts: 1596
Member since: Mar 2009
"This is the WHOLE story. This is what bulls do not understand. Without this, 2002-2003 is a normal cycle top. With normal underwriting standards, this is the least downside the correction should expect, if not an overshoot."
This is interesting. It circles back to a theme from about six months ago where people were saying essentially, "Look, you have to ignore bubble prices (say, 2006-08) because they just weren't based on anything sustainable and the conditions that created them have changed and aren't coming back. Look back to early 2000s prices and fundamentals like home price/income and price/rent for a place to start on recalibrating the concept of value." From memory, some of the proponents of this view - which I agree with - were jimstreeteasy (what ever happened to him, by the way?), columbiacountry and Downtownster(?).
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Response by Rhino86
about 17 years ago
Posts: 4925
Member since: Sep 2006
I would agree with that. It parallels the financial industry. Some of the weakness is cyclical; some of it is a permenant shift. You could look at the change in the medical industry in the 1970s. You could further stretch and say the Reagan politics were part and parcel and that as a nation we may experience a lasting shift left. Therefore, financial excess/leverage may never be allowed to such extremes to happen again. As such, the relationships of price to rent and price to income observed from 2004 to 2008 need be thrown out altogether.
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Response by Riversider
about 17 years ago
Posts: 13573
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From my neck of the woods it seems we are at 2004 level prices, but without the necessary buyer psychology or economic fundamentals to suggest an upturn. If anything, I see more people listing to sell.
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Response by sidelinesitter
about 17 years ago
Posts: 1596
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Riversider - I would go with 2005, based on the following logic. A lot a deals are getting done around 2004 levels, but a decent number are still happening as high as 2006 levels (call it 10-15% below 2007/8 peak) or at least 2005, while very few are yet happening below 2004 levels. 2004 may be the mode of the frequency distribution, but I think there is a skew to more recent price points, so the mean feels more like 2005 than 2004. I also think that even at 2004/5 prices there is more air to come out of the balloon; loose credit for condos and the real estate gold rush mentality had a pretty good grip on Manhattan by that point and more of that still needs to be squeezed out.
What is interesting is that there seems to be some consolidation around 2004 levels. Six months ago, trades at 2004 comps were one here, one there. Over the months, they have become more and more common, but trades clearly below 2004 remain rare, so my sense is that currently a 2004-ish price can bring a buyer out of the woodwork for a fairly wide range of product. I just wonder how many more such buyers there are and whether the market will hold around 2004 levels once more sellers come back after Labor Day. I'm betting no, but have no idea how to predict the timing and slope of further adjustment.
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Response by columbiacounty
about 17 years ago
Posts: 12708
Member since: Jan 2009
how about splitting the difference? perhaps we are at july 14th, 2004 prices?
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Response by Rhino86
about 17 years ago
Posts: 4925
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Any ask is backward looking. Put on the market TODAY before Labor Day, I'd err on the side of early. Also depletion of pent up buyers, which I believe even without proof.
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Response by Riversider
about 17 years ago
Posts: 13573
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Not sure about sidelinesitter, but I was shooting from the hip, based on anectdotal evidence. Not sure how anyone can have a more precise opinion.
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Response by columbiacounty
about 17 years ago
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was trying to be light hearted. not my strength, for sure.
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Response by sunclaus1
about 17 years ago
Posts: 139
Member since: Jul 2009
Sideline/ Columbia Where do you think we at out east in the Hamptons? Can we slide faster out there than Manhattan / /?
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Response by columbiacounty
about 17 years ago
Posts: 12708
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i have no idea. was visiting out there recently. can only say---different strokes....
nice (no gorgeous) beaches but the traffic situation (and everyone's denial about it) is truly hilarious. and i don't mean the traffic getting there---and spare me the backroad speech.
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Response by sidelinesitter
about 17 years ago
Posts: 1596
Member since: Mar 2009
"was trying to be light hearted. not my strength, for sure." but isn't your lack of lightheartedness your unique charm?
"I was shooting from the hip, based on anectdotal evidence. Not sure how anyone can have a more precise opinion" Also shooting from the hip, based on a different take on presumably the same anecdotal evidence (comps threads, other SE surfing, etc). If someone wanted to take every closing and comp it, where possible, to same unit or same line previous sales, you could probably get a pretty good sense, but that would require a brute force approach as there is no way that I know of to screen for it.
sunclaus1 - no idea on Hamptons. Have only ever been there three times in my life.
I get the impression that many of the real estate bulls on this board probably started to invest in the 1990s-2000s - when, as the article notes, real estate when from "home-as-haven" to "home-as-jackpot". And as long as our government continues to inflate and manipulate the market to support such homebuyers/sellers, they will continue to have certain advantages over investors in asset classes other than real estate.
The real estate risk/reward equation has been distorted by government and will probably continue to be so given there is no political will to take such subsidies away from groups and individuals that will fight tooth and nail to keep them.
The bigger question is what are the long-term consequences of keeping housing inflated with public money - either via ballouts of banks or simple tax credits? Are we going to bankrupt our nation just to keep a certain investor class and its supporting industries (finance, home-building, etc) happy?
Or should we bite the bullet and allow this asset class to correct and operate without government interference?
Interesting POVs. All I can say is that my personal financial decisions were made by not focusing on market timing, never spending beyond me means which means never over-extending myself, by having long-term goals, excruciatingly researching my RE purchases, and adhering to slow-and-steady-wins-the-race philosophy. I've played by the rules (I don't make them, I accept them and operate within them). I don't cut corners or get fancy with my accounting. But in a capitalist society, exploiting market inefficiencies is how money is made--that's no sin. I started buying RE in the 1989--so sue me? No, I don't think so. As a result of the above approach, I tap this out from a sunny deck in the country after a nice vacation, will return to a renovated apt I love in GV on Sunday p.m. in a comfortable automobile, and feel blessed that I can do all this while still working at a job that I feel passionately about and in which I get to "do good" but doesn't earn me a king's ransom. I've never been much of a philosopher--I'm more a realist. Look at what is going on around you and what you want from life and act accordingly.
http://www.presidency.ucsb.edu/ws/index.php?pid=51448
and a word from Bill Clinton.....
One of the great successes of the United States in this century has been the partnership forged by the National Government and the private sector to steadily expand the dream of homeownership to all Americans. In 1934, President Roosevelt created the Federal Housing Administration and made homeownership available to millions of Americans who couldn't afford it before that.
Fifty-one years ago just this month, Harry Truman rewarded service men and women with the GI bill of rights, which created the VA Home Loan Guarantee Program. That extended the dream of homeownership to a whole new generation of Americans. For four decades after that, in the greatest period of expansion of middle class dreams any country has ever seen anywhere in human history, homeownership expanded as incomes rose, jobs increased, the educational level of the American people improved.
But in the 1980's, as the Vice President said, that dream began to slip away. I ran for President in large measure because I wanted to restore that dream, to grow the middle class, shrink the under class, promote the mainstream values of work and responsibility, family and community, and reform Government in a way that would enhance opportunity and shrink bureaucracy.
We've made good progress, but we have to do a lot more. I ask all of you just one more time to look at that chart. And I wish I had a lot of other charts to show you that would reinforce that. Homeownership declines then stabilizes at a lower level. At the same time, more and more American families working harder for the same or lower wages every year, under new and difficult stresses. It seems to me that we have a serious, serious unmet obligation to try to reverse these trends. As Secretary Cisneros says, this drop in homeownership means 1.5 million families who would now be in their own homes if the 46 years of homeownership expansion had not been reversed in the 1980's.
Now we have begun to expand it again. Since 1993, nearly 2.8 million new households have joined the ranks of America's homeowners, nearly twice as many as in the previous 2 years. But we have to do a lot better. The goal of this strategy, to boost homeownership to 67.5 percent by the year 2000, would take us to an all-time high, helping as many as 8 million American families across that threshold.
This is the new way home for the American middle class. We have got to raise incomes in this country. We have got to increase security for people who are doing the right thing, and we have got to make people believe that they can have some permanence and stability in their lives even as they deal with all the changing forces that are out there in this global economy.
As the Vice President and I said in a book we put out in the election campaign in 1992, our economic strategy includes a commitment to work to provide decent, safe, affordable homes to all Americans, and to do it with an alliance of the public and private sector.
I want to say this one more time, and I want to thank again all the people here from the private sector who have worked with Secretary Cisneros on this: Our homeownership strategy will not cost the taxpayers one extra cent. It will not require legislation. It will not add more Federal programs or grow Federal bureaucracy.
http://www.articlesbase.com/finance-articles/the-true-story-behind-the-economic-meltdown-hud-the-clinton-bush-administrations-and-the-national-homeownership-strategy-779266.html
So how was this real estate bubble created in the first place?
In 1994, the Clinton Administration went directly to the Department of Housing and Urban Development (HUD), and promoted an initiative called The National Homeownership Strategy, which pushed for looser and more creative lending guidelines from both the public (FHA & Fannie Mae/Freddie Mac) and private sector's lending institutions. They released a document, called "The National Homeownership Strategy: Partners in the American Dream," and here's a telling excerpt:
"For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership."
And it worked: from 1994 to 2004, the percentage of U.S. homeowners rose from roughly 64% to roughly 69%. Loose lending guidelines, continued and exacerbated by the Bush Administration and its artificially low interest rates, made money cheap, easy, and available to everyone, which created a buying frenzy, which, of course, drove up real estate prices, creating the real estate bubble. Never mind the fact that many of these borrowers were simply not qualified for homeownership, and subsequently defaulted, leading to an avalanche of foreclosures, which burst that real estate bubble.
Incidentally the National Homeownership Strategy document was posted on HUD's website until 2007, when HUD removed it, presumably out of embarrassment and fear of denouncement.
The U.S. government specifically condoned and encouraged the subprime mortgage
industry, despite its current cries of outrage. This is our government, that we created, out of complacency and foolishness. We wanted cheap money, they made it a reality, and now we want someone to blame, so we can sleep at night feeling like innocent victims. Look in the mirror, and look at your politicians."
http://www.huduser.org/publications/txt/hdbrf2.txt
HOME OWNERSHIP HUD MANUAL....
President Bill Clinton has linked increasing homeowner-ship to the
challenge of expanding opportunity for work-ing families. Speaking to
the National Association of Realtors in November 1994, he expressed a
national consensus that "more Americans should own their own
homes, for reasons that are economic and tangible, and reasons that are
emotional and intangible, but go to the heart of what it means to
harbor, to nourish, to expand the American Dream."
*******
To reverse this trend, President Clinton directed HUD Secretary Henry
G. Cisneros to work with leaders in the housing industry,
representatives of nonprofit groups, and officials at all levels of
government to develop a National Homeownership Strategy that would
increase ownership opportunities among populations and commu-nities
with lower than average homeownership rates.
**************
Homeowners also enjoy important tax advantages. The value and
distribution of Federal tax preferences for homeownership, such as the
deductibility of property taxes and mortgage interest and the one-time
exclusion of capital gains, are currently a matter of contentious
debate. It is estimated that three-fourths of the $100 billion foregone in
Federal tax revenues in 1994 due to these preferences will benefit the
wealthiest 20 percent of all households. However, some economists
reply that the comparative benefit would show a tilt toward less affluent
owners if these calculations included the ad-vantage that
owner-occupants enjoy over landlords by not being taxed on the return
on investment they receive by essentially renting to themselves.
Thus the economic evidence is clear in affirming that homeownership is
a good investment that increases wealth for families of all races and
incomes. However, critics of homeownership point out that the
economic benefits of homeownership for lower income and minor-ity
families should also be balanced against its financial risks. The lower
average incomes and educational attainment of these groups make them
particular vulner-able to economic downturns that can result in job loss
and, eventually, foreclosure. Indeed, newly published research on
FHA-insured mortgages indicate that default risk is higher among black
and lower income borrowers, although the explanation for this finding
is far from clear.
******************
HELLO SUBPRIME!!
MAKING FINANCING MORE AVAILABLE, AFFORDABLE, and FLEXIBLE. The
inability (either real or perceived) of many younger families to qualify
for a mortgage is widely recognized as a very serious barrier to
homeownership. The National Homeownership Strategy commits both
government and the mortgage industry to a number of initiatives
designed to:
Cut transaction costs through streamlined regulations and
technological and procedural efficiences.
Reduce downpayment requirements and interest costs by making
terms more flexible, providing subsidies to low- and
moderate-income families, and creating incentives to save for
homeownership.
Increase the availability of alternative financing products in housing
markets throughout the country.
"A man is not a whole and complete man," wrote Walt Whitman, "unless he owns a house and the ground it stands on"
Application of this advice to Manhattan real estate: never buy in a land lease building
http://voices.washingtonpost.com/ezra-klein/2009/05/bill_clinton_and_the_housing_b.html
n 1997 Congress made the first $500,000 of capital gains on the sale of a home tax-free for a married couple and $250,000 tax-free for a single person. This gave real estate a distinct advantage over other capital investments and distorted investment decisions from that time on. I'm sure you could find a graph that would show the beginnings of the housing bubble in 1997. I'm not blaming the entire crisis on this tax change or on the Clinton Administration but it definitely constituted a significant Governmental puff into the housing bubble.
http://www.nytimes.com/2008/12/19/business/19tax.html
“Tonight, I propose a new tax cut for homeownership that says to every middle-income working family in this country, if you sell your home, you will not have to pay a capital gains tax on it ever — not ever.”
— President Bill Clinton, at the 1996 Democratic National Convention
Ryan J. Wampler had never made much money selling his own homes.
Starting in 1999, however, he began to do very well. Three times in eight years, Mr. Wampler — himself a home builder and developer — sold his home in the Phoenix area, always for a nice profit. With prices in Phoenix soaring, he made almost $700,000 on the three sales.
And thanks to a tax break proposed by President Bill Clinton and approved by Congress in 1997, he did not have to pay tax on most of that profit. It was a break that had not been available to generations of Americans before him. The benefits also did not apply to other investments, be they stocks, bonds or stakes in a small business. Those gains were all taxed at rates of up to 20 percent.
The different tax treatments gave people a new incentive to plow ever more money into real estate, and they did so. “When you give that big an incentive for people to buy and sell homes,” said Mr. Wampler, 44, a mild-mannered native of Phoenix who has two children, “they are going to buy and sell homes.”
By favoring real estate, the tax code pushed many Americans to begin thinking of their houses more as an investment than as a place to live. It helped change the national conversation about housing. Not only did real estate look like a can’t-miss investment for much of the last decade, it was also a tax-free one.
Together with the other housing subsidies that had already been in the tax code — the mortgage-interest deduction chief among them — the law gave people a motive to buy more and more real estate. Lax lending standards and low interest rates then gave people the means to do so.
Referring to the special treatment for capital gains on homes, Charles O. Rossotti, the Internal Revenue Service commissioner from 1997 to 2002, said: “Why insist in effect that they put it in housing to get that benefit? Why not let them invest in other things that might be more productive, like stocks and bonds?”
The provision — part of a sprawling bill called the Taxpayer Relief Act of 1997 — exempted most home sales from capital-gains taxes. The first $500,000 in gains from any home sale was exempt from taxes for a married couple, as long as they had lived in the home for at least two of the previous five years. (For singles, the first $250,000 was exempt.)
> Application of this advice to Manhattan real estate: never buy in a land lease building
Actually, the application to Manhattan would be... don't buy an apartment. Certainly not co-ops, where you just own shares in a corporation. Or even a condo.
You have to buy a townhouse and the land. Of course, you barely get any. I figure you need a freestanding house for this to apply.
riversider, i will definitely agree that the change in the tax treatment of profits on sales of homes encouraged sales. on the one hand it provided mobility, which is good. on the other hand, it discouraged viewing home ownership decisions as a part of long-term financial planning, which, as we have seen, was very bad.
i've always believed that we had more than one real estate "bubble" over the past ten or so years. the first one i distinctly noted in around 1998, and lasted until 2001. and then the mother of all bubbles started to take off a couple of years later. it seems to have been an additive phenomenon.
Does a man really own, if the loan is 90% of the value or more? What if he owns shares in a corporation that grant him the use of a specific apartment unit?
Riversider is correct all of the disaster caused over the last 8 years of unchecked republican rule is Bill Clintons fault. It's either his fault or the fault of the gays and Mexican
Bill Clinton filled up the caboose with Coal and told the Engineer to full throttle. George W failed to tell the Engineer to hit the brakes.
riversider, i will definitely agree that the change in the tax treatment of profits on sales of homes encouraged sales. on the one hand it provided mobility, which is good
A.R. i don't see your point. Under the old rules I could sell in NY move to California and buy a home of equal or greater value. No I think the new rules weren't to facilitate job mobility but to encourage the home as an investment which we now know meant higher housing turn-over and flipping.
still don't follow...it would seem that the prior law which necisitated buying another house in order to avoid cap gain would have been encouraging to purchasing as well.
http://static.seekingalpha.com/uploads/2008/5/29/newhomesales527_1.png
Interesting graph. New Home Sales really took off around 1997
i didn't say they were created to facilitate mobility, i said that was one of the benefits. and it isn't always so easy to sell and buy at the same time. many people rent for a year or two when making major moves, particularly when children and schools are involved, so not having to purchase within a certain time frame to avoid taxes would allow for greater mobility.
in parts of the there was a bubble create in the late '90s. but if you look at income/home price ratios, they really don't begin to skew to the ridiculous until underwriting standards flew out the door in 2003-04ish. i bought a condo in NYC in 2000 (closed in 2001) with 10% down and needed and got mortgage insurance. the 10% HELOC at closing had not yet reared its ugly head, and for NYC at least, the effect of that beast on condo sales cannot be understated.
home ownership has been encouraged in this country, fairly or unfairly, wisely or unwisely, for years. but only in the bush era did the concepts of LTV, documentation, affordability, income/mortgage ratios go down the toilet. now, with FHA doing some lovely underwriting, the government has firmly entrenched itself where most banks will no longer tread.
"in parts of the there was a bubble create in the late '90s. but if you look at income/home price ratios, they really don't begin to skew to the ridiculous until underwriting standards flew out the door in 2003-04ish"
This is the WHOLE story. This is what bulls do not understand. Without this, 2002-2003 is a normal cycle top. With normal underwriting standards, this is the least downside the correction should expect, if not an overshoot.
rhino, you're preaching to the converted. people just think i'm insane when i call for a possible return to 1998ish pricing. but it could take awhile. never underestimate the determination of the powers that be to keep a bubble afloat, even as it floats down. i think even california is in for a world more hurt. fundamentally, i don't see how long they can continue to be successful, until after the mid-term elections, maybe?
"This is the WHOLE story. This is what bulls do not understand. Without this, 2002-2003 is a normal cycle top. With normal underwriting standards, this is the least downside the correction should expect, if not an overshoot."
This is interesting. It circles back to a theme from about six months ago where people were saying essentially, "Look, you have to ignore bubble prices (say, 2006-08) because they just weren't based on anything sustainable and the conditions that created them have changed and aren't coming back. Look back to early 2000s prices and fundamentals like home price/income and price/rent for a place to start on recalibrating the concept of value." From memory, some of the proponents of this view - which I agree with - were jimstreeteasy (what ever happened to him, by the way?), columbiacountry and Downtownster(?).
I would agree with that. It parallels the financial industry. Some of the weakness is cyclical; some of it is a permenant shift. You could look at the change in the medical industry in the 1970s. You could further stretch and say the Reagan politics were part and parcel and that as a nation we may experience a lasting shift left. Therefore, financial excess/leverage may never be allowed to such extremes to happen again. As such, the relationships of price to rent and price to income observed from 2004 to 2008 need be thrown out altogether.
From my neck of the woods it seems we are at 2004 level prices, but without the necessary buyer psychology or economic fundamentals to suggest an upturn. If anything, I see more people listing to sell.
Riversider - I would go with 2005, based on the following logic. A lot a deals are getting done around 2004 levels, but a decent number are still happening as high as 2006 levels (call it 10-15% below 2007/8 peak) or at least 2005, while very few are yet happening below 2004 levels. 2004 may be the mode of the frequency distribution, but I think there is a skew to more recent price points, so the mean feels more like 2005 than 2004. I also think that even at 2004/5 prices there is more air to come out of the balloon; loose credit for condos and the real estate gold rush mentality had a pretty good grip on Manhattan by that point and more of that still needs to be squeezed out.
What is interesting is that there seems to be some consolidation around 2004 levels. Six months ago, trades at 2004 comps were one here, one there. Over the months, they have become more and more common, but trades clearly below 2004 remain rare, so my sense is that currently a 2004-ish price can bring a buyer out of the woodwork for a fairly wide range of product. I just wonder how many more such buyers there are and whether the market will hold around 2004 levels once more sellers come back after Labor Day. I'm betting no, but have no idea how to predict the timing and slope of further adjustment.
how about splitting the difference? perhaps we are at july 14th, 2004 prices?
Any ask is backward looking. Put on the market TODAY before Labor Day, I'd err on the side of early. Also depletion of pent up buyers, which I believe even without proof.
Not sure about sidelinesitter, but I was shooting from the hip, based on anectdotal evidence. Not sure how anyone can have a more precise opinion.
was trying to be light hearted. not my strength, for sure.
Sideline/ Columbia Where do you think we at out east in the Hamptons? Can we slide faster out there than Manhattan / /?
i have no idea. was visiting out there recently. can only say---different strokes....
nice (no gorgeous) beaches but the traffic situation (and everyone's denial about it) is truly hilarious. and i don't mean the traffic getting there---and spare me the backroad speech.
"was trying to be light hearted. not my strength, for sure." but isn't your lack of lightheartedness your unique charm?
"I was shooting from the hip, based on anectdotal evidence. Not sure how anyone can have a more precise opinion" Also shooting from the hip, based on a different take on presumably the same anecdotal evidence (comps threads, other SE surfing, etc). If someone wanted to take every closing and comp it, where possible, to same unit or same line previous sales, you could probably get a pretty good sense, but that would require a brute force approach as there is no way that I know of to screen for it.
sunclaus1 - no idea on Hamptons. Have only ever been there three times in my life.