NY Times housing eulogy

Two things I never understood about the real estate craze: 1) as property prices increased, the banks and the media encouraged homeowners to tap their "equity" through HELOCs--as if by not taking on debt you were wasting an asset, and 2) people were encouraged to trade up to a bigger home you to make even more money. Ironically, the people who did best in the bubble were net sellers of property, like retirees downsizing or moving to florida or somewhere else cheaper.

When you home is worth more, it's not really an asset you can spend since you still need housing--that is a misconception or illusion that was perpetuated by many people.

This makes sense. For banks they earned interest on a collateralized loan. It was good for the bank(or os it seemed). The banks were never looking out for the borrower. The media promoted home ownership for good reason, it built ratings.

In hindsight the perceived value of the asset should be marked down by both the banks and the home owner the more it increases. Banks should have required larger not smaller down payments as prices increased in the event prices decreased(reversion to mean and all).

So how come the financial pundits get a pass on all this?

Greenspan definitely doesn't get a pass. While he was probably just a puppet mouthpiece, he did say in 2003 or so, that Americans should take out adjustable rate mortgages. That guy is an idiot with no moral conscience.

I was talking about the guys who wrote in Barrons or appeared on CNBC....

but point taken on Greenspan and the Fed

All over the media, whether it be the New York Times, Barron's, CNBC, there was talk about the Baby Boon generation approaching retirement, and the advantage of buying a vacation/retirement home in advance of this demand. There was so much shilling for property investment, it was a mania in some ways worse (more treacherous) than the tech/telecom stock craze of the late 90s because these were purchases financed with debt and certainly less liquid. It wasn't until the property craze that you saw young 20 somethings buying property. Back in the 80s, if you were a very young buyer in NY, you were 29 yo.

And this article never touches upon the increased carrying costs of real estste - particularly real estate taxes. For the coup de grace - the end of tax deductibility of so called home equity loans, limits on deductibility on home mortgages, and the long called for tie in of mortgage rates with risk.

The politicians can be expected to maintain deductibility. Barney Frank himself said that while he would do it differently if we were starting from scratch(if you believe that) he felt it impossible to remove the supports that prop up home values considering that people bought on the expectation that these programs would be there and removing them would crush home prices.

And now the real reason, NAR,NHB and the banks would be dead set against. And the banks still have an impaired balance sheet, so anything that reduces the value of collateral backing home equity or mortgage loans would be a non-starter.

"The politicians can be expected to maintain deductibility. Barney Frank himself said that while he would do it differently if we were starting from scratch(if you believe that) he felt it impossible to remove the supports that prop up home values considering that people bought on the expectation that these programs would be there and removing them would crush home prices."

SURE, the $ that goes to housing will stop going there ONLY after the decision is: Have your Social Security check OR have your home value artificially increased by the gov. I see the same pattern with the wars, everything is fine till the elderly are told the entitlements are unaffordable. 1st thing they say: CUT THE MILITARY MACHINE! LMAO!!!

Even Bill Gross came out in favor of continuing the status quo in some fashion. He said the gov't needs to continue the TBA market, which is a euphemism for maintaining Fannie/Freddie guarantor role

agreed with notadmin, its time to start phasing out the mortgage deduction.

even Bill Gross said sth self-serving !? OMG who saw that one coming!?

you do understand that the guy has an interest in having his investments in mtg pay off, right?

Has anyone considered that if home prices match inflation or beat it by just one percentage point, then this is arguably better than treasuries which is not tax deferred and ony pays 2.6% on the ten year or 3.7% on the thirty year. Slightly exceeding or matching inflation when adding tax deferred compounding the advantages over bonds and to a lesser extent equities real estate is superior. And unlike stocks which can go to zero, the odds of a home declining 100% are significantly less.

WTF? Bc a home in your estimation can never be zero, it is a better risk profile than a us treasury? What the f'k?

The risk of dying from smoking (immediate death) is zero, so smoking is less risky than running (cause there is .000000001%) that a heart attack and death may occur? WTF ?

Djia will go to zero? WTF r you stating?

" And unlike stocks which can go to zero, the odds of a home declining 100% are significantly less. "

Except when you leverage 5x.

And I don't remember treasuries having $20k closing costs, maintenance, etc.

> 2) people were encouraged to trade up to a bigger home you to make even more money. Ir

Actually, this makes perfect sense, (until it doesn't)
In a bull market, leverage pays. It's smart. In fact, it's brilliant.
However, you need to know when to sell high, and GTFO.
When the momentum stops, sell everything, (and retire)

What you overlook is that the risk is asymmetric.
If the house goes up 100000%, you keep it all.
If it drops 50%, you walk away.
These is the best "house odds" you will ever get.

typical... just when the body is declared dead, it miraculously rises from the dead.

> If the house goes up 100000%, you keep it all.
> If it drops 50%, you walk away.

Of course, leveraged, you've lost 100%

> In a bull market, leverage pays. It's smart. In fact, it's brilliant

Except for that part of course where most people miss bull markets and bet wrong. But, hey....

This always makes me laugh...
Ever seen a game of 3 card Monty?
It used to be a relatively prominent feature of NYC streets.
To see it is to realize that to play you are getting 'gamed'.
To look at the housing mess and the wall street mess is to realize that there is an element of 3 card Monty in all these things. Like the surprised tourist that gets fleeced for $100 and can't believe the game is not legit many wander there days wondering how the equity/Re game fleeced them.
I'll never forget how confused I was wrt refi. Your taking money out of your house???
For what? I could understand business or investment but for a pool/vacation/new bathroom?
It made no business sense to me. Where was the plan? What happens if RE does not go up forever...
Even Red Woods have a limit.

Well said.

falcogold1

This always makes me laugh...
Ever seen a game of 3 card Monty?
It used to be a relatively prominent feature of NYC streets.
To see it is to realize that to play you are getting 'gamed'.
To look at the housing mess and the wall street mess is to realize that there is an element of 3 card Monty in all these things. Like the surprised tourist that gets fleeced for $100 and can't believe the game is not legit many wander there days wondering how the equity/Re game fleeced them.
I'll never forget how confused I was wrt refi. Your taking money out of your house???
For what? I could understand business or investment but for a pool/vacation/new bathroom?
It made no business sense to me. Where was the plan? What happens if RE does not go up forever...
Even Red Woods have a limit.