The housing bill was signed by the President Friday, and I say it’s a good thing.Not for the precedent it sets – nationalizing markets is not my thing.
But because the system had ground to a halt, for reasons I will be happy to explain if you want to get into it. We can talk about secondary markets and bad underwriting policies and how Washington Mutual made a tra-zillion dollars (at first) writing Option-Arm loans, great for the P&L in the short run until all the loans went bad.
The reason we needed this action at this time, in my opinion, is because the distress in the market at the moment is not cyclical.
When our housing decline started earlier this decade in Colorado, it was because of the economy. The tech bubble and 9/11 did us in, and the foreclosures here began piling up in 2005.
The last time the national housing market dipped, it was because of the economy. Major job losses in the early 90s, primarily tied to the downsizing of the defense industry, caused people to lose their jobs, which caused local economies to deteriorate.
Look at Michigan over the past few years... job losses first, home prices followed.
This time it’s different.
Initially, it wasn’t the economy that undid this market. It was a cycle of speculation and greed that drove houses to unsustainable values. It was a game, underwritten (at first) by Countrywide, Washington Mutual, and an army of mortgage brokers who were having a great time “living in the moment”.
It wasn’t a recession that killed the housing market… it was the housing market that started a recession.
Job losses are coming now – massive ones, at that. It’s not good out there in many parts of the country. Any service or trade tied to housing, or the equity that was created in people’s homes, is not a good one to be in at the moment – and that basically means all of us.
The job losses this time are coming AFTER the housing market decline, not before it. If you don't stabilize this market, the job losses will only accelerate.
In the 90s, during California’s last major housing decline, there were still two times as many private party sales as foreclosures. This year, California will see twice as many foreclosure purchases as private party sales.
Reread that sentence, because it’s key.
Values are in freefall in Las Vegas (30% in the past year, according to Case Shiller) and San Diego (29%, according to the same report). Denver is down 4.7%, which makes our market one of the steadiest in the country by comparison.
So the government comes up with a powerful prescription designed to address the catastrophic losses in markets like Las Vegas and San Diego, to stabilize values in the hardest hit areas. Yet Denver, with a relatively mild 4.7% annual decline (and a current streak of six straight months of appreciation, according to Case Shiller), gets to benefit from the strong and heavy medicine this bill aims to use to remedy the national economy.
Massive injections of money into the capital markets. Money to lend. Money to borrow.
The credit markets had frozen. No one would buy loans from banks. Therefore banks had no money to lend. Even if you lived in a stable market like Denver, and had a ready, willing and able buyer, financing was completely uncertain.
Is that going to help you sell your home?
The government is buying loans investors don’t want, and at a significant discount.
This time it’s different.
Initially, it wasn’t the economy that undid this market. It was a cycle of speculation and greed that drove houses to unsustainable values. It was a game, underwritten (at first) by Countrywide, Washington Mutual, and an army of mortgage brokers who were having a great time “living in the moment”.
It wasn’t a recession that killed the housing market… it was the housing market that started a recession.
Job losses are coming now – massive ones, at that. It’s not good out there in many parts of the country. Any service or trade tied to housing, or the equity that was created in people’s homes, is not a good one to be in at the moment – and that basically means all of us.
The job losses this time are coming AFTER the housing market decline, not before it. If you don't stabilize this market, the job losses will only accelerate.
In the 90s, during California’s last major housing decline, there were still two times as many private party sales as foreclosures. This year, California will see twice as many foreclosure purchases as private party sales.
Reread that sentence, because it’s key.
Values are in freefall in Las Vegas (30% in the past year, according to Case Shiller) and San Diego (29%, according to the same report). Denver is down 4.7%, which makes our market one of the steadiest in the country by comparison.
So the government comes up with a powerful prescription designed to address the catastrophic losses in markets like Las Vegas and San Diego, to stabilize values in the hardest hit areas. Yet Denver, with a relatively mild 4.7% annual decline (and a current streak of six straight months of appreciation, according to Case Shiller), gets to benefit from the strong and heavy medicine this bill aims to use to remedy the national economy.
Massive injections of money into the capital markets. Money to lend. Money to borrow.
The credit markets had frozen. No one would buy loans from banks. Therefore banks had no money to lend. Even if you lived in a stable market like Denver, and had a ready, willing and able buyer, financing was completely uncertain.
Is that going to help you sell your home?
The government is buying loans investors don’t want, and at a significant discount.
In fact, if the government can find a way to hold these notes for a few years, values will come back, and at that point this deal might actually be a winner for the taxpayer. (Let's not get carried away, though. We're presuming reasonable competence to pull this off, and well...)
I don’t like government intervention. I don’t like Washington Mutual (now Chase). I do not like Angelo Mozillo (former CEO of Countrywide), or any other CEOs, now that I think about it.
But this bill had to get done.
We’ve just been handed a $700 billion education on how markets work. Better take some good notes, because $700 billion is a tuition bill we cannot afford ever again.
