Posted on 02/24/2009 7:47:00 PM PST by sickoflibs
The conventional is the falling house prices are a bad thing and that the government needs to do something to slow it down or turn it around. But the reality is that real estate prices have to fall to a point where there actually affordable. Prices need to fall where the average American has enough money to put up a 20% down payment, and afford a 30 years loan that fully amortizes and is repaid,where the average American can convince a private lender to loan him money based solely on the collateral that he puts up and his own ability to pay the loan,and not with government guarantee or a guarantee from a government agency like Fannie Mae or Freddy Mac. If that were to happen then real estate prices would fall substantially. Look at stock prices. Stock prices are down where they were 13 years ago. Why should real estate prices be so much higher? The average American is in worse financial shape than he was a decade ago. He has a lot more debt and his assets have gone down, a lot more of are unemployed. Why should real estate be so much more valuable than it was a decade ago?
The longer we have these artificially high home prices, the false signals we send to the market. Look at all the new homes still being built. New constructions are falling but many home builders are still building more homes. Why are they building them even when theyre not selling? Because the prices are so high its sending false signals to the real estate builders to build more homes. Real estate Prices have to fall to the point where new home construction is completely discouraged. We are wasting our resources building homes we dont need. We built too many homes. We need to use those resources, the labor, the capital to other areas.
That is exactly what the government does when it comes into the market and props up companies and subsidizes companies that are going out of business and keeps them in business they are keeping the free market from better allocating that are now being inefficiently allocated by these companies. The land, the labor, the capital that is being propped up should be allowed to be redistributed to other Entrepreneurs and other businesses that can better utilize it. The fact that there is some transitionary unemployment doesnt mean that the government needs to preserve these companies.
Full video at:
The Schiff Report 2nd episode Feb 24 2009
The house I grew up in was built in the 1870s. Originally, it didn't have a bathroom. Somehow in the 1920s, those old folks figured out how to put an addition on with a bathroom almost as good as the 'new' houses being built then.
Standards change, but the big problem is property taxes and communities via crazy development fees and 'zoning requirements' killing the new starter house market. That is why the MacMansion market developed. By the time a developer jumps through all the government hoops, he has to put big expensive houses on small lots just to break even.
That's all cool for grandma and grandpap who watch their values on their old house rise, but it sure sucks for the grandkids just trying to get started.
I wouldn't expect that builders have much in the way if fixed costs.
They can have tremendous sunk costs if they buy a parcle of land and jump through all the hoops to get permits which makes time a critical issue, but I don't think many have large fixed costs like a manufacturing business where they can sell down the margin just to stay alive.
yes, he advocated more debt, and lots of it.
Feb. 25 (Bloomberg) — Sales of U.S. previously owned homes probably rose in January as record foreclosures brought bargain hunters into the market, economists said before a private groups report today. . .Purchases increased 1.1 percent to a 4.79 million annual rate, according to the median of 70 forecasts in a Bloomberg News survey. The rate reached a record-low 4.45 million in November.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a5avKyMc.HU8&refer=home
Bay Area home prices fall, sales rise
Bay Area year-over-year home sales rose for the fifth month in a row during the month of January while the median price fell to $300,000, almost half of where prices stood a year ago. . .sales were once again spurred by foreclosures, which accounted for 54 percent of resale transactions. Most foreclosure sales, which involve homes that had been foreclosed upon during the last year, are taking place in parts of Contra Costa County and other inland areas.
http://www.mercurynews.com/breakingnews/ci_11740446
Local and state governments do. They derive a significant portion of their revenue from the property tax. Their bonding authority is tied to a reliable revenue stream from property taxes year in, and year out. If housing prices have to come back to reality, then property tax revenues evaporate. Local school funding dries up, and government has to raise taxes elsewhere.
Are you kidding? If you want higher state and local taxes just tell your local elected to raise them. Government Propping up house prices artificially nationally (using printed money yet) hurts home buyers and is a bad way for you to keep your local tax rates high.
If the total assessed value goes down, due to depreciation formulas, knockdowns, or loss of comparative sales value in a declining economy, then the millage rate could go up to keep the same revenue.
Also, foreclosures should have absolutely no effect on property tax revenues, since the bank that owns the property would be responsible for making sure the taxes are paid, so that the property does not get sold in a tax sale to someone else (who would then pay back taxes plus interest, and then be responsible for property taxes thereafter.)
I’m not lobbying for high house prices or higher local taxes. I’m just telling you why housing prices won’t drop to where they were 13 years ago as stocks have. If the bond rating agencies found that states could not rely on a continuing stream of high property taxes, the muni bond ratings would sink and borrowing costs for states would skyrocket. We would get higher other taxes then, and the politicians would be in jeopardy.
You are saying federal officials are propping up house prices with massive debt to keep local property taxes high? .
Capital gains taxes on stocks plummeted, they didnt push stock prices higher with borrowed money to keep tax revenues coming in. Except GM.
Well I have news for you - Kalifornia is coming to you.
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