The root cause of the housing bubble

[Drift3r]

Originally posted by: Slew Foot
If minorities want to own homes at the same rates as whites, maybe they should earn money at the same rates as whites.

Wait so this article about trying to expand and open the housing market to more minorities is a correlation somehow to why the housing bubble burst? Are saying that the housing bubble burst because minorities defaulted on loans at such a rate that it offset the majority of white people with home loans?

Are you accusing minorities for the burst in the housing market? Seriously are you? If so do you have any data that points out specifically that minorities defaulting on loans is the sole reason why housing bubble burst? Or that no white home owners of whom have the vast majority of home loans are made too did not default on their loans either? I'd loved to see this data on the racial break down of defaulted home loans you have. Please if you have it share it with us unless you are using your apparent assumption to justify yourself launching into a racist rant for no apparent reason.

 

[WHAMPOM]

People woke up to the fact they will pay out a $million for a $400,000.00 home worth less then $175,000.00 now. What we are seeing now is the results of a predatory market rather than a free market in operation.

 

[WhipperSnapper]

Originally posted by: ironwing

Homeownership didn't go up, only homeloanership*.

Homeloanership. I love that term and I'm adding it to my lexicon.

 

[rchiu]

I don't get it, why do all politicians talk about making it easier to borrow, regardless of people's credit score and such? What about making cheaper houses/townhome/condos in safe, clean environment with decent school districts available? I mean there are 50K condos in major city suburbs, they maybe 1 or 2 bedrooms, and they may not be brand spanking new with all the upgrades, but they are home, and how hard is it to own one of those with 30 year mortgage?

It's wrong to make lending money easier, it's actually gonna hurt borrower because they may not be able to repay the loan if they lose job, or have some major expenses, and they will lose their home and make their credit score even worse. But I guess politicians don't really care, they just wanna make some crowd pleasing sound bites. And I guess some people also cannot accept the concept of living within their means, and they always look for ways to get more then they can really afford.

 

[IronWing]

Originally posted by: TastesLikeChicken

How many people own their homes outright without loans or mortgages in the first place? Has that percentage changed appreciably?

Your chart is a bit misleading. As more new homeowners come into a market the amount of equity is bound to drop, particularly in a market with as much bear to it as the recent housing market.

I wonder how much equity has risen or declined overall in actual dollar value instead of as a percentage of old vs. new? That would be a more telling statistic.

The rate of home ownership free and clear is on the graph, lower right corner. That rate has been declining since 1985, the first year I could find data.

I agree with your statement about causes which is why I didn't make any statements about that.

 

[ebaycj]

Originally posted by: ironwing

Originally posted by: TastesLikeChicken

How many people own their homes outright without loans or mortgages in the first place? Has that percentage changed appreciably?

Your chart is a bit misleading. As more new homeowners come into a market the amount of equity is bound to drop, particularly in a market with as much bear to it as the recent housing market.

I wonder how much equity has risen or declined overall in actual dollar value instead of as a percentage of old vs. new? That would be a more telling statistic.

The rate of home ownership free and clear is on the graph, lower right corner. That rate has been declining since 1985, the first year I could find data.

I agree with your statement about causes which is why I didn't make any statements about that.

One thing you forgot about the declining rate of home ownership (with the corresponding increase in homeLoanership) is that there are major tax breaks for having your house mortgaged.


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Hypothetical case:

I have a $250,000 interest-only mortgage at 5% fixed for 30 years (assume thats after a 20% down payment, no pmi).

I have $250,000 in (high yield savings / cd / money market, take your pick) at 5%. (thats the safe play, could just as easily be in a basket of ETF's making 10-20%.)

I could pay off my house, but then I lose the HUGE tax credit I get for paying mortgage interest. Since I can easily offset the financial loss i take by paying interest, it makes sense to do so, while keeping the tax credit.
---------------------------------------------------------


I guess what I'm saying is that *even if you have the money in hand to pay it off* it still makes more sense to have your house mortgaged to the hilt (basically the maximum they will allow without having to waste money on PMI).

 

[3chordcharlie]

Originally posted by: blackangst1

Originally posted by: 3chordcharlie

Originally posted by: GrGr
President Calls for Expanding Opportunities to Home Ownership June, 2002

There are no deadbeats. There are only good citizens following the policies of their beloved President Bush.

Did it really take this long for someone to point this out on here?

Fourty year and interest-only mortgages in a period of massive paper-gains and historically rock-bottom interest rates?

The only thing that puzzles me is that the bubble lasted as long as it did.

Yep. This was allll started by Bushie. Yep. None of this happened before he was president. Yep.

It doesn't have to all start with Bush for his home ownership programs to be a substantial contributor.

My circle of folks have been talking about this bubble since one of our own moved out to seattle in 2005, and had to buy a house; he sold in July of this year, and ended up relatively unaffected.

Lenders are supposed to be smart people; I place the lion's share of the blame for this situation at the feet of the lenders, for a very simple reason. Borrowers who have since defaulted made an error in estimating their ability to pay, or in speculating on a volatile market. Borrowers made the same mistake, but they made it over and over and over again.

There's plenty of blame to go around, and yes, Bush deserves some, but certainly not all.

 

[piasabird]

The problem is that as soon as the bank or whoever makes the house loan they are sold off to a third party. So the People who make the loans are not usually the people that are collecting the money or own the actual mortgage. This kind of sysem is ripe for failure.

 

[Toasthead]

Originally posted by: blackangst1
What a crock. The reason the secondary market collapsed is lenders loaned money to people who shouldnt have qualified for a mortgage in the first place.

Funny...when he says

"And it starts with setting a goal. And so by the year 2010, we must increase minority home owners by at least 5.5 million. In order to close the homeownership gap, we've got to set a big goal for America, and focus our attention and resources on that goal"

he doesnt talk about people getting their finances straight, quit relying on the government, cleaning up their credit reports, and paying their fucking bills on time.

Exactly. This is the problem with welfare... The government goes out of its way to help people and then they are feel like the DESERVE it and want mor.e

 

[blackangst1]

Originally posted by: MadRat
Hey, lenders could of played it cool and kept rates down. But, no... they all had to hike them when their customers could least afford the change.

Or maybe the clients who took out the mortgage could actually consider the cost of this loan? Loan schemes like ARMs lay out the fees and interest rates CLEARLY in the docs. It's not like theyre buried in fine print. It's the consumer's fault, not the banks.

 

[blackangst1]

Originally posted by: piasabird
The problem is that as soon as the bank or whoever makes the house loan they are sold off to a third party. So the People who make the loans are not usually the people that are collecting the money or own the actual mortgage. This kind of sysem is ripe for failure.

Why is this a problem? This happens in a traditional loan as well...why is it a problem for these other loan ponzi schemes? It's not like if the loan is sold the terms of the mortgage change....

 

[Starbuck1975]

The problem is that as soon as the bank or whoever makes the house loan they are sold off to a third party. So the People who make the loans are not usually the people that are collecting the money or own the actual mortgage. This kind of sysem is ripe for failure.

Yet a lot of individuals, motivated by shows on HGTV and keeping up with the neighbors, exploited this weak lending system to enjoy double digit appreciation on their homes, and squandering phantom home equity on luxury items and vacations to exotic locales.

I don't recall borrowers complaining when this Ponzi scheme lined their pockets, and it should come as no surprise that this debt driven accumulation of wealth would eventually come crashing down.

 

[GrGr]

Originally posted by: blackangst1

Originally posted by: MadRat
Hey, lenders could of played it cool and kept rates down. But, no... they all had to hike them when their customers could least afford the change.

Or maybe the clients who took out the mortgage could actually consider the cost of this loan? Loan schemes like ARMs lay out the fees and interest rates CLEARLY in the docs. It's not like theyre buried in fine print. It's the consumer's fault, not the banks.

Hehe, you have the cart before the horse as usual. The American citizen today is required to be a consumer is he not. Americans must consume or the economy grinds to a halt. The deadbeats could never have got the cheap loans they did if the banks had done their job. But the banks were only looking for sheep to fleece. They needed the cheap loans so the could repackage them and sell them on for profit. The juggling of these rotten loans were then proclaimed to be "growth".

Bush after 9/11 said to the American people to do their duty and go out and consume. Bush made it official policy to inflate the housing bubble and put a lot of wheels in motion to achieve that. Without Bush's inflatiory policies the bubble would never have been as bad as it got.

 

[Siddhartha]

Originally posted by: GrGr
President Calls for Expanding Opportunities to Home Ownership June, 2002

There are no deadbeats. There are only good citizens following the policies of their beloved President Bush.

I thought the bubble had to do with relatively low interest rates and people speculating. There is at least two shows on cable about house flipping and selling.

 

[blackangst1]

Originally posted by: GrGr

Originally posted by: blackangst1

Originally posted by: MadRat
Hey, lenders could of played it cool and kept rates down. But, no... they all had to hike them when their customers could least afford the change.

Or maybe the clients who took out the mortgage could actually consider the cost of this loan? Loan schemes like ARMs lay out the fees and interest rates CLEARLY in the docs. It's not like theyre buried in fine print. It's the consumer's fault, not the banks.

Hehe, you have the cart before the horse as usual. The American citizen today is required to be a consumer is he not. Americans must consume or the economy grinds to a halt. The deadbeats could never have got the cheap loans they did if the banks had done their job. But the banks were only looking for sheep to fleece. They needed the cheap loans so the could repackage them and sell them on for profit. The juggling of these rotten loans were then proclaimed to be "growth".

Bush after 9/11 said to the American people to do their duty and go out and consume. Bush made it official policy to inflate the housing bubble and put a lot of wheels in motion to achieve that. Without Bush's inflatiory policies the bubble would never have been as bad as it got.

Where the hell is it written or proposed that irresponsible consumerism is healthy for anyone?

As far as Bush's responsiblity for the bubble bursting...please provide links of anything other than speeches explaining his wishes, and actions directly relating to it. Thanks.

 

[GrGr]

Consumerism is healthy for the ruling class, because they get very wealthy off it. Then then move their loot to tax havens so they don't have to pay taxes.

The workers are the losers in this scheme. The workers and middle class are deep in debt, and cannot pay more taxes. The rich, who can pay without problem, do not. No wonder the US itself is deep in debt.

Bush is responsible for inflating the bubble, by virtue of his economic policy. A bubble by definition will burst, that's what they do, therefore those responsible for building the bubble are responsible for the bubble bursting.

This scheme is interconnected throughout.

As for Bush's responsibility - the tax cuts provided the base, together with ridiculously low rates. It was the liquidity bubble that fed the housing bubble that fed the banking bubble bursting now along with the US economy bubble.

 

[TheSlamma]

Actually.. overpriced loans and houses started in the late 90's for all of those with poor memory. I watched the house my dad sold in 1995 for $110,000 (very affordable for the size of his house) up to $300,000 by summer of 1999. That house was well worth $110,000 it was not even close to worth $300,000. Who TF made all those prices okay.

and along with it when did the 3X salary rule stop applying? Remember back when banks used to advise people if you made $30K a year to buy a house that was 90K or less so you could... AFFORD IT.

 

[blackangst1]

Originally posted by: GrGr
Consumerism is healthy for the ruling class, because they get very wealthy off it. Then then move their loot to tax havens so they don't have to pay taxes.

The workers are the losers in this scheme. The workers and middle class are deep in debt, and cannot pay more taxes. The rich, who can pay without problem, do not. No wonder the US itself is deep in debt.

Bush is responsible for inflating the bubble, by virtue of his economic policy. A bubble by definition will burst, that's what they do, therefore those responsible for building the bubble are responsible for the bubble bursting.

This scheme is interconnected throughout.

As for Bush's responsibility - the tax cuts provided the base, together with ridiculously low rates. It was the liquidity bubble that fed the housing bubble that fed the banking bubble bursting now along with the US economy bubble.

First of all, Im not sure what bubble youre talking about...maybe just the economic bubble? We were talking about the housing bubble here.

Second, whose responsibility is it to keep consumers out of debt? The governments? Can you explain why, and why the consumer is NOT responsible for their own debt?

Third, can you explain how Bush caused "ridiculously low rates"? Doesnt the Fed control interest rates?

And please post links of direct actions the president took, without regards to congress, to cause Americans to 1. get more housing than they can afford, and 2. caused them to not understand the mortgage they signed, thus causing the secondary market to collapse. Thanks.

 

[blackangst1]

Originally posted by: TheSlamma
Actually.. overpriced loans and houses started in the late 90's for all of those with poor memory. I watched the house my dad sold in 1995 for $110,000 (very affordable for the size of his house) up to $300,000 by summer of 1999. That house was well worth $110,000 it was not even close to worth $300,000. Who TF made all those prices okay.

and along with it when did the 3X salary rule stop applying? Remember back when banks used to advise people if you made $30K a year to buy a house that was 90K or less so you could... AFFORD IT.

Before I got into telecom, I was in finance. I can tell you that in 1987 the bank I was working for (Wells Fargo) often wrote ARM's and interest only loans. I personally wrote second mortgages with 12-18 months of interest only payments on loans over $20k. So this isnt really a new thing.

 

[TheSlamma]

Originally posted by: blackangst1
And please post links of direct actions the president took, without regards to congress, to cause Americans to 1. get more housing than they can afford, and 2. caused them to not understand the mortgage they signed, thus causing the secondary market to collapse. Thanks.

:thumbsup:

 

[Vic]

Originally posted by: Slew Foot
If minorities want to own homes at the same rates as whites, maybe they should earn money at the same rates as whites.

racist :frown: <^>

Originally posted by: Starbuck1975
The root cause of the housing bubble is greed fueled speculative stupidity.

Bingo. Home values have been steadily increasing in most markets since the mid-90s. There was major speculative boom-and-bust in LA in the early 90s.
If lending guidelines got loose this time around, it's because even the investors got caught up in the "can't lose with real estate!" attitude.

Anyway, I dare the OP (or anyone else for that matter) to find any President since FDR who did not issue a similar statement regarding increasing homeownership rates in the US.

 

[Vic]

Originally posted by: GrGr
Consumerism is healthy for the ruling class, because they get very wealthy off it. Then then move their loot to tax havens so they don't have to pay taxes.

The workers are the losers in this scheme. The workers and middle class are deep in debt, and cannot pay more taxes. The rich, who can pay without problem, do not. No wonder the US itself is deep in debt.

Bush is responsible for inflating the bubble, by virtue of his economic policy. A bubble by definition will burst, that's what they do, therefore those responsible for building the bubble are responsible for the bubble bursting.

This scheme is interconnected throughout.

As for Bush's responsibility - the tax cuts provided the base, together with ridiculously low rates. It was the liquidity bubble that fed the housing bubble that fed the banking bubble bursting now along with the US economy bubble.

Yeah right. How about you find me an example of a socialist society without a ruling class?

The only interconnected schemes I see in this thread are a thinly-veiled attempt to link BDS politics with racist and elitist attitudes (that minorities and poor people shouldn't be allowed to own homes).

 

[Slew Foot]

Originally posted by: Vic

Originally posted by: Slew Foot
If minorities want to own homes at the same rates as whites, maybe they should earn money at the same rates as whites.

racist :frown: <^>

That's not racist, that's common sense. If you cant afford something, you cant buy it.

 

[Vic]

Originally posted by: Slew Foot

Originally posted by: Vic

Originally posted by: Slew Foot
If minorities want to own homes at the same rates as whites, maybe they should earn money at the same rates as whites.

racist :frown: <^>

That's not racist, that's common sense. If you cant afford something, you cant buy it.

Sure, it's common sense if you put it that way, but that's not how you said it before and that's not what you meant.

 

[Fern]

Originally posted by: hellod9

Originally posted by: brxndxn
The economy.. the way it is set up right now.. is doomed to 'bubbles' over and over and over.. until artificial incentives are taken away and free market capitalism is allowed to take place.

Dude, bubbles are a natural result of a free market economy. And, I would argue that bubbles are actually good for us, over the long haul. They are an important component of a healthy, expanding, economy. They result in innovation, creation of new infrastructure, and completely new industries that needed a "bubble" in order to be born into the economy.

Yes, and we've had speculative bubbles (resulting from free market capitalism and the inevitable correction) since forever. Ever heard of the "Tulip Bubble"?. It was ages ago.

Originally posted by: Starbuck1975
The root cause of the housing bubble is greed fueled speculative stupidity.

AND

Originally posted by: Starbuck1975

The problem is that as soon as the bank or whoever makes the house loan they are sold off to a third party. So the People who make the loans are not usually the people that are collecting the money or own the actual mortgage. This kind of sysem is ripe for failure.

Yet a lot of individuals, motivated by shows on HGTV and keeping up with the neighbors, exploited this weak lending system to enjoy double digit appreciation on their homes, and squandering phantom home equity on luxury items and vacations to exotic locales.

I don't recall borrowers complaining when this Ponzi scheme lined their pockets, and it should come as no surprise that this debt driven accumulation of wealth would eventually come crashing down.

Yes, greed (otherwise known as the desire for profit) and easy consumerism/materialism are the driving forces all made possible by poor banking decisions and lax control (the banks fault IMO) in the refinancing chain.

I don't think it's the governments fault. But it is their problem. Foreclosures and dropping r/e values hit them in the pocketbook as a result of deceasing r/e (property) tax revenue.

Fern