Saturday, March 6, 2010

What Happens When The Government Pulls The Plug?

That is the real question now, as we hear threats of the tax credits and MBS purchases coming to an end. Will they really try pulling the real estate industry off life support? Or, is just a big bluff? The housing market has been artificially supported over the last couple years and now they're talking about pulling the plug. Last time I looked, FHA was backing about 90% of the mortgages being made, interest rates were being subsidized and tax credits combined with 3% down payments were keeping the market alive. Banks certainly don't want to lend because, they know what's in store. Can the government go on indefinitely supporting the housing bubble? I doubt it. Sooner or later the bill will come due and then what? The easiest way out is, the devaluation of our currency. If you can't pay the bill, then just lower the cost. It has been happening for ages and is the end game for economies in serious trouble.

What do you think about the government decision to "wind down" its programs?

51 comments:

Anonymous said...

I'm an average Joe(Jose), and the funny money going around is great for one reason, it keeps people employed. I say only 1 percent of jobs in america are productive.

Anonymous said...

gov't subsidies will continue until the overall economy is healthy enough. this could at least 2 yrs out.

Anonymous said...

This blog has low traffic/commentary. Does that mean we are at the bottom?

Anonymous said...

yes, we have hit the bottom and are climbing back up.....

Anonymous said...

The more the govt tries to use band-aids to cover up bullet wounds, the longer this recovery process is going to take. People have commented how FHA is the new subprime, and they have a valid point. Programs created to stimulate home sales are often created with the premise being that people who wouldn't normally be able to afford a given home can now do so due to lower down payments or lower upfront interest rates. It's all a facade. Credit is like a firearm, in the wrong person's hands it can be dangerous. When used responsibly, it can be useful. The general public is not responsible. People have short memories, and this financial disaster will most certainly not be the last. The allure of having something that previously seemed unattainable is a powerful drug. The Obama administration would prefer that the streets did not run red with blood, which in my opinion would be hard in the near term, but would result in a quicker turnaround and ultimately get this country back to recovery. That does not mean that North of Montana homes will or should be affordable to your average CPA accountant and his family. At the same time, a 2 bedroom condo in a 80's built property in Brentwood should not cost $600k, either.

Anonymous said...

for those of you with a 700-800k budget for SFR, just wait a few more yrs and save an additional 100-200k and move to a 900-1mm range. The neighborhoods are going to be some much better. Why get crap of the craps in Culver City for 750k right now? You can wait and buy in more desirable areas such as rancho park, outskirts of westwood, ocean park, and nicer parts of CC/Mar Vista etc.

Wait it out and SAVE at the same time. Prices are not going drop ALOT maybe 5-10% in the next 5 yrs. They definitely WON'T be going up. Your patience will be rewarded.

Anonymous said...

The million dollar question is: how much should that 2 bedroom condo in a 80's built property in Brentwood cost?

Anonymous said...

It should cost not a penny more than $599K. LOL

Anonymous said...

whatever someone can afford to pay.

Anonymous said...

whatever the market dictates it is valued at....

Anonymous said...

the market system only works in a free, unfettered market. the current market is controlled and influenced by the government involvement in the financial system. this isn't a free market.

Anonymous said...

Westside only going down 5-10%? Yeah right! I see it going down the toilet while the massive housing bubble unwinds.

Anonymous said...

I agree with the last comment. If incomes and rents are an indication of where prices should be, we've got a long, long, way to go. We just saw the 2009 median drops, and 2010 is going to be at least as dramatic, probably more as now it's time for the upper end to really start taking its hits.

The reason for the low volume is that the January 27 discussion put to rest the debate about where prices are heading. Personally, I think it's going to be Japan 2. Which means, never buy. It's just cheaper to rent, and you're more mobile. So, when the time is right, you can get out of the California ghetto. Sorry about the truth, but California is on its way down and is never going to recover. It's just not a great place to live anymore (I'm LA native so I know what I'm saying). I'm going to Salt Lake, where 250k gets a nice home in a really safe neighborhood, great skiing, etc. I'll use the extra cash to get a condo on one of the Greek islands, and the rest of the cash (and there will be a lot) will be invested. I'll be able to do this because I didn't buy in an irrational market.

Anonymous said...
This comment has been removed by a blog administrator.
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Anonymous said...

2009 Montana started collecting $10,000 a month on March 1.

Think of how much higher the rent would have been if they had built this on a normal 9000 sq foot GRS lot !

Anonymous said...

To: Anon March 9, 2010 11:32 PM

My reading of ur post is that you are priced out, and pissed off, esp bc u r a native LAian.

Anonymous said...

"The reason for the low volume is that the January 27 discussion put to rest the debate about where prices are heading."

It sure did. I remember the quote vividly:

Anonymous said...
People still buying the higher priced places in 90402 aren't trolling these blogs or are worried about the prices. I have a close friend buying in 90402. They have put in offers on at least 4 really nice houses. Every house they tried to buy had multiple offers.

With 2, 3 or 4 buyers for each house it sounds like 90402 is still going strong. Shadow inventory would need to double or triple the quality home inventory to stop these multiple bids.

In every RE downturn there are locations that are less affected. Its looking like 90402 may be one of those small pockets that could only see small declines.

January 27, 2010 2:53 PM

Anonymous said...

I think the reason for the traffic drop off was posted before.

I mean, from the very start of this blog, there were messages from people saying that they were eager to buy in the 90402 as soon as prices came down 50%.

That's it - people on this blog have given up on the 90402. They realize it isn't going down 50% and they are buying elsewhere.

Why should that surprise you? People have given up the dream and when they give up the dream why post here?

Anonymous said...

This is March 9, 11:32 p.m. To March 9, 7:22, I could buy in 90402 for cash. Yes, no bank loan, just cash. But, I'm not foolish, which is one of the reasons I still have my cash. To the last couple of commenters, compared to the previous year, 90402 is down 18% on price sold and 39% on $/Sq.Ft.

Anonymous said...

I think there is something to what you say, that the easiest way to "pay the bills" is with devalued currency. That is unquestionably true. When this does happen, interest rates will jump. If that were to happen, house payments would increase given the same amount of mortgage loan. But, we all know what happens to wages -- they don't go up at the same rate. Therefore prices would have to decrease. That's one of the reasons it is dangerous to buy now even if you can support the payments.

In any event, interest rates are going to have to rise. It may be a few years, but it's inevitable. I think the question is just "when"? I'd say 3 years after the economy is truly stablized (i.e., the housing bubble has popped and been cleaned up for the most part) before the Fed really starts increasing rates.

This is another reason why it just doesn't make sense to get into the market right now. Of course, I'm sure some other blog person will say how prices won't go down, etc., buy now or be priced out forever, 90402 is different, etc. Must be realtors or people who own in the market.

Anonymous said...

I think it's interesting how short sighted we have become. Over the long run, housing tracks inflation. Why? You need income to buy a home. While it may be true that 90402 area does not see massive price correction it will not see massive appreciation either. While the truth is likely somewhere in that range, there are overwhelming evidence pointing to the downside.

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Anonymous said...

"I think there is something to what you say, that the easiest way to "pay the bills" is with devalued currency. That is unquestionably true. When this does happen, interest rates will jump. If that were to happen, house payments would increase given the same amount of mortgage loan. But, we all know what happens to wages -- they don't go up at the same rate. Therefore prices would have to decrease."

News flash people, high inflation and high interest rates DO NOT cause nominal prices to go down.

http://seattlebubble.com/blog/wp-content/uploads/2010/02/KC-Home-Price_1950-2009-nominal.png

A huge interest rate hike in the 1980s and nominal prices didnt go down one red cent.

Anonymous said...

Anon 10:31AM
Didn't you post this exact same comment several posts ago? Several people has since debunked your Seattle bubble article with real hard data. A false argument is false even if you present it multiple time.

Anonymous said...

Hard data??? Uhh No. The only refute came from someone (possibly you) who said:

Didn't prices in Santa monica go DOWN from 1980 to 1983 as interest rates went up?

So we have 1 unsubstantiated comment as "hard data". BTW, if anyone has a graph on SM nominal prices 1980-1983, please post.

Anonymous said...

Not SM, but heres a graph for CA as a whole.

http://www.doctorhousingbubble.com/wp-content/uploads/2010/02/calif-nationwide-prices.png

Just like it was in the prior graph. Prices didnt decline one red cent during the uber high interest rates in the 1980s.

But I guess, it could be "different" in SM.

Anonymous said...

There is some confusion here between the effect of high interest rates and the effect of high inflation. If the inflation rate remains constant, but interest rates increase, housing prices decrease. Why? Because people can afford less of a payment. This is basic microeconomcs.

I think it's unquestionable that interest rates will rise, but with wages stuck inflation is less likely. If this scenario plays out, then house prices will decrease.

Anonymous said...

Help me understand

Next year, how hard will it be to get LAUSD to allow me to put my kids in to SM schools?

I mean, I know plenty of people that own law firms and accounting firms in Santa Monica.

If I am a stay at home mom right now, and I get one of these people to give me a part time minimum wage job as a receptionist in their firms, a job where I work ten hours a week, can I then show proof of this job to the LA Unified school district and get permission to put my kids in to the Franklin School?

I mean, what are the requirements? How easy is it?

Everyone on this blog knows that I can buy a nice house in LAUSD for one million dollars less than that house in Franklin. So can I truly save a million dollars by buying in LAUSD and taking a minimum wage job in Santa Monica?

I would like more discussion of this, I would like this clarified.

Anonymous said...

It used to be fairly easy to get kids in to SM schools, but now due to budget and political issues they are all getting kicked out and no more waivers. Since you are a housewife like me you can drive your kids to one of the good charter schools, do distance learning through any number of CA schools with some on-site classes, home school or use private schools.

My sin's friend went to Franklin and is in his first year at Lincoln Middle School. He was naming the kids dealing drugs there. His education is a joke.

Save your money and time and use one of the other good schools in the area. There is a Japanese immersion charter school in the Culver City area that is far superior, unless the goal is to have your child attend a status school. If a good education is your primary concern there are plenty of other options.

Home schooling has helped us have educational continuity while moving around. If you use a charter distance program like CAVA you will have freedom to move around as well. The students can then go straight to SMC during high school and transfer in to college and save you a lot of money. Real college courses are better than AP courses in the eyes of college admissions.

SMC is more diverse than local high schools and pulls from all sections of the LA community so the kids develop more socially than in high schools which are very stratified as to which kids get in to which classes and who attends.

My daughter had a big birthday party with kids from ages 12-18. They drew from SM schools, Pali and home schoolers. There is more than one way to skin a cat.

Anonymous said...

11:37 I respect and agree very much with what you are saying

But what are the rules for the next school year? I mean on Montana Avenue I see lots of moms working behind the counter at the luxury stores. These moms typically make low wages and work a small number of hours a week. Do these moms that live in LAUSD automatically and easily get to have their kids go to Franklin? Yes or no.

What about the wealthier moms that actually own the stores - do these wealthier moms that own the stores easily and automatically get their kids in to Franklin?

Again, there is no snobby status seeking agenda here. Just an honest quest for the facts

Anonymous said...

FYI, Santa Monic College is not letting high school kids take classes until all post H.S. students get their needed classes first. This is a change from last year when H.S. students could take world history, japanese, etc. Not anymore.

Which means little chance of getting your home schooler into SMC since it is so impacted. State budget shortage has forced SMC to cancel classes, cancel all H.S. summer classes, etc.

Don't count on SMC to build up your H.S. kid this year.....

Anonymous said...

Thanks

isn't it a function of whether you have a girl or a boy?

I mean the average 17 year old girl is much more mature than the average 17 year old boy.

The average 17 year old girl would welcome the chance to go to school at SMC and abandon a high school social life in order to spend her time socializing with the 18-10 year olds at SMC

At the same time, I can't think of a single 17 year old boy that wants to socialize with the 18-20 year olds at SMC.

So it seems that the SMC plan depends on your child. but correct me if I am wrong

Anonymous said...

SMC won't take your high schooler no matter what sex they are....they should be in High School, not taking college student's seats.

Anonymous said...

Well first of all, there are many empty seats in SMC classes. The empty seats are in the not so popular classes.

Second of all, some of the students in SMC really benefit from the education and get jobs that pay a living wage but most SMC students don't really get a payoff from the education.

It all depends on what you major in. The kids that major in Nursing will typically get $40 an hour jobs when they get out of SMC.

The kids that major in creative writing or culinary typically get $9 an hour when they graduate.

You can't generalize SMC. It all depends on your major

Anonymous said...

BTW, SMC doesn't have nursing or culinary majors...

Anonymous said...

Many of the kids going through SMC learn no skills that an employer would value.

If I am doing hiring, I will hire the kids that have learned something useful like engineering or accounting.

and the higher IQ kids at SMC know this and will major in something useful.

Lower IQ kids often choose a major that gives them no skills. result is a low paying job

Many SMC kids graduate with debt that they can never pay off, because they took the wrong course of study

But the lower IQ kids are

Anonymous said...

Enough with the SMC. That discussion is over.

We know for sure the following
1. some people who do not work for the school district, do not work for the city of santa monica, but who do have jobs located in santa monica have gotten permission from Franklin to have their kids enroll in franklin

What we do NOT know right now is, WHO decides which kids from outside are allowed to enroll in Franklin.

We do NOT know if it is the school board that decides, or the admin.

We don't know what the odds are.

We also don't know how many kids in this category there are.

I would like someone with knowledge to share that knowledge.

Count up the kids in Franklin. Tell us the number of kids whose parents don't work for the district and don't work for the city. How many kids are there>

Obviously, someone in power is giving a "gift" of some value to these parents.

Every single person on this blog knows a nice family trapped outside SM that would be thrilled to get their kids in to Franklin. Every single one of us. But of the families trapped outside SM that would be thrilled to get their kids in to Franklin, my hypothesis is that only the ones with the right connections, the ones that know the right people get to put their kids in to Franklin.

I am prepared to be proven wrong. I welcome the facts. But I want people who work in the SM government or school district to be clear and tell me that I am wrong. Tell me the numbers

Anonymous said...

"I think it's unquestionable that interest rates will rise, but with wages stuck inflation is less likely. If this scenario plays out, then house prices will decrease."

Thats fine. Just recognize what the chart makes clear - in the past, every time that interest rates went up, nominal prices went up too. It may be "different this time", but I for one am not willing to make that bet.

Anonymous said...

SMC has the highest UC transfer rate of any community college in CA. That means the kids who do well there get in to UC Berkley and I know one of them. She started at 15 and will be a transfer student. Both parents went to Stanford. If they are not high IQ I don't know who is.

SMC offers all of the core sciences. Another set of parents I know who went to Brown, one is a child psychiatrist and the other a Chemistry professor at UCLA< sent their daughter to SMC at 15. She will apply to colleges in the fall. He told me SMC does better with the basic Chemistry courses than UCLA. Form what my kids tell me the kids in science classes at SMC are very sharp.

The low IQ ordinary people who attend SMC flunk out in the early weeder courses. Large numbers flunk out by not showing up. Those who show up and do the work do very well.

The art program gets students in to Otis, RISD and Cooper Union and has for many years. RISD comes on to campus recruiting. My daughter is getting an excellent art education from people who actually make a living as artists, they do exist.

Overall hard work is more important to success than IQ. This whole thread is like hanging around at a Mensa meeting. The world has plenty of people who are bright, we need more people with strong character and a strong work ethic.

My kids have met really interesting, sharp and hard working students at SMC. Many are achieving through pure grit. One already has a degree and was very accomplished in Kyrgyzstan and is starting all over here after winning the green card lottery. He is a very good influence on my son and speaks 3 languages well and a few with just basics.

I would suggest that anyone who wants to know what is going on at SMC sit in on classes and meet people so as to draw one's own conclusions. I had an anti-community college bias prior to my experience with SMC and regret my previous bad attitude.

Anonymous said...

I forgot to add that for high school concurrent students SMC costs $35/semester and for full-time students it is only $25/credit. It is dirt cheap so there is no reason to go deep in debt.

Anonymous said...

Let me address the social concerns about high school students at SMC. First, I can name 3 boys who started there at 14 and loved it. My oldest son was not ready until he was 15. These kids typically do not socialize with many SMC students outside of class. They get together with other homeschoolers in the region who also attend community colleges or use various other educational options. I think this is typical of all commuter colleges, most people have other communities they socialize in.

This may come as a shock, but the high school SMC students also have friends who attend public high schools as well as private. They meet friends in orchestras, sports, and any other activities they enjoy.

As for getting in to classes, it has always been hard and high school concurrent students never had enrollment priority. They do something called "crashing" a course. They just show up and wait for the slackers to drop the course, then get an add code from the professor. In our 4 years here my kids have only been unable to get in to one class.

One other option is to graduate your student from high school at whatever age you want and pay full tuition. Many home schooled students take the CHISPE. Usually they can pass it by age 13 or 14 and enter SMC or other colleges as freshmen. Each college has different policies and you have to know the system.

There are more of these students than you might think, many look old for their ages, even the boys. One professor told my son she once had an 11yo in her class.

As for employers, I know the head of the art department gets calls from employers asking him to recommend students for jobs, so they must be doing something right.

Anonymous said...

Check out the new budget crunch reality...there will be less opportunity for high schoolers to go the SMC.

Anonymous said...

Regarding interest rates and prices, we'll see something when the gov't stops buying MBS. Interest rates will likely rise (the pundits have different views, but all believe an increase). And, donughts to dollars, prices will continue to fall. I would definitely take that bet. But, why discuss it? Let's see what happens.

Anonymous said...

The budget crunch is irrelevant, it just means enrolling as a high school grad instead of high school concurrent and paying the $25/credit. The kids who get in to the honors program also get enrollment priority and there is no age requirement, but they have to be high school graduates. Passing the CHISPE is not difficult.

Anonymous said...

Most of the people who bad mouth SMC are just snobs. Learn to ignore them.

SMC is a wonderful institution.

But we need some honesty here about the low wages earned by the SMC students who graduate and go in to the arts, in to journalism, in to writing.

We are in a very competitive world. Only certain kids earn enough money to be able to raise a family on the West Side. Those that don't earn enough money are forced to leave the west side in order to raise a family.

Simply be truthful about the earnings prospects. Stop misleading kids in to going in to fields where they are unlikely to earn a living

speedingpullet said...

I'll add to the SMC love - I went to the SMC AET for several years (Academy of Entertainment Technology).

You won't find that kind of training in many States, let alone cities... The irony being that I could have attended almost the same course at UCLA - for $800 a semester, rather than the $25 a unit I was charged at SMC:AET....

But, you know, if attending a CC for the first couple of years isn't as 'valuable' as doing a 4-year course adn paying university fees, then don't let us stop you ... ;-)

Anonymous said...

Let me pound the table on the value of SMC

If your child has super high IQ, you should arrange for him or her to officially graduate from high school at 14. He or she can go to SMC for age 15, 16, and 17. Then he or she can transfer to an Ivy or to Stanford with only one year of college left. He or she can then start med school four years earlier than his or her peers.

If you fully understood how painful it is for the typical med school grad to pay his or her student loans, you would prefer to have them go this route.

Also, for females, this gets them out and practicing medicine four years earlier. The rush to have children won't be the same as for females that started med school at 22.

Bottom line - it is healthier in terms of biological clock and in terms of student loans to get done with medical training four years earlier than your peers

Anonymous said...

Magida, a 30-year-old art school graduate, had been installing museum exhibits for a living until the recession caused arts funding -- and her usual gigs -- to dry up. She applied for food stamps last summer, and since then she's used her $150 in monthly benefits for things like fresh produce, raw honey and fresh-squeezed juices
_
go to slate for the whole article. Bottom line is that SMC art graduates are on food stamps now. Pre meds are actually earning a living. Do some research on what actually happens to the alumni of SMC before you enroll. You might be horrified about the number of alumni on welfare or food stamps

Anonymous said...

Put your kids in pre-med at 15 or 16 years of age???? Are you kidding me?

That is disgusting...child services should know about you....

Neil said...

As to the original question: the answer is that the government will NOT pull the plug, they will continue any existing programs and incentives and the interest rate will be kept low to (eventually) create inflation.