Capitalism 2.0

Mortgage Cram-Downs a *Terrible* Idea

I had hoped to pen a considerable article about the Obama administration's currently (rumored) mortgage "cram-down" plan.  But I won't have time until after Wednesday of this week (at which point I'll revise this article and spell out the arguments) [Note, I've decided to just contribute my thoughts in the form of comments below.  I may write a more formal essay later, but for now I'm just going to argue in real-time].

But in case anyone wishes to discuss in the interim, have at it.

In short, I think mortgage cram-downs are a terrible terrible terrible idea.  I agree that something needs to be done regarding the flood of foreclosures.  But I'm more for an "orderly devaluation", if you will.  I'd slow down the process, and put more effort into being thorough.  I'd go after those who committed mortgage fraud aggressively, lenders & borrowers.  I'd also go after lenders, borrowers and home builders who exploited or outright avoided taxes.

But I would not punish responsible homeowners who've been paying their mortgages, along with responsible savers who waited to buy, along with the struggling people who are working 2-3 jobs just to barely make the mortgage they can't really afford by _rewarding_ the worst of the worst.

Yes, this plan punishes someone who's working 3 jobs to just make payments, and rewards his lazy neighbor who'd rather sit around and whine for a bailout.  And don't get me started on the banks/lenders.  Yet another bailout for them?  The government will "match" their loan workouts? 

This is getting ridiculous.

--- More on why my plan to allow foreclosures to take place in an orderly fashion *helps*, later.  First I must make a living...

Sticky Bay Area Housing Prices, Redux

A thoughtful question from reader "sun_kan" asked:

randy, i have read your price stickiness argument (in patrick.net) in detail & i have seen it play out precisely as you expected it to be, in the bay area, till the recent credit crisis. now i see a slightly different behavior from sellers, with a lot of them accepting the reality & cutting prices in bigger chunks. it is still expensive but i do see cuts in the range of 50K-100K, even in nicer areas (hills, school district etc). in not-so desirable areas where there is a lot of foreclosures/short sales, i am seeing sellers trying to price very competitively with (or sometimes lower than) the reo prices. is there a tipping point in the sellers psychology, just like the one in stock market? and if so, how would that affect the price stickiness?

Another Plan to "Repair" the Housing Market

John Peterson Preston authored a fairly long housing repair essay on SeekingAlpha.com today:  My Plan to Repair Housing in America.

Although the essay is long, I encourage everyone to read through it.  It resembles a number of other proposals, including one circulating from the Dean of my b-school alma mater.  I dropped a few comments directly on SeekingAlpha, but I'd also be interested in a more detailed discussion here.  I think it's important because a plan of this sort is very likely to be implemented.  Especially with the prospect of a fully Democratic government (though I think even Republicans will implement something, just it would take them a bit longer to do it).

In short, I believe these plans are just further securing a Japanese-style deflationary episode for the USA.

No Honor Among Thieves

In the past few days I've seen, heard and read interviews with various CEOs and industry advocates from the worlds of the home builders, realty agencies and mortgage brokers/lenders.  Three years ago you would have thought these groups constituted one giant, happy family.  All of them denying the existence or even the possibility of a bubble.  All of them congratulating themselves on achieving historically high home "ownership" levels.  All of them urging potential buyers to "buy buy buy".  Buy as much as you can, as fast as you can, as often as you can was the mantra.

Enter the Great Deleveraging, a historic credit crunch, and home prices dropping faster than ever in American history:  and the once happy family are stepping all over each other to point fingers and defer blame.

Welcome Rational Discussions about Real Estate and Economics

I'm pulling out the paddles and shocking this blog back to life.  I have been distracted with real work and other blogs to which I've contributed heavily.  Well, now those blogs have become either cesspools of racism and bigotry or decomposed into industry shill tools.

I'm hoping that at least a few of the reasonable folks I enjoyed conversing with take some time to come here occasionally and discuss the same issues we've always discussed:  real estate, economics, and living life through these increasingly interesting times.

If anyone is interested in authoring blog threads of your own, please email me.  Link is on the side (I forget which, it's been so long, lol).

I'll also be cleaning up the layout of this blog when I get time over the next week.

--Randy H

PS: When you comment, it will prompt you for your email address.  I (for now) still allow anonymity, so your address is never revealed unless you chose to do it yourself.

Real Estate Investment in Possible Non Bubble Areas

By Randolph

According to the 2006 HSBC report, A Froth-Finding Mission, Detecting US Housing Bubbles and associated spreadsheet model, not all local real estate bubbles are created equal.  In fact, the Case Shiller Index reveals that a handful of metro markets may well be seeing price recoveries.  Denver, for example, looks to be one of those on the leading edge of the recovery, having potentially already come through the worst of it.  Others, such as my own San Francisco, have yet to really even start into an honest correction cycle (another CSI view of superbubble San Francisco).

Is it time to start investing, or at least preparing to invest in non-bubbly metro areas?

(Topic suggested by a reader)

Random Observations on Iceland

By Astrid

(This is going to be the first of my two posts on my recent trip to Iceland. This post will focus on Iceland the country. The second post will focus on Iceland the travel destination.)  Link to the pictures.

Iceland is a small Nordic country in the middle of the North Atlantic, halfway between Europe and North America. Aside from the climate (more on that in the second post), I found Iceland to be a thoroughly pleasant and progressive country that will warm the heart of Bay Area folks who love to proclaim "it's different here." The people I meet were well scrubbed, pleasant and English speaking. I found Icelanders on average to be on par with physically attractive than the residents of your typical upper middle class coastal bedroom community, but less tanned and more confident.

It's the PRICE stupid!

By Randolph

Listen to the cacophony of despair oozing out of the mouths of our mainstream media and politicians.  It would be comical if not for the pathetic nature of it all.  All these whining shills and self proclaimed experts seem willing to cackle about everything under the sun ... except for price.  What do I mean, read on...

Pop!

By Randolph

The residential real estate bubble has finally started to pop!  Some readers will know that I am a long-time author at Patrick.net, one of the biggest real estate bubble blogs.  I've authored many dozen articles there, including a few which involved a good amount of original research and analysis.  One notable result has been The Bubblizer model (Excel), which has been featured on this blog since the beginning.

But now we've entered a new phase of the housing bubble blog-o-sphere.  I call this phase "The Coming of the Trolls".

Housing Market Fiction

By Randolph

Fact or Fiction: The US Housing Market is "gently correcting".  In fact, "now is a great time to buy!".

...and here's some carefully staged, professionally smoothed, and attractively presented data from the NAR et. al. to prove it...

But wait a minute, someone has actually taken the time to go get the same source data sets and draw the same graphs.  But they've come to a very different conclusion...