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Old 02-02-2013, 02:38 PM
 
134 posts, read 156,414 times
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I know this thread could probably just as easily be posted to the Urban Planning forum, but i thought I might get better responses from the folks on the economics forum. I am always struck when I hear about new home construction picking up or slacking off and its implications about the economy or by politicians talking about a need to help out the housing industry. I understand the utility of new homes being built as a metric for the economy as a whole, but what I don't understand is why we, as a nation, seem to think it must be something of a pillar of the economy. Isn't the story of the economic crash in Las Vegas a story of how the economy cannot be based on the housing industry? Is it really wise to invest so many resources into building single-family homes on the fringes of our country's metros?
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Old 02-02-2013, 04:12 PM
 
Location: Cold Springs, NV
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When I taught full time Carpenters apprenticeship one of the statements in our curriculum was that "Construction is the single largest enterprise in America". That said, I don't if it was true, and especially now after the downturn. In defense of the home building industry. No one had every seen an economic crash of the proportion of 2008. Personally, with the exception of the bread lines, sign, and protests in Washington I think this was worse than the crash of 1929. How can the builders be blamed for providing what was being bought by the consumer? We now know that lax lending rules had a lot to do with it. However, once your home loses so much value a lot of people just bailed out.
I don't know what portion of the building industry housing is, but my guess would be about 25 to 35%, but of course not now. We won't see it come back as hard until we put people back to work either.
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Old 02-02-2013, 07:49 PM
 
Location: Someplace Wonderful
5,170 posts, read 3,737,466 times
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Quote:
Originally Posted by Asderfut View Post
I know this thread could probably just as easily be posted to the Urban Planning forum, but i thought I might get better responses from the folks on the economics forum. I am always struck when I hear about new home construction picking up or slacking off and its implications about the economy or by politicians talking about a need to help out the housing industry. I understand the utility of new homes being built as a metric for the economy as a whole, but what I don't understand is why we, as a nation, seem to think it must be something of a pillar of the economy. Isn't the story of the economic crash in Las Vegas a story of how the economy cannot be based on the housing industry? Is it really wise to invest so many resources into building single-family homes on the fringes of our country's metros?
Well, in the first place, people who buy new homes also spend a lot of money buying things to put into those homes, so there is a great spillover into other sectors such as new carpets, furnishings, paint and the like.

Vegas housing was specifically the result of the fraudulent lending engaged in by all those mortgage lenders. It was a bubble in the classic sense of the term, pumped up by a frenzy of speculation, which in turn fueled even more fraudulent lending (and borrowing).


Quote:
Originally Posted by MrWillys View Post
When I taught full time Carpenters apprenticeship one of the statements in our curriculum was that "Construction is the single largest enterprise in America". That said, I don't if it was true, and especially now after the downturn. In defense of the home building industry. No one had every seen an economic crash of the proportion of 2008. Personally, with the exception of the bread lines, sign, and protests in Washington I think this was worse than the crash of 1929. How can the builders be blamed for providing what was being bought by the consumer? We now know that lax lending rules had a lot to do with it. However, once your home loses so much value a lot of people just bailed out.
I don't know what portion of the building industry housing is, but my guess would be about 25 to 35%, but of course not now. We won't see it come back as hard until we put people back to work either.
The crash of 2008 really happened in mid 2006, when housing prices reached their peak. Housing prices today are still not at 2006 levels. In fact, Countrywide Savings fell in 2005 as a direct result of 12-15% default rates of their subprime lending portfolio. The whole reason most people think the crash came in later 2008 is that CEOs and their flacks continued their happy take through a period when they knew quite well that the scam was unraveling. The failure of Lehman Bros was the ice cold water on the faces of the true believers who were still touting real estate and the financial repercussion of collateralization of mortgages.

So long as there are an estimated 2-3 million foreclosures held off the market by the likes of BOA (Countrywide) and Wells (Wachovia), there will be no real recovery in housing.
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Old 02-03-2013, 12:59 PM
 
48,519 posts, read 81,246,246 times
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Quote:
Originally Posted by Asderfut View Post
I know this thread could probably just as easily be posted to the Urban Planning forum, but i thought I might get better responses from the folks on the economics forum. I am always struck when I hear about new home construction picking up or slacking off and its implications about the economy or by politicians talking about a need to help out the housing industry. I understand the utility of new homes being built as a metric for the economy as a whole, but what I don't understand is why we, as a nation, seem to think it must be something of a pillar of the economy. Isn't the story of the economic crash in Las Vegas a story of how the economy cannot be based on the housing industry? Is it really wise to invest so many resources into building single-family homes on the fringes of our country's metros?
INo its just what happens when you have a bubble and unsound lending encouarge to spread the wealth > i mean governamtn created fannie and freddie just for that prupaose as well as down payment and closig progrmas for lower incomes.It created a huge nmber of jobs down the line.But it alos made poosible the saving of many urban homes that were not otherwise worth investing in with their high restruction cost. Many that would have sold then are sitting waiting being towndown today because their value is worthless.Homeownership historically is at 65% but it got to the 70% levels during that asset bubble.
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Old 02-04-2013, 08:04 PM
 
Location: Ohio
18,115 posts, read 13,303,693 times
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Quote:
Originally Posted by Asderfut View Post
I know this thread could probably just as easily be posted to the Urban Planning forum, but i thought I might get better responses from the folks on the economics forum. I am always struck when I hear about new home construction picking up or slacking off and its implications about the economy or by politicians talking about a need to help out the housing industry. I understand the utility of new homes being built as a metric for the economy as a whole, but what I don't understand is why we, as a nation, seem to think it must be something of a pillar of the economy. Isn't the story of the economic crash in Las Vegas a story of how the economy cannot be based on the housing industry? Is it really wise to invest so many resources into building single-family homes on the fringes of our country's metros?
I don't know anything about the situation in Las Vegas, so I can't respond to that.

With respect to your other questions, the sign(s) of an healthy economy do not include housing.

Why?

Glass ceiling (no pun intended).

You follow?

Houses are not consumables like food and other disposable items, and you don't buy houses like you buy cars or shoes or shirts and pants and other things. There is a fixed amount of housing that can possibly exist, and that housing consists of rental apartments, condos (rented/owned), mobile homes (rented/owned), homes (rented/owned) and then new homes.

If you go to the Census Bureau, you'll find there's about 114 Million households in the US, but that is misleading, because "household" does not equate to "residence." You have grandma, mother, mother's adult daughter and then adult-daughter's lazy live-in boyfriend --- that's 4 households in one residence (whatever it might be).

Generally speaking, about 55% to 65% of households will be in house. The rest of the population, the other households, they just don't give a damn about houses.

You couldn't give me an house for free. I wouldn't want it. I'm on a fixed income. I couldn't afford the property taxes; couldn't afford the insurance; the electric; the heating bill; any of the maintenance; and couldn't afford repairs. I couldn't even afford to furnish the house. "Well, you can flip it." Yeah, okay, whatever. As you can see, there are any number of legitimate or very logical reasons why you could never have 100% home ownership, or anything even remotely close to that.

So you if you're limited (the glass ceiling) to 55% to 65% of the households, then obviously that puts a damper on new home construction.

Part of the problem here is the construction industry itself.

You're a builder/general contractor. You get a loan to sink into an housing development. Problem is you run out of money and can't pay the loan.

What's the solution? Start up another housing development, take the money you get from the bank and pay off the banks you owe for the first housing development.

Except that leaves you in the position where you have to start a 3rd housing development to get money to pay off the banks who gave you money for the 2nd housing development...

....and it never ends, or eventually it ends badly. Worse than that, you flood the Market with housing and drive down the prices.

So I wouldn't put any stock in housing starts/developments.

There are people (like the idiot Krugman) who push housing because we all know a house is just a big credit card and people burn up all of their equity with HELOCs and 2nd or 3rd Mortgages and then if there are problems, well, you saw what happened. The US really needs to change its housing policies, and the best thing to do would be for the government to get out of the housing business altogether.

Then who guarantees the mortgages? I don't care, so long as it isn't me.

The banks can purchase mortgage insurance, and then pass the costs on to the home-buyer through higher interest rates; or the banks can simply require home-buyers to obtain their own mortgage insurance (which would be preferable because it gives the home-buyer freedom of choice and allows them to shop around).

If this stupidity of having tax-payers guarantee mortgages is a policy that government wants to continue, then we need some limitations........government backed mortgage? Sorry, no HELOC, no 2nd or 3rd Mortgages.

If people want HELOCs and 2nd/3rd Mortgages, then they'll have to re-finance the mortgage through a lender and pay the cost of getting their own mortgage insurance to guarantee the mortgage, so that the tax-payer is not on the hook.

Go back and look at CSPAN from oh, 2005, maybe 2006. A big-shot from Fannie Mae was on showing lots of charts and stuff. The overwhelming majority of defaults were on the 2nd or 3rd Mortgage, not the primary mortgage.

It's a sad story: buyer gets a house, builds up equity, burns up the equity with a 2nd Mortgage to consolidate credit card bills, home-buyer defaults on 2nd Mortgage, tax-payer gets screwed.

Maybe someone else can jump in here.

Urbanely...

Mircea
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