2008 Florida Housing market Thread Jan - Mar (mortgage, environment)

[CJFlorida]

And another accurate statement from mark Thornton in the Free Market Journal:

As Thornton explains, 'the cause of higher home prices is that the Federal Reserve has kept interest rates, and thus mortgage rates, at historically low rates so that people find it easier to finance homes.' Real estate is bought mostly with borrowed money, and lower interest rates keep the financing cost, the monthly payments, low, even as real estate prices rise. Banking practices contribute to the bubble as they make interest-only loans with no money down. Lending standards typically relax as the bubble approaches its peak.
But the collateral of land value is an illusion. Land has no cost of production, and its price can fall to zero. But why should the banker worry? The bank deposits are insured by the federal government! If the bank fails, the government will bail out the depositors. This encourages more risky loans, which provide temporary profits and perhaps more stock options and bonuses for the banking executives.
Also, home loans can be sold in the secondary market facilitated by agencies which were established by the federal government. As Thornton tells it, 'The Federal Reserve and the Mac-May family (Freddie, Fannie, Sallie, etc.) have conspired to create a housing bubble in the US.' It's not a secret conspiracy but simply all these agencies breathing together to blow up the housing balloon that eventually has to burst.

[CJFlorida]

More by Mr. Englund:

As surely as night follows day, a credit-induced boom is followed by a bust. Moreover, only the Austrian theory of the trade cycle provides the intellectual framework allowing one to understand the boom-bust cycle. Before delving a bit further into this theory, there are a couple of things to keep in mind. First of all, as premeditated by the Federal Reserve, the housing boom was credit-induced. Secondly, America’s savings rate is near zero, so savings-induced growth cannot explain the housing boom. What we will find, as elucidated by Roger Garrison, is that central banking is at the epicenter of the boom-bust cycle. Dr. Garrison provides the following explanation in the Mises Institute’s remarkable book The Austrian Theory of the Trade Cycle:

The Austrian theory of the business cycle emerges straightforwardly from a simple comparison of savings-induced growth, which is sustainable, with a credit-induced boom, which is not. An increase in saving by individuals and a credit expansion orchestrated by the central bank set into motion market processes whose initial allocational effects on the economy's capital structure are similar. But the ultimate consequences of the two processes stand in stark contrast: Saving gets us genuine growth; credit expansion gets us boom and bust.

Assuredly, the housing boom is destined to bust just as the NASDAQ bubble did – anecdotal evidence is already pointing toward this end. When the NASDAQ bubble did burst, I saw the liquidity of many Americans diminish significantly. Yet the housing bubble is vastly different and the financial pattern is unmistakable. Trillions of dollars of mortgage debt came into existence in a very compressed timeframe – in less than five years. Consequently, over the last three years, I have never seen so many dangerously-leveraged personal financial statements in my entire underwriting career.
This mortgage-debt bubble, as engendered by the Federal Reserve, is leading millions of Americans to financial ruin. This may become the most calamitous clustering of financial error in U.S. history.

[Wild Style]

Originally Posted by waiting

I'm still wondering why there are people in this forum that hate home equity
and see a big problem with it eventually being a sellers' market around here.
These people or one person with multiple aliases, have dinged me for even bringing up the ideal of a sellers market.
What dog do they have in this dog and pony show?
I suspect they are renters that can't still buy a home and are waiting for somehow it to get down to cost for all sellers and people that have bad credit can finally buy.
Sorry, if that doesn't fit you equity haters but that's the way you come off sounding.

what in God's name are you talking about?

[CJFlorida]

Originally Posted by Wild Style

what in God's name are you talking about?

That...is a very good question.

[Mike Peterson]

Originally Posted by CJFlorida

Wow, this is not even debatable.

Another accurate statement from Texas Straight Talk:

But capitalism is not to blame for the housing bubble, the Federal Reserve is. Specifically, Fed intervention in the economy-- through the manipulation of interest rates and the creation of money-- caused the artificial boom in mortgage lending.
The Fed has roughly tripled the amount of dollars and credit in circulation just since 1990. Housing prices have risen dramatically not because of simple supply and demand, but because the Fed literally created demand by making the cost of borrowing money artificially cheap. When credit is cheap, individuals tend to borrow too much and spend recklessly.
This is not to say that all banks, lenders, and Wall Street firms are blameless. Many of them are politically connected, and benefited directly from the Fed’s easy money policies. And some lenders did make fraudulent or unethical loans. But every cent they loaned was first created by the Fed.
The actions of lenders are directly attributable to the policies of the Fed: when credit is cheap, why not loan money more recklessly to individuals who normally would not qualify? Even with higher default rates, lenders could make huge profits simply through volume. Subprime lending is a symptom of the housing bubble, not the cause of it.
Fed credit also distorts mortgage lending through Fannie Mae and Freddie Mac, two government schemes created by Congress supposedly to help poor people. Fannie and Freddie enjoy an implicit guarantee of a bailout by the federal government if their loans default, and thus are insulated from market forces. This insulation spurred investors to make funds available to Fannie and Freddie that otherwise would have been invested in other securities or more productive endeavors, thereby fueling the housing boom.
The Federal Reserve provides the mother’s milk for the booms and busts wrongly associated with a mythical “business cycle.” Imagine a Brinks truck driving down a busy street with the doors wide open, and money flying out everywhere, and you’ll have a pretty good analogy for Fed policies over the last two decades. Unless and until we get the Federal Reserve out of the business of creating money at will and setting interest rates, we will remain vulnerable to market bubbles and painful corrections. If housing prices plummet and millions of Americans find themselves owing more than their homes are worth, the blame lies squarely with Alan Greenspan and Ben Bernanke.


Of course the FED cuts spurred the housing bubble, of course they were coordinated with the administration, and of course the NAR, who gives boat loads of money to both parties and pays millions in ad revenue to the MSM were also in lock step.

There is no doubt, it is a given. Without the FED cuts, none of it happens. And the FED also controls the amount of money circulated.

If you state your case and no one states an opposite debate then it is not debatable.
Until that time it is debatable.

And just because Ron Paul says something does not make it gospel.

[lostbuyer]

I dont know how people can argue in favor of the fed on this one,yes flippers are to blame,realtors,banks,appraissers,ect...they were all players,but simply put the fed put the game in motion..we need to get rid of them before they bankrupt the nation,oh too late.

[CJFlorida]

Originally Posted by lostbuyer

I dont know how people can argue in favor of the fed on this one,yes flippers are to blame,realtors,banks,appraissers,ect...they were all players,but simply put the fed put the game in motion..we need to get rid of them before they bankrupt the nation,oh too late.

Exactly. Look at the chart of US housing prices from 1900-2000. It is a gentle curve except for the 2 world wars. Once the rates were cut by the FED, the line shot straight up.

Historically low interest rates, set by the FED, were followed by an acceleration in home prices unlike any other in American history.

The FED knew how lenders, realtors, appraisers, flippers, etc. would react. If they didn't, they are negligent beyond belief, if they did, they started the whole thing.

Pick one, both show the FED is to blame, for either causing it or being clueless of the natural reaction to their moves.

[lostbuyer]

I"ve been saying it for years,the problem with the ITB is they"re never held accountable for anything,unless of course the get a blow job,They will always simply claim incompetence,while doing more damage than any incarcerated criminal ever could,for their stupidity has national consequences,America has become a sick joke,full of happy ignorant sheeple.boy will people be surprised in the next couple of years,and run for help to the very same people who put them in the hole.It would be funny if it wasnt so sad.

[faithfulFrank]

Interesting debate.......

I cannot help but to think that some of the blame belongs to the people themselves...... I've always believed that it was always better to spend less them you make......save up for the things you want to buy......live within your means.......

I'll be 50 this year. I've always had excellent credit. Never paid a dime of credit card interest, although I use them all the time...the day I cannot pay my credit card bill in full, I'll cut them up. I pay cash for my cars and make them last.

The bank calls me "unamerican". I see young people want the same things I worked 30 years for.....I want it all and want it now thinking. They buy everything on credit because the creditors say, "Yes, you can afford it".

When will we ever learn.....?

Here is a question I've always wondered. Are we better off now then we were say 75 years ago? Think of this.

The houses that were built then, ( at least up here ) were huge....over 2500 sq ft or more.....quality built houses with nice trim, leaded windows, fancy wood flooring, etc,etc. The family who bought them only had ONE paycheck coming in......husband worked, wife stayed home raising the many kids...(hey, I'm just saying how it was....). Now that huge house was paid for with ONE paycheck, and the mortgage was NOT a 30 year mortgage...more like a 10 to 15 year mortgage.

Now...fast forward to today. smaller house, (although fancier, more efficient, fancier bathrooms, kitchens, etc...) It now takes TWO paychecks to buy it...30 year mortgages, smaller sq. footage, (sometimes)......double the paychecks, double the time paying for it......

Have we gone backward??

Just wondering.

Frank D.

[sunrico90]

Originally Posted by faithfulFrank

Interesting debate.......

I cannot help but to think that some of the blame belongs to the people themselves...... I've always believed that it was always better to spend less them you make......save up for the things you want to buy......live within your means.......

I'll be 50 this year. I've always had excellent credit. Never paid a dime of credit card interest, although I use them all the time...the day I cannot pay my credit card bill in full, I'll cut them up. I pay cash for my cars and make them last.

The bank calls me "unamerican". I see young people want the same things I worked 30 years for.....I want it all and want it now thinking. They buy everything on credit because the creditors say, "Yes, you can afford it".

When will we ever learn.....?

Here is a question I've always wondered. Are we better off now then we were say 75 years ago? Think of this.

The houses that were built then, ( at least up here ) were huge....over 2500 sq ft or more.....quality built houses with nice trim, leaded windows, fancy wood flooring, etc,etc. The family who bought them only had ONE paycheck coming in......husband worked, wife stayed home raising the many kids...(hey, I'm just saying how it was....). Now that huge house was paid for with ONE paycheck, and the mortgage was NOT a 30 year mortgage...more like a 10 to 15 year mortgage.

Now...fast forward to today. smaller house, (although fancier, more efficient, fancier bathrooms, kitchens, etc...) It now takes TWO paychecks to buy it...30 year mortgages, smaller sq. footage, (sometimes)......double the paychecks, double the time paying for it......

Have we gone backward??

Just wondering.

Frank D.

Great post... maybe we lost perception of reality 2/3 years ago and everyone want it an easy way to make money without thinking about consequences. Today we are experiencing the consequences. Remember: "save for a rainy day" only those that keep a realist plan are doing well. Many are experiencing the rainy day today....