How to fix the American housing system

[hipp5]

I've just had the time to glance over this discussion briefly. It looks really interesting and I can't wait to spend more time reading it in-depth and thinking about the comments.

Until then, I'd like to offer one clarification (I see someone made an attempt already but didn't get it quite right): Our system in Canada now is that you require 20% down for investment properties, and 5% down for owner-occupied properties (with the CMHC insurance). Those down payments cannot come from loans or other financing. They must be your own cash or a non-repayable gift.

I guess the thinking is that requiring 20% down for investment properties increases the stakes for investors and reduces some of the rampant speculation that causes bubbles. Lowering the bar to 5% (with insurance) for owner-occupied properties means that people can still afford to buy a home.

[Cismontane]

1) In the scenario we saw unfold over the last decade or so, if suburban or greenfield development had already been curtailed and more people looked to the urban center for their homes, are we not likely to have had the SAME problem of people being loaned money at high risk to occupy homes they cannot sustain the payments for?

possibly, and as Mendelmen pointed out, there are a few examples, but I believe that the urban problem is a slightly different one, where other types of subsidies have encouraged over-production (rather than the FHA-loans coupled with high land residuals as a component of home values that have so crippled the 'burbs). Fundamentally speaking, on the asset (as opposed to the financial) side land values are just capitalized rents + land-residual + infrastructure subsidy.. assume we all agree on that basic math.

A bubble (usually) implies that the first component shrinks with respect to the latter two components. Since renters cannot capture returns from the latter two components and are not are required to pay for them either (only owners and builders can capture the land-residual and infrastructure subsidy in returms and only builders get the benefit of the infrastructure subsidy) and since homebuyers are, unlike renters, required to pay for both the land residual and the infrastructure subsidy without getting any returns/benefits from them, an obvious but somewhat lopsided arbitrage spread is set between rents and home prices. What homeowners (and renters) can afford, in a healthy system, is defined by those capitalized rents (the theoretical no-arbitrage point between rents and house values) and a relatively small component to terminal value (a smallish land residual, 30 years off). Healthy mortgage payments (and amounts) equate to rents + some bonus for that smallish land residual). Anything beyond capitalized rents + that smallish land residual is bubblish, yet mortgage lenders - subsidized by the Feds on their own risk - were happy to lend against it during the boom years. The problem is that this balance can get helter-skelter easily given irresponsible feds and lenders, when they lose sight of the underlying yield relationships.

In this sense, multi-unit housing infilling into cities may be slightly bettter, since the land-residual is, by definition, suppressed relatively to cap'ed rents. For example, a nice 700 sq ft 1 bedroom in an decent neighborhood in Manhattan with average monthly maintenance and tax payments costs $500,000 and rents for $2,600 a month - and yields a healthy 6% or so, that might'be been 5% at the worst point in 2008. A Downtown San Diego 2 bedroom costs $350,000 and rents for $1,600 a month - again a healthy 6% that might've been 4.5% at the height of the glut. A $450,000 (pre-bust peak) 3 bedroom suburban SFD in Modesto rented for $950 a month - yielding a what would ultimately prove to be a catastrophic 2.5%.. I won't give a value for the home today, because it's not sellable, but my guess is that it's back in the 5% yield range, assuming a buyer can be found at all. Yields in parts of Florida were down in the 1 to 1.5% area.

So yes, there were micro-bubbles in Downtown Chicago or Boston or San Diego etc, but bubbles formed at arbitrage spreads between 4.5% and 6% are easily remediable (correctable with price declines of, say, 15-25%, based on movement toward a compromise 5-5.5% yield). People who get foreclosed upon may not think so, but there's not much of a structural problem at the end of the day. The problem sorts itself out as most people have mortgages that are, at their current balance, less than 80% of the values of their homes. Really only people who bought their homes with 5-10% down, right before the recession began, are in trouble). On the other hand, bubbles at arb spreads betweeen 2% and 6% basically mean that mortgage holders are dead meat (50-60%+ declines to correct the market, with the same proportion of financing). And the latter is pretty much limited to suburban SFDs, with the possible exception of Miami, where there is a weird dynamic going on (it behaves like a suburb financially, even though it's in the city). This is not to say that the San Diego condo owner isn't depressed and going on meds, but he is in a much shallower water than that of the guy in Modesto. He can still drown in the shallows, so to speak, but that'll kind of be his fault. Or he was just incredibly unlucky in timing (bought at 10% down in December of 2006, say). The guy in Modesto is getting hunted by sharks in deep water, without land or a flotation aid in sight, having bought at 10% down anytime in the last decade.

I think gas taxes and concurrencies will help by shrinking the subsidized infrastructure/concurrency component of land values,but the much much bigger problem is in the land-residual element that Federal lenders and mortgage companies have abetted with their irresponsible behavior. Real estate is NOT a capital appreciation game. It's a cashflow game where valuations are defined as a no-arbitrage spread between rents (substitute "healthy" mortgage payments,at only a slight premium to rents, if you want to be literal about it) and home values. The sooner the Federal government and homebuyers figure this out, the better off we'll all be. This is the Donald Trump Disease (who famously said that "real estate IS a capital appreciation game," shortly before one of his earlier bankruptcies). It's curable in center city areas (as it was for the Donald, who successfully buckled down and toughed out the market's closing of a 20% arb gap in NYC at that time).. less so in the burbs. There is simply no way to tough out a 50%+ gap.. or to have an reasonable expectation that it will close anytime outside of yet another bubble.

[mendelman]

But, to continue the example, the condo bust in Chicago's South Loop is not a mirco-bubble separate from the national bubble is a part of the national bubble that burst, since they all burst at the same time.

Plus, the condos in the South Loop are have debt loads that far exceed the rent parity for the immediate neighborhood - like your Modesto example. So, I get back to the fact that regardless of infrastructure/land/building values/cost ratios etc., the simple fact is that easy/lax lending practices to individuals and developers led to asset appreciation, which allowed for the construction of more and more excess supply.

[Pragmatic Idealist]

We're not talking about the cause of the bubble, though. We're discussing ways to fix the current situation.

At this point, T.O.D. is the only thing getting done in this country, and for good reason. A surplus of about 40% is expected in S.F.R. over the next couple of decades. But, how do we get the appropriate mix of incomes in the new construction, as well as in the old? The housing crisis may be a blessing in disguise if the solution helps to also fix the disastrous planning over the last 60 years.

[Cismontane]

But, to continue the example, the condo bust in Chicago's South Loop is not a mirco-bubble separate from the national bubble is a part of the national bubble that burst, since they all burst at the same time.

Plus, the condos in the South Loop are have debt loads that far exceed the rent parity for the immediate neighborhood - like your Modesto example. So, I get back to the fact that regardless of infrastructure/land/building values/cost ratios etc., the simple fact is that easy/lax lending practices to individuals and developers led to asset appreciation, which allowed for the construction of more and more excess supply.

I think the timing of all these bubbles and micro-bubbles matched, due to the financial collapse. it's the severity that differed.

I was unware of the South Loop example. A 50% arb parity gap in Chicago seems hard for me to believe. Clearly that happened in Miami but this is the first I've heard of it happening in a non-Miami context in this country. Remember, though, that local distortions are possible if two or more large projects come on line at the same time.

[Cismontane]

We're not talking about the cause of the bubble, though. We're discussing ways to fix the current situation.

At this point, T.O.D. is the only thing getting done in this country, and for good reason. A surplus of about 40% is expected in S.F.R. over the next couple of decades. But, how do we get the appropriate mix of incomes in the new construction, as well as in the old? The housing crisis may be a blessing in disguise if the solution helps to also fix the disastrous planning over the last 60 years.

Yes, distinctly possible.. but hopefully not limited to TODs, but extended to all manner of urban infill and adaptive reuse possibilities.

[mendelman]

PI - you're right this thread is about fixing the problem, but you need to discuss the cause to discover the appropriate fix.

I still don't see a shift from one predominant form to another as a way of fixing the fundamentals of the cause. It doesn't matter whether such TOD or NU or redevelopment in established developed areas is preferred or if it is the current status quo of the last 70 years. The distribution of "free" money to almost any buyer and/or speculator will create a false sense of demand which then encourages more supply that after an extended period of the (negative, as seen now) feedback loop. That false supply/demand increasingly becomes too divorced from actual demand or median incomes that it just collaspes, which is where we are at.

So, solutions are perhaps too simple (maybe I'm missing something important) - require higher downpayments, reduce/remove direct tax deductions for ownership, limit the supply of FHA backed loans, require maximum debt-to-income ratios for buyers, require very high downpayments for all speculative/non-homestead properties, etc.

This will be an interesting next 5-10 years to see what happens.

[wahday]

Well, I can't really quibble one way or the other about the stability/instability of property values in cities versus suburban environs as that is not really my strength. But the numbers are compelling...

My point was a much simpler one, I think. That the reason many people have defaulted is not necessarily because they are under water but because the rate reset on a subprime or adjustable rate mortgage and the buyer cannot afford it. In part, this is because Freddie and Fannie went forward with so many loans that presented this very risk. The recklessness was in part because the implication was the government had their back.

While its true that in a market with high appreciation, these owners could conceivably refinance into a fixed rate loan because the home value had risen so strongly, I suspect (with absolutely no concrete evidence) that we would still be seeing a lot of defaults by people whose salaries did not grow as expected or who otherwise simply cannot afford the (increased) payment. In that scenario, it seems we would still find ourselves in a similar situation regardless of the location of the individual houses.

But, if it is true that the urban real estate market remains more vibrant and still sees growth in this environment that, despite some painful losses for some, the catastrophe may not have been quite so bloody. Fewer properties would be under water and the banks would perhaps be less eager to foreclose as a result, instead working with the owners to come up with a negotiated solution.

That being said, I have lived in or visited many cities with huge areas that have seen dramatic price reductions at different times. The same kind of dynamic documented in suburban areas - one house goes into a short sale, other owners in the are panic and before you know it, there is a race to the bottom while the whole neighborhood turns seemingly overnight. Philadelphia, Pittsburgh, Buffalo, etc. have been struck by similar dynamics along with many others.

[Cismontane]

My point was a much simpler one, I think. That the reason many people have defaulted is not necessarily because they are under water but because the rate reset on a subprime or adjustable rate mortgage and the buyer cannot afford it. In part, this is because Freddie and Fannie went forward with so many loans that presented this very risk. The recklessness was in part because the implication was the government had their back.

There was a HUD-published survey from a few months ago that gave causes to mortgage defaults:

36% Curtailment of Income
18% Excessive Obligations
9% Unemployment
6% Illness of Principal Mortgagor or family member
3% Marital Difficulties

If this is accurate, then the variable rate mortgage issue may not be the biggest problem on the consumer side. Rather, it's as simple as people not getting income they were counting on for a full 45%, between lower incomes and unemployment. Another 6% is linked to our other great national meltdown - healthcare. 3% are divorcees sueing each other ;-P. This begs the question on why credit review was so bad to nonexistant so as to miscalculate incomes that badly.

The basic issue remains: homes in the hot markets experiencing meltdowns now were grossly overpriced relatively to their value in capitalized rents (the land residual was too big, in other words). One is a demand-side problem. The other is a supply-side one. The supply-side one is probably more amenable to policy intervention than consumer stupidity: if buyers had to pay-in 20% down for more reasonably priced homes, they might have had more of a cushion against the amount by which their income was ultimately curtailed.

[Linda_D]

The American economy has always been susceptible to real estate "bubbles" because we are sprawlers. I think it's something in the water. In the 1850s, a developer in Buffalo named Benjamin Rathbun built hundreds of homes. He went under in the Panic of 1857. I suspect that numerous cities around the country had their own local real estate "magnates" who went under because of various collapses of real estate markets. During the 1920s, land speculation in Florida, California, and in many Midwestern and Eastern cities soared, and in the 1930s the bursting of these bubbles brought down the local economies as significantly as did the stock market crash.

Why were the English colonists bent out of shape by the Proclamation of 1763, which supposedly closed the lands west of the Appalachians to settlement? Had they filled up the entire Eastern seaboard and needed more land? Hardly. They wanted to sprawl into the Ohio, Tennessee, and Mississippi Valleys because they were there. The Proclamation of 1763 was the first growth boundary, and we used it as one of numerous excuses to rebel against Britain.

Europeans see empty land and they want to protect it for its space and views. Americans see that same empty land, and they want to timber it, farm it, build houses or factories or golf courses or shopping malls on it. In many ways, "empty land" is an affront to American sensibilities because it's just sitting there "wasting away" . As Pogo said, "we have met the enemy, and he is us."

[Pragmatic Idealist]

Americans also created the first national park system in the world. So, the more accurate statement is that only certain Americans want to extract as much as they can from the natural resources here and leave a wasteland for the progeny.

I assert that whatever extractive mindset past American individuals may have had has much more to do with the relative virginity of the New World, instead of some deep-seated flaw in these people and in the national psyche, which is, itself, mutable.

[The One]

I can't tell you how many people (some very well educated) here in Arizona have made it clear to me (with a straight face) that their goal in life is to create the biggest carbon footprint they can. They wear this statement like a badge of honor.

[Pragmatic Idealist]

Well-educated doesn't necessarily mean rational. And, I would venture a guess that this kind of mindset is a relatively-new phenomenon that is the result of massive, widespread brainwashing by the oil industry through Fox News and other propaganda outlets that somehow convince people to continue acting against their own self-interests.

Reasonable people simply don't derive satisfaction by producing as much carbon as they possibly can.

[Cismontane]

The American economy has always been susceptible to real estate "bubbles" because we are sprawlers.

I believe that, in a historical sense, sprawl and bubbles aren't necessarily related. I agree with you on our cultural predeliction toward urbanizing land at low densities - this is a very Anglo-American thing, and the Brits, Australians and Canadians have it too. We are also reminded that the first mass-housing SFD 'burbs - predating the American incarnation by nearly a century - were actually French, although that was probably an abberation. The English have their estates and we all like our gardens. This does not, however, mean that a level-playing field economy would've produced quite as many or quite so extremely vast fields worth of SFDs. Euclidean regulatory zoning, highway planners, and the structure of the Federal mortgage subsidy programs did that. I don't disagree that cultural predispositions encouraged those policy decisions, but they weren't some type of weird manifest destiny thing. All things being equal, builders and developers don't like SFDs much, at least at the lower densities, and there likely would've been a different compromise standard typology had the market - instead of regulators - been allowed to find an equilibrium.

Separately, bubbles are a risk anywhere in the world where there are structural market inefficiencies and imperfect information. The regulatory (and cultural) predispositions toward sprawl determine what sort of bubbles we are likely to see, but that doesn't change the fact that bubbles are actually caused by a particular set of economic circumstances and not by the physical nature of the product. You can have a bubble with tulips (remember that peculiarly Dutch crisis?), for example.. or just about anything else.. so long as information flows are assymetric and capital cannot be accessed on a level playing field (for instance, when, as I pointed out, builders, tenants and homebuyers capture (structurally) different returns for the same product, that effect prices disproportionately relative to one another, for purely regulatory reasons such as subsidies, incentives and tax law).

Remember, China has an urban/highrise bubble, from a very different set of structural imbalances (regulatory standardization of building designs, materials and cosntruction process have radically and relatively pushed down relative costs and increased returns to developers for that type of product, whilst government subsidizes credit to homebuyers and keep alternative capital sinks - like bank accounts - artificially low-returning, among other problems, all while both information flows and land-assembly/procurement powers are extremely assymetric), although that bubble is probably unlikely to burst since the equity investments of buyers are high enough (30-50%) relative to income and the urban populationg growth rates are also high enough that the now vacant product will likely be filled anyway over time, and the high-equity buyers will just sit on inventory until that happens, since their interest payments are all fixed rate, virtually nil and a smallish proportion of their monthly expenditures. Effectively, government planners are using private homeowners as a type of land-bank (or, rather, house bank) - and bearing the cost of that bank, even while well-connected developers - like those in our own coutnry - are getting rich with minimal risk. Heck, maybe their govenrment wanted that type of bubble to guarantee sufficient housing stock for future growth... I wouldn't put it past them.

To understand American housing and the problems it now faces, I think we have to stop deluding ourselves that there is some sort of Invisible-handish "free market" guiding things. The hand of government really is everywhere, and that hand, more than anything else, has determined both the form and economics of American housing for at least 65 years.

[Cismontane]

I can't tell you how many people (some very well educated) here in Arizona have made it clear to me (with a straight face) that their goal in life is to create the biggest carbon footprint they can. They wear this statement like a badge of honor.

I wonder if religion is a part of this? One thinks of the whole prosperity gospel movement (a cheap mortgage is gift from God!). Or is it just showing up the Joneses so to speak.

I vaguely remember a mcmansion war between two (essentially non-religious) relatives once. One had a custom home built on an existing farmhouse parcel in the late 1980s. It was huge at the time - about 3,500 sq ft. His cousin built himself a 6,000 footer on a different parcel nearby in about 2004. So, of course, he had to do a major expansion of his 3,500 footer.. proposing to nearly double the square footage. Planning said no, so he moved and built a new house in a new subdivision - 8,000 sq ft. They both used (primarily) equity for their vanity, but I have no doubt that they would've done the same with debt too, had they been erquierd to. Dunno whether my uncle (6,000 square footger) now plans to upsize again. I should add that both are highly "educated" - one is a surgeon, the other is a, cough, developer.

[Pragmatic Idealist]

If the Rapture's happening two weeks from Tuesday, who cares about sustainability?

[stroskey]

I wonder if religion is a part of this? One thinks of the whole prosperity gospel movement (a cheap mortgage is gift from God!).

Interesting question. I think in general most pentecostal people (I'm thinking suburban megachurch here) are more well-off to begin with so they use their money to make more money and relate the two. And being well off means you're more likely to live in a suburb and buy into that suburban mentality.

I know plenty of Christians who are rich suburbanites who think this way even though they don't use the term "prosperity theology. " I also know plenty of rich city-dwellers, who for some reason tend to be Catholic more than evangelical. I wonder if land-use plays a role in religion or the other way around?

[Linda_D]

Americans also created the first national park system in the world. So, the more accurate statement is that only certain Americans want to extract as much as they can from the natural resources here and leave a wasteland for the progeny.

I assert that whatever extractive mindset past American individuals may have had has much more to do with the relative virginity of the New World, instead of some deep-seated flaw in these people and in the national psyche, which is, itself, mutable.

Large numbers of Americans only started worrying about protecting unique places after they realized there was no more "frontier". The 1890 census showed that there was no longer a distinct line between settled and unsettled areas of the country, and that had a profound effect on America thought. On the positive side, it led to the Progressive Movement, which included the ideas of conservation and preservation of remaining wilderness. On the negative side, it led to the racism that sought to limit immigration to Europeans from northern and western Europe.

[Cismontane]

Looks like by the just released October ousing start numbers and things are actually getting worse, if you can believe it.

There's still no evidence this country has a functioning housing market even with Federal subsidies.. or, for that matter, any private sector housing market at all outside of the Federal subsidies. There's no recovery and, in some respects, things are getting worse, falling back nearly to the April 2009 trough: in other words, housing starts are a lousy 8% above the all-time historical, since numbers-were-kept floor, and getting worse by the month.

The Northeast is the only bright spot in the whole country (+13%) and given the number of empty and half-completed homes I've seen around NY and Boston, goodness knows what that really means.. The numbers are showing that the middle is completely dead, the Southeast is still in freefall, and the west is just an unending horror movie (-30%!).

http://www.msnbc.msn.com/id/40231130...sonal_finance/

And.. what's worse, new multi-unit rentals appear to be falling even more quickly than SFDs (although both are falling), at a time when the only way one can afford to buy one of those SFDs is a government subsidized loan. This is not surprising because land-use control systems and codes make SFDs so much easier to permit and then build SFDs and the developers already held the land and the entitlements, but this isn't helping. The only product being built is the one product nobody can (or should be able to) afford to buy. This is going in the opposite direction it should in all respects, and it should now be clear that this is not going to turn around unless the structural underpinnings of the current crisis are addressed. Some very hard choices have to be made, and yet there isn't a single serious national policy discussion, in Congress or elsewhere, to do so.

[Linda_D]

Housing prices are still deflating. There's still a large inventory of foreclosed homes that depress prices, and the number of those is inching upwards in non-bubble markets because of people who have lost jobs. The fall in home prices in many markets, especially in bubble markets, have left people upside down in their loans and wiped out whatever equity they actually had or thought they had. Experts have been predicting it will take a decade for the housing market to recover -- and possibly longer in some areas.

[Cismontane]

Sorry to resurrect this thread, but, seriously, wow! It might really happen.

WH, 2/11/11: "The GSE model is dead."

"The housing finance system must be reformed. It is the vital link to sustainable homeownership and rental options for millions of Americans, and it is central to our nation’s economy. We allowed its flaws to go unchecked for too long, contributing to a financial collapse that has strained families, decimated communities, and pushed the economy into the worst recession since the Great Depression."
- White House

It looks like the White House has finally moved to begin to phase out the agency guarantee system and privatize the housing financing system, pretty much along the lines of what we discussed on this thread... actually more aggressive in many ways than what I recommended in my initial post starting this thread. Hopefuly this is the first step to fix our ongoing housing catastrophe.

http://www.msnbc.msn.com/id/41520586...n_the_economy/

The president has outlined the following Federal initiatives (quoting MSNBC):

"•Shrinking the size of the portfolio of mortgages held by government housing finance agencies by at least 10 percent a year.
•Creating an insurance fund for mortgages much like bank deposit insurance, supported by premiums paid by lenders.
•Winding down government subsidies of mortgages by raising the fees charged to cover the risk of default.
•Limiting the government’s role in housing finance to Federal Housing Administration backing of mortgages, turning most of the market over to the private sector.
•Phasing in a 10 percent down payment requirement for government guaranteed loans"

It's hard to understate the significance of what is being proposed: effectively, the president is proposing to take the first steps toward privatizing America's blatently statist housing production and delivery system... possibly the largest privatization of a public function in this country, ever. The third item is especially significant. Instead of relying solely on securitization and taxpayer subsidy to fund market-stabilizing guaratees, the president is effectively proposing that the lenders themselves be forced to bear the costs through a depository-style guarantee program.. effectively forcing the banks to self-insure their exposures. Thus, if the bankers behave as irresponsibly in the future as they have done in the past, by lending money to people who can't afford it, they will at least be forced to do so with their own money. This will probably mean higher mortgage costs (much higher), much higher down payments, and, in many markets, ongoing price deflation, as the market right-sizes, but we have to start somewhere.

It does bother me that they seem to have made this announcement on the quiet, trying to avoid public spotlight.. we'll just have to see if it has political wings. But it seems like a start. It looks like we are finally beginning to take the measures needed to end the cycle of bubbles and value-destruction that led to us to our present sorry state.

The new poilcy and options and alternatives under it are laid out in the following report to Congress, issued this morning. All three alternatives laid out call for system privatization and an end to the guarantee system.

http://www.treasury.gov/initiatives/...e%20Market.pdf

Quoting the policy report:
"Option 1: Privatized system of housing finance with the government insurance role limited to FHA, USDA and Department of Veterans’ Affairs’ assistance for narrowly targeted groups of borrowers"
"Option 2: Privatized system of housing finance with assistance from FHA, USDA and Department of Veterans’ Affairs for narrowly targeted groups of borrowers and a guarantee mechanism to scale up during times of crisis"
"Option 3: Privatized system of housing finance with FHA, USDA and Department of Veterans’ Affairs assistance for low- and moderate-income borrowers and catastrophic reinsurance behind significant private capital"

[HomerJ]

I'm no expert, but what about creating incentives where people rent to own? I've seen very few options to ever do this, and maybe that's because it's not viable, perhaps someone with more knowledge on the subject knows why?

[Cismontane]

I'm no expert, but what about creating incentives where people rent to own? I've seen very few options to ever do this, and maybe that's because it's not viable, perhaps someone with more knowledge on the subject knows why?

Hmm.. I like that idea. have to work on the developers for something like this though. Maybe a rent-to-own deduction or tax credit for homebuilders who stay in as land-lords? I think, Homer, the answer as to why something like rent-to-own hasn't really developed so far is a simple one: anyone who could afford to rent-to-own, could own outright under the agency guarantee system. Thanks to the subsidies, anyone with halfway decent credit could get a government-paid-for house with zero down and a mortgage payment lower than what you would pay in rents... so why bother to rent to own? If there is room for such a product to develop, you would need housing reform and privatization to happen first.

BTW, Geithner just confirmed that the proposed housing privatizaton plan will be implemented over a 5-7 year horizon, which sounds about right to me, although I suspect it could happen much faster than that, since the Chinese, Japanese and Euros will probably dump their positions in the agency securities like hotcakes now that they know the agencies will be wound down. That's likely what the administration is bargaining for - by making the announcement today, they are damning the agencies by starving them of any prospects for new capital. By the time lobbyists and Congress get their two cents in, the agencies will already be deader than door nails, from a financial perspective.. a perfect fait accompli. Ya gotta give the White House some credit. They know how to play the game.

One has to question what this means for planners. IMO, once implemented, the Fed's privatization program could end up virtually shutting down outer suburban/exurban development, which has been almost totally dependent on guaranteed mortgages. Victorville and Merced would become ghost towns (even more so than they already are). Further sprawl in Las Vegas and Phoenix, etc., could've just become an instant dinosaur. Coupled with rental subsidies (or rent-to-own) subsidies as you propose, administered under a future SCI-type program (if that ever gets funded), or just more affordable housing tax credits, this could end up being a huge boon for urban, city development. The consequences of this announcement for what we do could be massive.

[ColoGI]

IMO, once implemented, the Fed's privatization program could end up virtually shutting down outer suburban/exurban development, which has been almost totally dependent on guaranteed mortgages. Victorville and Merced would become ghost towns (even more so than they already are). Further sprawl in Las Vegas and Phoenix, etc., could've just become an instant dinosaur. Coupled with rental subsidies (or rent-to-own) subsidies as you propose, administered under a future SCI-type program (if that ever gets funded), or just more affordable housing tax credits, this could end up being a huge boon for urban, city development. The consequences of this announcement for what we do could be massive.

I'm all for correcting the housing market and getting out of the taxpayer-subsidy business and ordering society for when cheap energy goes away. I'd also like to ensure that generations of patriotic Americans who were told to believe all sorts of things coincident with your 'ghost towns' get what they want. That won't happen, of course, so we need to ensure that they aren't disaffected and there is no maladapation from their 'preferences' being unmet. Not everyone thinks urban living is ducky and we should keep this in mind.

[Cismontane]

Not everyone thinks urban living is ducky and we should keep this in mind.

I don't disagree with you, but this is where we are today. In a way, the announcement today (on a Friday news dump, I should add), was inevitable. the Federal proposals on the table (and what I originally proposed on this thread) aredriven by hard fiscal realities. If people want to live in exurbia, they need to figure out how to pay for it in a way that doesn't require national suicide to sustain their habits. According to the Fed, in 2006, $23 trillion in collateral (the total value of mortgaged US housing stock) supported $10 trillion worth of Federal guarantees. Today, between $13 and $16 trillion in collateral support the same $10 trillion in outstanding guarantees. That''s right.. that's how much value they estimate was destroyed. 8 times more in constant dollars than was wiped out int he run-up to the Great Depression. .. and to make it worse, only $4 trillion of that actually applies to the $10 trillion. The rest of it belongs to people who've already paid off our homes. A $6 trillion shortfall! Our country's entire GDP is only $14 trillion. The valuation gap (financed by agency mortgage notes sold to countries like China) alone is over 40% of our GDP!

Add that to the direct Federal debt, and you'll see that the nation is technically insolvent. And that's before a cent of private, non-guaranteed debt (mortgages, personal loans, corporate debt, etc) is counted. This is the problem Obama is trying to solve: a fiscal position worse than anything the world has ever seen, anywhere, at anytime.

I'm open (and I'm sure the Federal government is open) to suggestions on how best to accommodate our addiction to suburban living while digging ourselves out of a hole so deep Dante himself couldn't conceivably navigate it. And yes, I know that some regions are better off than others (to Linda's point). Unfortunately for them, those regions are part of the same country as those areas in crisis. In the meantime, if you aspire to that nice exurban mcmansion, may I humbly suggest saving enough pay for it in cash. Or marry rich.

Look, this isn't our fault. It's not my generation's fault. It's our parents' fault. And our grandparents' fault. But it is what is. We're the ones who have to deal with it. And it's really starting to look like we'll be dealing with it by living in rental homes, in cities.