Should Housing Prices Remain Un-affordable?

[penguin7]

Jim Cramer thinks the answer to our current economic problems is for the government to pump government money into the housing industry. I see housing as completely not affordable and the government should not take action to keep housing not affordable.

Also the only way to keep housing at anywhere near the insane prices reached two years ago is to pump a whole lot of inflation into the economy. Inflation is a tax and the most regressive tax of all.

Should we pump all this inflation into the economy to keep the price of houses at astronomical levels? Is Roaring inflation really good for the People? Should it cost a thousand dollars or better to fill the fridge?

Also Jim Cramer has a vested interest in a rising stock market so people watch his show. Inflation will push up the stock market at the expense of the price of groceries.

http://www.thestreet.com/print/story/10405597.html

Cramer: The Terrible Dollar Is Housing's Fault
Jim Cramer
02/29/08 - 10:16 AM EST
Originally posted on RealMoney at 10:01 a.m. EST.
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I am tired of reading that the dollar's decline is a function of our interest rates and their need to decline further on the short end.

The dollar is a referendum on how badly President Bush, Treasury Secretary Paulson and Princeton Professor Ben Bernanke are handling the housing crisis and the economy. The dollar is a repudiation of their lack of creativity, their inability to recognize that the monoline problem plus the housing losses have eliminated the excess capital the banks have to lend, and their insistence that laissez-faire works when it comes to broken markets.

The dollar's decline is a statement that Ben Bernanke will not do what he said he would do in 1992, which is have the Fed buy the bad collateral that the banks are stuck with.

The dollar's plummet is a statement that the government would rather give out $600 to those who need it than take stakes in the companies that could have built the capital reserves, the PMIs PMI, the MBIAs MBI, the Ambacs ABK.

The endless slide has to do with the recognition that the markets are beyond the grasp of the president himself or the Democrats who think the answer is punishing the banks with bank holidays.

The government has to get involved to solve this problem. Without getting the FHA engaged, it makes too much sense to walk away from your home.

The government seems unable to recognize that the issue here is simply the need to get houses to stop depreciating.

Lots of people when I write that say that I favor bailouts, that I favor higher home prices, which are bad, that I want deadbeats helped.

I have to tell you: If you have stuck it out this long in your house, you are not a deadbeat. You are doing everything you can to stay in your home, despite articles that say otherwise. Walking away from a home is a horrible decision, predicated at this point on the need to feed your family. I don't care that the borrowers should have been smarter or the lenders less rapacious. I want to see the glut of homes shrunk and the desire to buy a home not be a fool's game, as it is now.

Without some engagement by the government, the dollar will continue to fall.

Don't forget, our inflation is mandated by the futile attempts to get ethanol jumpstarted while we put tariffs on sugar and we keep cheap Brazilian ethanol out.

The whole debacle is much more important than the reasons you hear about the decline in the dollar.

Do not forget that if we solved the housing crisis, we could then raise the rates and bring money in. The way to solve it is to give the banks more money to lend -- they don't have it. That's what the Thornburg TMA mortgage issue was about. That's what the hedge fund margin calls are about. The banks can't lend because they don't have enough capital.

They are trying furiously to shrink their balance sheets so they cannot run afoul of capital requirements, which, because of all the bad loans, they are in danger of doing. By cutting the short rates to well below the two-year mark, you allow the banks to take your deposits, invest in the "curve," make money every day and rebuild capital. You also allow hardship borrowers to refinance from the FHA.

It's the only solution.

And it is not happening.

[Mountainman]

1. If you own a house and it is losing value daily would you want that to continue?

This all depends on what side of the coin you are on. If you think housing prices are too high you want people to lose value. If you already own a house you don't. Especially if you have a mortgage and the price of the house is now worth less than you owe.

So it all depends on who's ox you want gored.

I have a house that has been on the market for over a year. I don't want it to lose more value. My plan was to sell it, buy a cheaper house for cash and get out of debt. It looks like that plan is not going to work. If I sell it at all, I will get much less than I planned and will have to borrow again to get the cheaper one.

I'm sure those who want house prices to fall don't care a bit about my situation. I was hoping to retire in 5 years debt free. Too bad for me I guess, let's make it so the next person can have my house for less than it cost me.

[sepulveda]

2. frankly

IF you own a house, you are not overleveraged, the answer is YES

i would love for my house to lose value

because i just sold my other house, im cash rich, i have heavy equity in this house, and if my house value falls, i know more expensive houses will fall even more (note this is the way bubbles work - when assets collapse, the most overpriced assets fall more. the value, non-niche ones fall less. see: for example the Nasdaq bubble. the nasdaq tanked. the dow (blue chips) not nearly so much)

also, if you live in your home and plan to stay ofr a while, lowered home values hurts you not at all. it CAN help in lowering property taxes .

a big part of the problem , as i have repeatedly stated - is overleveraging

i trade futures for income. and among the # 1 reason futures traders fial is the same reason - overleveraging

there are no guarantees in ANY asset class that prices won't drop. prices dropping overall would be an excellent thing - it will flush out weak hands, and help prudent buyers (who didn't overextend) find value.

my broker suggested i get a house costing 5 times my gross income. i chose to buy one a 3 times my gross income, with a 15 yr mortgage, and put 30% down.

i would LOVE prices to drop.

so, yes. i DO want that to continue. lower prices would be great.

also, we have had a bull market for a long time. buying near the end of a bull market is ALWAYS dangerous. do you know when it is going to end>? no. but when everybody loves real estate, the bull has seen multiplies of increases that are historically large , etc. then buyers should have exercised caution. sorry, but greater fool theory often traps some fools

[fed-up]

4. one upside for you is that what you buy will be cheaper-lower property taxes/ins for a lifetime nt

[Demeter]

3. We Don't Get To Choose

Prices will drop because there will be no sales otherwise. A House is worth only what someone else is willing and able to pay for it.

[nealmhughes]

5. Absolutely, home owning is a "faith-based" enterprise. The only intrinsic value is in the sticks.

Property is only worth what others say it is worth and are willing to give a lien on that amount as collatoral or else what the market can bear in a sale.
Neighborhoods wax and wane in "popularity" and desirability. That is the "complex" nature of human interactions. Add in the "bandwagon" effect of home location and one has a system designed for series of bust and boom for various locales.
There are certain areas where one most probably never see housing prices go down: Manhattan, San Francisco, Boston, etc. where there is nowhere left to build in the city except up and the suburbs are chock full now and as expensive in many cases as the cites proper.
There was tulipomania, then sedophilia (a silk worm growing craze in the Early Republic), the South Seas Bubble, the Yazoo Bubble, Florida land and orange grove craze, then the worst one of all: leveraged stock craze of the 1920s.
To be honest, the most we could hope for is a legislated mandated reassessment of mortgage terms.
My sister has 3 houses on the market right now, and the one that has had contracts on it is the small 2 BR one, not the 3 BR/2BA/garage ones. I think that McMansionette days are over, gratefully so for aesthetic purposes, and probably for overall public economic health.