Why bailouts won't work and prices must fall

I hope those of you who like to make a punching bag out of my employer (no, not Sam Zell, the Los Angeles Times) have noticed that the newspaper continues to publish full-throated, anti-bailout opinion pieces.

Last week it was economist Christopher Thornberg's politically incorrect, but historically obvious argument that the housing bubble was caused by "greed on steroids."

Today it's Peter Schiff, who writes on the opinion page that bailouts won't work, and housing prices must be allowed to fall to a "sustainable bottom" -- levels supported by the market, not by government intervention.

Highlights:

"At current levels, the average American still can't afford the average house. Despite the creativity of its new policies, Washington can't alter that math. The only mechanism to restore balance and get the credit flowing is for prices to fall steeply to a true market level, and for losses (for consumers and corporations) to be recognized and absorbed."

"The government is trying in vain to get funds flowing again and put a floor under prices. But it's too late. U.S. home prices are like a beach house supported by eight pillars: lax lending standards, low down payments, 'teaser' interest rates, widespread real estate speculation, pliant appraisers, willing lenders, easy refinancing and a market for mortgage-backed securities. Knock out even half of these pillars and the house comes crashing down. We've knocked out all of them. Yet everyone hopes that this allegorical house can defy gravity and that bubble-era prices can be sustained in a post-bubble world."

Thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo: Getty Images

Comments

[Brian]

Peter,

I agree (and am thankful for) the willingness of the LAT to print the opinions of others which point out, IMHO, the great moral hazard posed by the vvarious "bailout" plans (i.e. Sentaors Dodd/Frank). Further, there are truly unimpeachbale arguments which show that housing, especially in the super-inflated markets, need price discovery.

This being said, I feel that the LAT (and the majority of large city newspapers) are overwhelmingly left leaning. This is apparent in the pro-bailout slant the LAT puts on the rest of its articles dealing with the "mortgage crisis" and its "victims."

Just my two cents. It is so frustrating that everyone seems to think a bailout is a bad idea except the Democratic party.

http://www.rasmussenreports.com/public_content/
business/general_business/most_americans_
oppose_federal_bailout_for_homeowners

[mike]

i am being punished for the recommendations of a real estate agent and of a lender. these fly by nighters talked me into a bad investment which has done nothing but gone down in value. all they kept saying was that rear estate was a good investment and they showed me a bunch of graphs of real estate increases. I AM ALL FOR A HAND FROM THE GOVERNMENT ON THIS ISSUE. I WAS DUPED AND I DESERVE BETTER!!!!!!!!!!! I PAY TAXES ALSO!!!!!!!!!!!!!!!

[Joseph... the Real Estate Guy]

I don't see the housing market deflating as rapidly as many of you wish...remember, we live in an overcrowded state.

[areles]

Peter Schiff is brilliant. I was pleased to see his name in the Times today.

Anyone who is unfamiliar with him need only enter his name in YouTube for a number of videos that will make you wish you'd heard of him a long, long time ago.

[charlie]

the current bailout talk is very shortsighted -- it will help people who got unlucky in gambling but, as this wrtier points out, leave the market artificially high for other buyers. The solution for them? Try to boost the market up again with more risky mortgages!

Which would be insane, sure, and very anti-free market, but who wants to bet that's what they end up trying?

[Laker]

That is so true.
When (and not if) the prices will come down to earth, that would be time when banks can truely give loans with very low to no risk. From a true bottom, prices can only rise, and if the price of the collateral is rising, any default will simply create a sale and not a foreclosure.
Even flat price coupled with normal sales volume is OK. However, falling home prices (not even like current free fall) are bad for banks, as they cannot value the collateral. In this environment, loaning money at 6% rate does not make sense, especially non-recourse loans. The current risk is so great that it is almost equal to credit card risk. That translated into credit card interest rates aka 17%.
If the government will continue to interfere, and think about stupid bailouts, we are going to see mortgage rates in the double digits!
Then, there will be no floor for house prices! This is not a joke..

[Rich]

I'm sure an awful lot of people want to hear this runaway-train rhetoric, but as one of your East coast readers who can see the realities in my own market I'm not going to let stand that bloviation that ""At current levels, the average American still can't afford the average house". The median income in America is about $45,000 and the median house price has fallen to $190,000 as of February, which is less than the 5x times income that your readers will recognize as the safe maximum ratio of income to housing (but more than the classic "comfortable" ratio of 2.5x), so clearly in most parts of the country the average American can afford the average house. Your California market has perhaps the most serious disconnect between price and income, but don't make the mistake of painting every market with that brush. My own Connecticut county has many excellent starter homes in the $90-139k price range, and HGTV shows us many national markets from North Carolina to Texas where prices are favorable, not just reasonable. Too much rhetoric damages an argument...

[yingyang]

Finally a voice of reason in these days of political posturing. Peter Schiff for President!! Or at least I will open an account in Euro Pacific Capital.

[KingHorse]

Make a punching bag of the LAT? Not me. That they even dare to host the LA Land blog puts them head and shoulders above most of the NYC papers out here. The NY Times tailors all its RE coverage to enticing buyers so as not to spook its realtor advertisers; the NY Observer actually dedicates its entire back section to fawning coverage of developers and high-end real estate, a parallel universe where nothing is wrong; and the Post and News pretty much only get involved if there's, oh, say, a rush-job developer who kills 7 people with a falling construction crane, having long ignored analysis of the endless stream of smaller construction accidents that preceded it.

No, you're doing pretty good.

[JW]

I have it on good authority from Lefty and Kat that this will all be over very soon and prices will be rising again.......so hurry up and buy before the parade passes you buy. (click---------sarcasm switch is now off)

[JW]

Seriously......................That makes perfect sense to me & any other rational, logical thinking person. Why can't these idiotic politicians understand that prices must fall to meet income levels if you want a healthy housing market that flows as it should?

[Inland Empire]

i am being punished for the recommendations of a real estate agent and of a lender.

I have this funny feeling you are a victim no matter what the situation.

[TakeFive]

Those are GUEST op/ed pieces.

What about the unsigned editorials by the Times staff? What position do those take?

[IToldu2CashOut]

What does paying taxes have to do with making a bad investment? I pay taxes to and I don't want to have to subsidize your poor decisions. A house is the biggest investment of your life you can't do a little research to see if it makes sense? Guess what I'm already paying for your dumb mistakes because my stocks go down everyday because we have a "housing crisis". Am I asking the government to buy up shares of my stocks to prop up their prices? No that wouldn't be fare to other people. Sell your house or walk away. Find a nice place to rent. Make better investments in the future. You don't deserve a bailout you deserve a kick in the rear end for all the damage you've helped cause.

[enlightenment]

>>Why bailouts won't work and prices must fall

I agree 100%. Bailouts will only help a temporary recovery before it falls much further, which is similar to a "Dead Cat Bounce" in the stock market.

>>"I don't see the housing market deflating as rapidly as many of you wish...remember, we live in an overcrowded state." Posted by Joseph... the Real Estate Guy.

Sounds like the usual B.S. that realtors say to make a sale.

I predict an exodus from California, especially if a major earthquakes nails us.

>>"i am being punished for the recommendations of a real estate agent and of a lender. these fly by nighters talked me into a bad investment which has done nothing but gone down in value. all they kept saying was that rear estate was a good investment and they showed me a bunch of graphs of real estate increases. I AM ALL FOR A HAND FROM THE GOVERNMENT ON THIS ISSUE. I WAS DUPED AND I DESERVE BETTER! I PAY TAXES ALSO!" Posted by mike

No one forced you to sign the papers. You are being punished for your greed and being a sucker, but that doesn't mean the government should bail you out. Only an idiot trusts a realtor (i.e. salesman). By the way, you don't deserved jack!

[puckhead]

I’m not an advocate for a bailout. But I do find it comical that the same people who say “no bailout for greedy homeowners and banks”, has no problems with the FDIC insuring their accounts at a BofA or WaMu if these banks go under. It’s well documented that BofA and WaMu are very exposed to bad mortgages. If you bank with them, shouldn’t you be pulling your money of these banks so that the govt won’t have to bail you out if the bank collapses? BTW, I bank at BoA and I have no problems with the govt making me whole if that happens.

[Wilson]

I agree with Mike...
I bought Pets.com stock in 1999. I want a bailout for that too...
And I bought a lottery ticket last week...I want a bailout for that too...
I AM ALL FOR GOVERNMENT HANDOUTS FOR SUCKERS IN EVERY ARENA OF LIFE!!!!!!!!!!!!!

[Shag]

I agree fully. I often wondered when the bottom would fall out of the ecomony. I don't think it's done. Wages are not increasing anywhere near the rate of energy, health or recreational costs. The only way for things to "correct" is for consumption to draw to an almost standstill. I wish no one would buy a home until things bottom-out.

[Valley Resident]

Wait a minute puckhead ; we pay for FDIC insurance with lower rates; if these accounts did not have FDIC insurance, they would have to pay at least twice in interest rates on CDs - Bailing out people who gambled with teaser rates is not the same.

[Rip N Tear!!!]

Yo Joseph "The Real Estate Guy"

Your right, Los Angeles is overcrowded, but your dumb for thinking thats a good thing for the market.

THE INCOME DOES NOT EXIST FOR THIS TYPE OF MARKET, I D I O T!!!!!

[Ann]

(1) I don't see the housing market deflating as rapidly as many of you wish...remember, we live in an overcrowded state.
Posted by: Joseph... the Real Estate Guy

And for the umpteenth time, it DOES NOT MATTER how many people are in the state.

What matters is how many CAN PAY the price being ask!

If there are 1,000,000 in the room and you want to sell the one-and-only Hope Diamond, you will NOT sell it unless 1 of those 1,000,000 can afford the price tag.

What MATTERS is income because determines what people can pay. (And CA as a whole is not better off in terms of income distribution than anywhere else.)

(2) The median income in America is about $45,000 and the median house price has fallen to $190,000 as of February, which is less than the 5x times income that your readers will recognize as the safe maximum ratio of income to housing (but more than the classic "comfortable" ratio of 2.5x
. My own Connecticut county has many excellent starter homes in the $90-139k price range, and HGTV shows us many national markets from North Carolina to Texas where prices are favorable, not just reasonable. Too much rhetoric damages an argument...
Posted by: Rich

Rich first get your data right.

Median income in the US is $48,200

Median prices for houses in Feburary 2008 were $244,100 for new and $195,000 for existing.

Then, I don’t know where you are getting that 5 times income is ‘affordable’ but has never been considered to be so. Regulated banks and HUD standards for ‘affordable’ means not spending more than 31% of gross income on mortgage, taxes and insurance (or rent.) With a $48,200 income, that means not more than $1245 for PITI (principal, interest, taxes and insurance.) With a 6% 30 year mortgage and assuming 1% of value for real estate taxes and $53/$100,000 of insured value, that supports a mortgage principal of $165,000. $165,000 is 3.42 times income. (If interest rate go up, prices have to fall to maintain the income::PITI ratio.)

A maximum 31% of gross income for PITI is the formula used by FHA, Freddie Mac, Fannie Mae and regulated banks. Someone is feeding you a line of bullhockey about 5 times income.

Yes, in some areas there are houses in the $130K, 90 K and even the $50K range. Yep, you can go buy a place deep in rural WV for $60,000 or so – but of course you would be lucky to have $15000-20000 a year in income. Doesn’t matter if a house in Billygoat Holler is ‘only’ $90,000 if the population there only has a median income of $20,000 and jobs which can pay the prices are few and far between. Thing is you have to look at the INCOMES for that specific area. Go pull up the US census data for your specific county. Do the math using the 31% of gross for PITI and then tell us how many of your residents can afford those prices. Then pull up your local MLS listings and see how many houses are listed that are affordable by the various income distribution ranges. The % of houses in a price ranage should match the % of the population that can afford those prices. If they do not, then prices will have to change because anything else is NOT sustainable.

[FINLwhiz]

I don't follow the logic completely. Lenders are going back to traditional underwriting standards and the FHA limits have been raised, these loans have very specific DTI requirements and qualification standards. The supply of homes well exceeds current demand. Additionally, market valuations don't generally include "distressed" sales. Therefore, market values are still greatly high not because of a lack of foreclosures but because of seller's (and yes banks too) inability to compute erroneous data that points to the drastic overvaluation. California real estate will never be as 'cheap' as the US median average - get over it. It will come down, but more importantly - unless you have CASH - and want to buy a home lenders have to be willing to lend. Until there is some stability in the housing market and folks are comfortable investing in the market (i.e. funding mortgages) - you will not see a healthy market. Staving off the foreclosue bus will bring some stability into the market and won't help to prop up phony values. It is the folks (and lienholders) who don't want to admit they've been duped who are left holding the bag that are not ready to accept fundamental pricing.

In order for a home to sell, someone has to qualify and be able to secure funding - otherwise the property(ies) just sit. Supply and demand - it will take time to work itself out - but it will happen. No one is just all that excited about taking a $150,000 haircut; that's all. But rest assured, the line at the mortgage barber shop is getting longer by the minute.

[Brian]

puckhead, you do not understand the roll of the FDIC. Also, it is an apples-to-oranges comparison you are trying to make. Please understand how deposit insurance works and why it is needed before scold banking customers. FDIC insurance is not a bailout.

[tony]

Ahhh, finally, someone makes good sence, but even someone with half a brain should've known about this though.

Heck, even Peter... The Real State guy, says he doesn't see the market deflating rapidly.

For those of you who like pain, Peter is predicting it will come to you slowly...

[Digitalian]

>>I’m not an advocate for a bailout. But I do find it comical >>that the same people who say “no bailout for greedy >>homeowners and banks”, has no problems with the FDIC >>insuring their accounts ... puckhead

To equate FDIC insurance which allows people to feel safe in saving money in an interest earning bank account with a bailout of the stupid and greedy people who took out high risk mortgages for houses they could not afford is absurd.

[The bad news is for those with ARMs]

The bad news is for all those which went for the bait and the lowest payment option ARMs which are now adjusting. If only they would have taken a traditional 30 yr fxd they wouldn't be crying. If you have equity and want to get an FHA give me a call 09:00am-09:00pm and lets see what we can do to help you out. Spanish speaking on extension 113.

[Puckhead Response]

The difference between FDIC insurance of bank accounts is that people knew, prior to depositing money with the bank, that their accounts were FDIC-insured. Additionally, the "understanding" between a bank and its customer is very simple: the deposit is liquid (withdrawable any time), will never be depleted except by the customer's own use, and may pay some dividends (i.e. interest).

In contrast, people going into real estate knew both that there was no guarantee and that real estate could go up or down. So it's not analogous to compare the cries for a real estate bailout with what customers from failed banks ask for.

[Roger Moore]

@Puckhead

There's a big difference between deposit insurance and a real estate bailout. Deposit insurance is actual insurance. The banks advertise it, and they've been paying money to FDIC all along in order to insure against the possibility of bank failure. And as part of taking out insurance with FDIC, banks were required to change their business practices in ways that were supposed to reduce the risk of bank failures. IOW, it's a promise that was made and planned for long before anyone had ever heard of subprime lending.

A bailout is a completely different matter. Borrowers didn't buy insurance against the possibility that they couldn't pay their mortgage. There's no Federal Subprime Mortgage Bailout Corporation that banks have been paying for years to guarantee that they'd be bailed out if they made insane loans. And banks certainly weren't required by the government to change their lending standards if they wanted to have a chance to be bailed out. Any subprime bailout would be made up and paid for after the fact, not well in advance.

[Rob]

I am not sure why people think that all of us "lefties" want to bail out home owners and lenders who made bad decisions. I actually think it behooves the progressive agenda to have prices come down in CA and be more in line with peoples income.

[tew]

The government indeed CAN prop up housing prices for some time - not forever, but for quite a time. They can debase the currency and thus devalue all U.S. dollar-denominated assets (and pull in foreign buyers snapping up "cheap" U.S. real estate). They can allow inflation to come up. They can take money from other purposes (war, health care, education, public infrastructure, etc.) and direct it towards housing (in a near infinite number of ways).

However, they will have a harder time of it if the mainstream press publishes hard, meaningful statistics like price-to-income, housing stock value to GDP, household debt-to-equity, mortgage debt as a percent of home values, etc. and, importantly, includes long term graphs (going back to the 50s for example). If potential buyers are presented with many opportunities to consider meaningful facts in a meaningful context, it will be harder to lull them into a purchase at inflated prices.

[Landless]

Homeowners get too much special treatment. The individual home sector receives too many subsidies. Because of this disproportionate aid, rental housing is lagging. Renters have been in crisis forever (at least since I started renting in 1975). What we really need is to be able to move easily from job to job. That means, rentals and standardized schooling. A home locks you into a community. Look at Detroit and know that can be a mistake.

[martin]

JW writes: "Why can't these idiotic politicians understand that prices must fall to meet income levels if you want a healthy housing market that flows as it should?"

Actually, everybody here agrees with JW's position. To a degree, I do too. But I have a what if....

What if the real estate market corrects itself, but millions of jobs also fall out of our economy ... banks fail ... our dollar follows the same path as the German mark did in the 1920s ... and we all go to hell in a handbasket?

What if...?

I don't think any single person has all the answers.

I can only imagine President Obama saying on his Sunday morning, weekly fireside chat that "the only thing we have to fear is fear itself."

[save your ammo]

Brian, don't waste your time replying
to PUCKHEAD.

PUCKHEAD is named PUCKHEAD
for a reason.

[FINLwhiz]

Puckhead just doesn't communicate very well. FDIC was put together after the stock market crash of 1929 and several banks failed. When they failed folks deposits where wiped out - no one had faith in the banking system and that's why your Great Grandma kept her money under the matress. Money under the matress does the banking system (our economy) any good - so this little bit of socialism implanted into capitalism became a must have.

Draw a parallel folks. Right now, we are in a similar spot - no one has faith in our financial markets. If you accept one aspect of socialism in a capitalistic society - how can you state another isn't equally important? Like it or not - the bailout is coming - to restore this market faith. Fiscal policies won't do it, something has to give. No, it isn't the same thing - but yet - in some ways it really is - but only temporary - to achieve the same results - and that's to get the financial wheels turning again.

[FINLwhiz]

The FDIC was also established in the same year as the Homeowner's Loan Act 0f 1933, which spurred the following:

(from Wikepedia.com)

The Home Owners' Loan Corporation (HOLC) or Home Owner's Refinancing Act, was a New Deal agency established in 1933 under President Franklin D. Roosevelt. Its purpose was to refinance homes to prevent foreclosure. It was used to extend loans from shorter loans to 15 year loans. Through its work it granted long term mortgages to over a million people facing the loss of their homes. The HOLC stopped lending in June 1936 by the terms of the HOLC act. HOLC was only applicable to nonfarm homes. HOLC also bailed out mortgage-holding banks. The HOLC was a tremendous success, making about one million low-interest loans between June of 1933 and June of 1936. When the HOLC ended its operations in the 1960s the corporation not only paid all its bills, it even returned a small profit to the federal government.

Source: http://en.wikipedia.org/wiki/Home_Owners'_Loan_
Corporation

[jbunniii]

Falling prices are the solution, not the problem.

[gman]

I am all for bailout!!! I owe 123k on student loans. I think i should get a bailout!

[anonymous]

Peter,
This is the kind of stock reply we get from our sen.s/reps when we plead for no bailout. They respond cheerfully, "We know there's a crisis and we intend to do a bailout!" They don't even read the actual complaint, imploring them not to bailout. I'd say this is taxation without representation, so would Paul Giamatti's John Adams in the HBO miniseries. Please everyone, vote out Boxer, Waxman and Feinstein at next possible opportunity.
Thanks
Anonymous

----- Forwarded Message ----
From: "senator@feinstein.senate.gov"
Sent: Monday, March 31, 2008 10:55:29 AM
Subject: U.S. Senator Dianne Feinstein responding to your message

Dear Anonymous

Thank you for contacting me to express your concerns about the subprime mortgage crisis. I appreciate the time you took to write and welcome the opportunity to respond.

I am very concerned about the current economic downturn and declining housing market. I have introduced and cosponsored legislation to help homeowners with subprime and adjustable rate mortgages avoid foreclosure. On February 6, 2008, I introduced the "S.A.F.E. Mortgage Licensing Act of 2008," which would require all mortgage lenders and loan brokers to meet minimum national standards in an effort to curb abusive lending practices.

Additionally, I am a cosponsor of the "Foreclosure Prevention Act of 2008," introduced by Senate Majority Leader Harry Reid (D-NV), which would provide $200 million in funding for foreclosure prevention counseling and $4 billion in Community Development Block Grants to high foreclosure areas to allow localities to purchase and rehabilitate foreclosed properties for resale. I have also cosponsored Senator Richard J. Durbin's (D-IL) "Helping Families Save their Homes in Bankruptcy Act," which would give qualifying homeowners the opportunity to restructure their mortgage through the bankruptcy process.

I hope the Senate will move swiftly to pass these important bills, and I will keep your comments in mind should further legislation to address this crisis come before the Senate. For more information about subprime mortgage issues, including resources for dealing with mortgage delinquency and foreclosure, please visit the "Subprime Mortgage Crisis" page of the "Priorities" section of my website at http://feinstein.senate.gov.

Again, thank you for writing. If you have any further comments or questions, please do not hesitate to contact my Washington, D.C. office at (202) 224-3841. Best regards.

Sincerely yours,

Dianne Feinstein
United States Senator

Further information about my position on issues of concern to California and the Nation are available at my website http://feinstein.senate.gov/public/. You can also receive electronic e-mail updates by subscribing to my e-mail list at http://feinstein.senate.gov/public/index.cfm?Fuse
Action=ENewsletterSignup.Signup.

[Laker]

puckhead, you have a big mistake in you reasoning on comparing bailout for the irresponsible, flippers, and fraudsters to FDIC insurance of bank accounts.
You see, when you put your cash into a bank account, the bank gets (and pays for) insurance from the federal gov. Both the bank and you know that the money is insured. However, when you buy a house and pay inflated price for it, nobody should, is, or will guarantee that the house would keep its value. If there is such a service, let me know about it. So why would you expect it to be?
The people that lost tons of money in stocks, lost it because it was not insured...As every sucker knows investments are not insured and may lose value. I don't believe you are so dumb as you want to sound like. But if you are, so i would recommend a disclosure for people like you to appear on the house buy/sale agreement under a new HUD code to say"
YOUR HOUSE MAY LOSE VALUE, IT IS NOT INSURED BY THE FEDERAL GOVERNMENT..."

[Teresa]

Rich, I agree with much of what you said. However, the median income for an individual wage-earner in the US is NOT $45,000.00. The median HOUSEHOLD income in the US is only about $48,000.00:

http://pubdb3.census.gov/macro/032007/
hhinc/new04_001.htm

I do agree with what you said about housing prices. One doesn't have to move to Boomfahook, home of $7.00/hour jobs, to find affordable housing. Housing in the Philadelphia area is very affordable--that article about the foreclosure freezes be damned--and while I'm not sure exactly what the average wage here is, it's not some ridiculous figure like $7.00 or $10.00/hour.

You're right in that many Californians think that because their condos cost $400,000.00, housing is like that everywhere else.

[left of lefty]

hi anonymous,

your form letter from senator feinstein is great. i do wonder, though, if perhaps they didn't even read your letter and just assume it's for the bailout. did you send it via email? if so, i can see they may have some type of automatic email reader that simply look for keywords. won't it be ironic if they actually keep some type of statistic internally and put you in the for-bailout box. feinstein then gets an end-of-month, high-level report from the intern who summarizes the numbers and sees a spike in the numbers for the bailout, and pushes for it even harder. :)

[puckhead]

A poster wrote to my earlier post about the FDIC
“In contrast, people going into real estate knew both that there was no guarantee and that real estate could go up or down. So it's not analogous to compare the cries for a real estate bailout with what customers from failed banks ask for.”
Hey I agree that there are no guarantees about real estate always going up and at the end of the day its buyer beware. I also know from reading way too many 10Q’s, 10K’s and 8K’s (sounds like an exciting job huh?) for banks that there are some very well run banks and some banks that couldn’t find a nickel if it was glued to their nose. But we all blindly bank with them. Why? Because we expect the govt to make us whole if the bank screws up so badly and goes insolvent. How’s that for the welfare system at it’s best? Protect the stupid consumers (just like the stupid house buyers) cause they were too lazy to do some due diligence. Many bloggers pooh pooh Bear Stearns when they went under and said too bad for the greedy bankers. Keep an eye when quarterly earnings are released and see what the write downs are for Bof A and WaMu. I bet many bloggers bank with these two fine banks

[MyLessThanPrimeBeef]

Anonymous, try writing in Arabic or Mandarin next time.

[Inland empire sales agent]

I believe housing prices will fall the greatest percentage of homes that where sold between 2003-2007 for around 300k. My theory is base on what is currently happening in my area of Victorville CA. I think this will apply in many of the suburbs that have grown in the last 5 years. The homes I use for my research had at least 1200sq.ft with 3/2 bed and bath built and sold between 2003-2007. The search result for this example has over 200 homes for sale on the Victorville MLS listing. There are 44 homes price at or below 199k for sale. The lowest is price at 139k purchased new in 2006 for $293.5k it has 3/2 and is 1500 sq ft sale price this is almost a 52% drop.. Next there are 101 homes for sale between $200k/299k. One example is a home for sale is at 199k which is REO foreclosure . The price the bank paid was 242k on 12/07 when GMAC go it back. The home is in a nice area it's 2009 sq.ft. 3/3 bed bath built in 2004 and was purchased for $208 in 2004. There is a home for sale that the owners must be in Never Never land the asking price is $399k. The house was built and sold in 2004 for 263k and sold again in 2006 for 310k it's has 5/4 3100 sq. ft in a nice area. The listing on Zillow has a estimate of $304k and the comps seem to reflect that as well.
What I see is the need for a lot of middle income first time buyers to come in to the market. But they can't get qualify for even a FHA loan of $230k+ (area medium) with 3% down plus they don't have the FICO score. They also face a commute of 100+ miles a day with gas price of $3.50. There is limited jobs in these communities that pay well so must buyers with the necessary income work in LA, Riverside and Orange county. If you work in the city and have the income need to move to suburb it is become economical to stay closer to your job. With gas prices increasing and not going back down to historical low of the past it may be the wise decision to live closer to you employment. So now the existing home owners who are usually trading by sales to these first timer are not able. Now we lose the second leg of buyers.who want be in the market to purchase the $500-$800k homes so even more home sit on the market for lack of buyers. Price will have to get below $144k on average (48k median Cal. income) for the number of buyers to come into the market and turn it around. I just don't see where the numbers required of new first time buyers are coming form to accomplish this. Here in So/Cal that pool of buyers that fuel this bubble spurred by cheap money lent to minorities buyers are not there anymore. This group is now out of the market for at least the next 5 years. Because of foreclosure or bankruptcy or just happy to be able to rent at a affordable rate for there income they will not be back. Everyone saying we just need the price to reach a bottom and housing sale will come back. I think that's not the question it is more where are the potential home buyers to buy these homes. Most of the young buyers got sweep up in the last five years and are now upside down or back renting because they purchase a home they never could afford.. So look for a long period of decline in prices and sale more in line with 1991 which the data shows took until 1999 for sale and price to stabilize and increase here in So/Cal.

[Jonathan]

I got the same Feinstein canned reply. It basically says the opposite of what I want. We need to get rid of the ridiculous representatives that are spouting this garbage. Rewrite mortgages when people can't pay? That's absolutely crazy!!

[MyLessThanPrimeBeef]

YOUR HOUSE MAY LOSE VALUE, IT IS NOT INSURED BY THE FEDERAL GOVERNMENT..."

LAKER, that's a good one.

And I may add, from the FDA hopefully:

WARNING: BUYING A HOUSE NOW MAY BE DANGEROUS TO YOUR FINANCIAL HEALTH OR JUST HEALTH PERIOD...IF YOU ALREADY HAVE HIGH BLOOD PRESSURE.

[shockg]

Peter Schiff ia a gas bag who's goal is to sell books.

[Mark Too]

This isn't a bailout for stupid/greedy homeowners. It's a bailout for the banks. Anyone that thinks otherwise is only kidding themselves.

According to realtytrac, over 1.2 million home went into foreclosure in 2006 with over 2 million going into foreclosure in 2007. Many millions more in prior years.

Did anyone care? No! Too bad for the homeowner!

In the current situation, who was stupid? The lender or the borrower? My take is the lender. Borrowers were allowed to finance a home with nothing down. The value of the property goes up and they've made money. The value of the property goes down or the mortgage resets and they can't make the payment they can just walk away. The banks were the ones that assumed all of the risk in these deals - all driven by greed. So who was stupid?

The banks are the ones that are in trouble now. A bailout might help the homeowner stay in their home but that is nothing more than a side affect of trying to make sure that the financial institutions stay solvent.

[Ann]

Nice try Teresa BUT

Median Household Income in Philly (county) is $33,229 or about 33% LESS than the US median household income. There for the median priced house in the county should be $114,300.

Median Household Income in Philly (city) is the same.

With a 3% downpayment (FHA), that means the median household can afford $117,900.

Pulling up the listings for Philadelphia shows that 66% of the homes for sale are lsted for MORE THAN $118,000.

The median list price is $160,000.

Prices need to drop EVEN in Philly until the median price is $118,000.

That means even Philly needs to drop $42,000 on the median list or 26%.

Try again - and use the real data when estimating whether prices are in line with income.

[TJ]

Greenback Dollar – by one Benjamin Shalom Bernanke

Some people say I'm a no 'count. Others say I'm no good.
But I'm just a nat'ral-born banking' man, doin' what I think I should, O, yeah. Doin' what I think I should.

And I don't give a damn about a greenback dollar, crush it as fast as I can.
Save a Bear Stearns or a deadbeat fund, the only things that I understand, poor boy, the only things that I understand.

When I was a little baby, my momma said, "Hey, son. There’s a tiny little club always trying to rig the game
It’s called the fed reserve, my boy. Its called the fed reserve."

And I don't give a damn about a greenback dollar, crush it as fast as I can.
Save a Bear Stearns or a deadbeat fund, the only things that I understand, poor boy, the only things that I understand.

Now that I'm the Chairman, I’m Helicopter Ben. I've learned that all I need to do is hit the printing press,
And pump out more paper, poor boy, now eat your banana dollars - you monkeys

And I don't give a damn about a greenback dollar, crush it as fast as I can.
Save a Bear Stearns or a deadbeat fund, the only things that I understand, poor boy, the only things that I understand.
--------
US of A on life support - Muhahahahaha. Lets borrow more money!!! Lets attack Iran, North Korea, and Cuba on low down/no down.
Hillary 08! Obama 4 Life! Crazy McCain can make it happen! Decisions, Decisions!! Dance you monkeys dance!!!

[Laker]

Since you mentioned the letters to our senators: I also sent a letter against any bailout to the irresponsible, fraudsters, and loan owners that simply can't afford their houses and should not be forced to stay there. I also complained about the rising conforming level that would simply provide artificial support and propping up house prices.
Here is senator's Feinstein's Response:
===============================================
Dear Mr. xxxxxx:

Thank you for writing to me about homeownership assistance programs in the 2008 economic stimulus package. Your correspondence is important to me and I welcome the opportunity to respond.

The Federal Housing Administration (FHA) plays an important role in insuring home mortgages for those in underserved communities. It is critical that FHA programs be reformed to provide more homebuyers and borrowers looking to refinance the option to get an FHA loan, especially in states such as California where the cost of housing is extraordinarily high. For homebuyers faced with jumbo loans subject to high interest rates, as in California, raising the government-sponsored enterprise (GSE) conforming loan limit will bring more liquidity to the market and lower monthly interest rate costs.

On February 13, 2008, the Recovery Rebates and Economic Stimulus for the American People Act of 2008 (H.R. 5140) was signed into law. I voted for this bill which will increase the FHA loan limit to $729,750, lower down payments on FHA loans, and enhance housing counseling programs for homebuyers facing difficulties with their mortgage. This bill also included a one year increase for the GSE conforming loan limit to $729,750. I supported these provisions in the stimulus package and weighed in with a letter to Senate Majority Leader Harry Reid (D-NV) on the issue. Although we do not agree on this issue, please know that I appreciate hearing your concerns and will keep them in mind as the Senate considers further legislation to assist American homeowners.

Again, thank you for writing. Should you have any further questions or comments, please feel free to contact my Washington, D.C. staff at (202) 224-3841. Best regards.

Sincerely yours,
Dianne Feinstein
United States Senator

Further information about my position on issues of concern to California and the Nation are available at my website http://feinstein.senate.gov/public/. You can also receive electronic e-mail updates by subscribing to my e-mail list at http://feinstein.senate.gov/public/index.cfm?FuseAction=ENewsletterSignup.Signup.
===============================================

WHAT A JOKE>
Lets vote them out of office. It doesn't matter DEM or GOP, JUST VOTE THEM OUT!