Obama: 'What we need is a floor in the housing market'

It didn't receive much notice, but Democratic presidential candidate Barack Obama (pictured) committed some news over the weekend when he told NBC News' Tom Brokaw, "What we need is a floor in the housing market, a, a stop to the decline in housing values." (Read the entire Obama-Brokaw exchange about housing at the bottom of this post.)

In some circles of Washington, and particularly the Democratic Party, this is not a controversial idea: that the government's goal right now should be to stop the decline in housing prices. But here in Los Angeles -- where housing prices remain high relative to income, and home ownership levels remain low relative to the rest of the country -- there are many who believe the government should stand back and let the market determine housing prices.

Example: The reader who calls himself "Home prices need to get lower," who wrote here earlier today, "My ray of hope is that home prices will continue to slide and housing will become affordable again." Another example: Reader "Manny," who wrote here today that he makes $90,000 and can't afford a decent house: "The markets are still not affordable. I hope more correction is on the way."

Will the new housing bill succeed in doing what Obama says is necessary? It's doubtful. Analyzing the bill this spring, the Congressional Budget Office predicted the housing rescue package would prevent some foreclosures but would not stop the historic decline in housing prices.

I eagerly anticipate hearing from the Obamatons on this one. Please try to stay on topic: Obama's belief that the government needs to put a floor under housing prices.

Continue reading for the entire exchange between Obama and Brokaw about federal housing policy.

BROKAW: Let me ask you a question about housing. A lot of attention this past week to federal aid for Fannie Mae and Freddie Mac, the two government quasi-agencies that got themselves in real trouble. Banks have gotten in trouble. There's now a housing bill out there to take care of people whose homes are being foreclosed.

OBAMA: Right.

BROKAW: This is not as cold-blooded as it sounds, but I hear a lot of people around this country saying, "Look, I did the right thing."

OBAMA: Right.

BROKAW: "I, I got a prudent mortgage," or I hear a lender saying, you know, "I wouldn't have gotten involved in one of those things." Why should they bail out people, many of whom were simply speculating? Or the lenders who were taking the fees and doing loans that they knew that would not be being paid back and walking away? Why should the hard-working taxpayer in this kind of an economy have to bail those people out?

OBAMA: They shouldn't, which is why a couple of points that I've made. Any assistance to Fannie Mae or Freddie Mac should not be focused on the investors and the shareholders. It should not be focused on management. It should be focused on making sure that we've got liquidity in the housing market. And there are ways of making sure that we are not giving a windfall to investors who were enjoying the upside all these years of Fannie Mae and Freddie Mac, extremely profitable partly because there was this implied federal guarantee. Well, if they enjoyed all that upside, they should enjoy some downside as well.

BROKAW: Why not just reconstitute them as pure government agencies and take them out of the private sector?

OBAMA: Well, I--you know, I think that part of what we have to recognize is they've got $5 trillion worth of, worth of mortgages out there, and we've got to make some decisions in terms of whether or not we want to take that -- those liabilities onto the federal balance sheet. So there are, there are a host of complicated issues here. It is true that there may be some folks who didn't make the best decision that will still benefit from the home foreclosure plans that have been put forward. But keep in mind that many of these folks were not so much speculators as they were probably in over their heads. They tried to get more house than they could afford because they were told by these mortgage brokers that they could afford it. We are better off helping them stay in their home if you can fix the mortgage and let them pay it off over time than have them foreclose, in which not only do they lose their home, not only do the lenders lose a lot, but that community suddenly sees its property values going down. And what we need is a floor in the housing market, a, a stop to the decline in housing values, as well as some certainty on the part of lenders in terms of what houses are worth so that we can start restoring confidence in the housing market, but also confidence in the financial markets where credit has been contracting. And that's affecting a lot of terrific businesses and good sound developments and entrepreneurial opportunities because they just can't get good credit.

-- Peter Viles

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: L.A. Times

Comments

[Jonathan]

This tells me one of two things. Obama is out of touch with reality, or Obama is just trying to say whatever he thinks people want to hear to get elected. Possibly both.

[adoptivefather]

This is typical liberal wishful thinking. Please people use your brains and think!!

Liberals want floors and ceilings on everything so that everybody can have everything they want irrespective of whether rational economics justify it.

Every time the goverment gets busy creating floors and ceilings they instead create heartache and heartbreak.

[Laker]

Hussein Obama is so stupid to say that. Most of his voters will be best served if houses get lowest as possible.

But Obama, if you may, CAN YOU PLEASE PUT A FLOOR TO THE GAS PRICES !
For crying out loud, we're going to die if gas will cost less than $4.00 per gallon. We MUST put a floor to the gas prices...it is terrible to the oil industry...
Isn't it the goal of every government to make prices of anything or everything as high as possible???
GREAT!
And that is who people are looking to vote for president?
WHAT A MORON!

The only reason for wanting high house prices is to make rich people richer and poor people poorer. Those want to make people slaves, pay most of their income toward housing and have nothing left for retirement, saving, education for the kids, etc. But mainly, high house prices will enable people to CASH REFINANCE and use the CASH to spend on crap!
Instead of people being productive and earn money, better bring back to life the HOUSE ATM MACHINE. SON OF a B*****.

[Mmm donuts]

This is just political flamebait. This blog is getting sleezy. Perhaps Peter should take a vacation.

[unomas]

Well, he did not say where the floor would be. Could be at zero.

[somedude]

I will vote for Obama, but this makes me sick.

The problem is McCain also supports the new bill and I believe he also thinks falling housing prices are a bad thing (not entirely certain on the second part). So he doesn't offer much of an alternative.

At the core this was always an affordability problem. People just couldn't afford what they were buying. So the answer to the affordability problem should be to just let prices fall.

[Rational Renter]

I love Obama, but he's got to drop all this talk immediately. It makes an otherwise unflappably smart man sound stupid. Housing prices are still dangerously high. I make just over $200k a year in Los Angeles, and I can't afford a decent home.

[Anonymous]

A floor in the housing market? So, bascially he is saying that the wealthier American's that own their own home need a floor to guarantee their wealth, and the less wealthy Americans should remain renters. Keep the rich up and the poor down, so Republican ... hey wait a minute...

[Cameron]

So, what exactly is wrong with that statement, Peter? If anything, he's arguing for effective price-discovery -- which is what our market needs. He's not arguing for a foreclosure moratorium or anything else that would artificially jack up prices.

And it's Obama-supporter, not Obamaton. :)

[susan]

"What we need is to let housing prices get back to normal"

[IToldu2CashOut]

Well even people wanting to buy need a floor in a sense. We need to know how low they will go so we can start making realistic transactions again. Of course the people holding the assets don't want to pony up to that reality, so its just going to take a long time. Its unavoidable that it will take years unless sellers just slice asking prices in half. This is essentially the problem with the housing rescue bills is that they will most likely prolong the misery by extending the amount of time it takes us to get to that point, at least in LA. In other areas of the country that didn't get so crazy (like Ohio) it is reasonable to try and create a floor artificially because it will be close to the real floor. Of course I would argue that since LA is the biggest mess with the biggest declines coming on the highest valued assets, this is what is so scary to banks, and securities owners, and people who care about the dollars value. I will continue to support Obama even though this statement is personally disappointing to me. There is a bigger picture to consider in the future of the country. Besides the more you think about it renting is not so bad, and we all know prices will come back down to reality eventually, yesterdays earthquake was a gentle reminder.

[arroyogrande]

"What we need is a floor in the housing market, a, a stop to the decline in housing values"

Everyone needs housing, as everyone also needs food and energy.

However, I know of very few people that would argue:

"What we need is a floor in the energy market, a, a stop to the decline in fuel prices"

or

"What we need is a floor in the food market, a, a stop to the decline in food prices"

When gas prices doubled in the span of a few years, people hooted and hollered for the prices to come back down. Why not the same for house prices?

And don't high housing costs make "affordable housing" for the poor all that much more difficult to achieve?

Why do many (most) politicians want to keep housing prices artificially high?

Don't these people realize that the economy was only doing as well as it was because credit was cheap and plentiful, allowing people to buy things that they couldn't really afford? How long do politicians and economists think they can keep such a charade going on through artificial government meddling...and putting the taxpayers on the hook in the process?

- arroyogrande

[srla]

Apparently his version of "change" involves maintaining the status quo to the bitter end. Housing prices remain absurdly high in many of the major markets. How will the next generation ever get into houses if prices stay anywhere near current levels?

I wonder just how Obama plans on helping the housing market "find a floor"? Apparently the lessons of the tech and housing bubbles are totally lost on him. The bursting bubble wasn't caused by the credit crunch but vice versa. Housing reached the limits of affordability, at which point prices stagnated then, inevitably fell.

Is it really that hard to understand that prices only reached these levels because buyers believed that they would continue to see double-digit returns on their investments? Who would buy at these prices if they were likely to see stagnant prices, when it is 1/2 to 1/3 the price to rent?

The only way to keep prices from falling further would be to find some way to re-ignite price escalations. This would only lead to yet another ceiling, and then a far more precipitous crash. In other words, it would lead to financial disaster.

Fortunately, economists who had the foresight to recognize the bubble don't believe that the government has the ability to halt price declines. Hopefully these economists are right and we will be forced to swallow this pill now rather than forestalling the inevitable and making things far worse in the future.

[FRB]

Peter , I don't know why you abuse your platform here to promote your own personal political views. I come here to read about the housing market, not about some random housing reporter's anemic political ideas. Obama did not say "government" needs to establish a floor to housing prices. He was just making the point that until home prices stop declining, there will be continuing uncertainty in the credit markets. Honestly, stop wrecking this blog with your political biases. Thank you.

Obama quote:
"And what we need is a floor in the housing market, a, a stop to the decline in housing values, as well as some certainty on the part of lenders in terms of what houses are worth so that we can start restoring confidence in the housing market, but also confidence in the financial markets where credit has been contracting. And that's affecting a lot of terrific businesses and good sound developments and entrepreneurial opportunities because they just can't get good credit."

[sunsetbeachguy]

I support Pete Viles. This post isn't flame baiting it is entirely appropriate for a housing blog.

And Obama sure as sh!t ain't about change.

[RahRahGrl]

Of course he wants a floor on falling prices: home values are a major source of *revenue* for the government. Spending from equity withdrawals is another major source. Obama and McCain (and all the others over there in DC) are merely trying to protect the family business and keep the $$ rolling in.

Affordability is an afterthought.

[sb]

why stop with real estate, why not put a floor on all financial markets, oil, stocks, bonds. Lets all live in a riskless economy where everyone is a winner!

[Linus]

I wonder if Obama's answer would have been different if he was asked about the bloated prices here in LA? I, of course, disagree that we should put a stop to falling prices. I do still proudly support Barack Obama. I agree with him on many many issues. I can't imagine McCain holding a candle to an Obama presidency.
One thing I simply cannot let slide: Those of you who insist on calling him "Hussein" are implying that because he has a middle eastern name which happens to be the name of an evil dicator, he is somehow connected. Shame on you. And don't try to claim otherwise. You are bigots. You are either trying to scare all of the little brains into voting against "Hussein" or you are yourself a little brain who has been fooled.
Here's a bit more of the interview in case some missed the link at the bottom of the blog post:

BROKAW: "I, I got a prudent mortgage," or I hear a lender saying, you know, "I wouldn't have gotten involved in one of those things." Why should they bail out people, many of whom were simply speculating? Or the lenders who were taking the fees and doing loans that they knew that would not be being paid back and walking away? Why should the hard-working taxpayer in this kind of an economy have to bail those people out?

OBAMA: They shouldn't, which is why a couple of points that I've made. Any assistance to Fannie Mae or Freddie Mac should not be focused on the investors and the shareholders. It should not be focused on management. It should be focused on making sure that we've got liquidity in the housing market. And there are ways of making sure that we are not giving a windfall to investors who were enjoying the upside all these years of Fannie Mae and Freddie Mac, extremely profitable partly because there was this implied federal guarantee. Well, if they enjoyed all that upside, they should enjoy some downside as well.

BROKAW: Why not just reconstitute them as pure government agencies and take them out of the private sector?

OBAMA: Well, I--you know, I think that part of what we have to recognize is they've got $5 trillion worth of, worth of mortgages out there, and we've got to make some decisions in terms of whether or not we want to take that -- those liabilities onto the federal balance sheet. So there are, there are a host of complicated issues here. It is true that there may be some folks who didn't make the best decision that will still benefit from the home foreclosure plans that have been put forward. But keep in mind that many of these folks were not so much speculators as they were probably in over their heads. They tried to get more house than they could afford because they were told by these mortgage brokers that they could afford it. We are better off helping them stay in their home if you can fix the mortgage and let them pay it off over time than have them foreclose, in which not only do they lose their home, not only do the lenders lose a lot, but that community suddenly sees its property values going down. And what we need is a floor in the housing market, a, a stop to the decline in housing values, as well as some certainty on the part of lenders in terms of what houses are worth so that we can start restoring confidence in the housing market, but also confidence in the financial markets where credit has been contracting. And that's affecting a lot of terrific businesses and good sound developments and entrepreneurial opportunities because they just can't get good credit.

[angryrenter]

Is it Possible for a blog to "jump the shark"?

[J.W.]

Sounds like the poster, "FRB" is a card carrying, kool-aid drinking, flaming Obama fan. It seems that some of these Obama supporters could watch a live feed of Obama beating an old woman and children with a ball bat and attempt to pass it off as biased reporting. Obama is a flaming liberal and if elected, (together with a Democratic majority in Congress) will put the final nails in the casket that buries the U.S. economy once and for all. Politicians are ALL crooks but if we ever hope to see any kind of long term, economic stability in this country again, VOTE REPUBLICAN in the upcoming elections.

[Doug]

I was just waiting for another swipe at Democrats...
At the very least, this mess was created by Republicans over the past 7+ years, with the cowering Democrats letting the deregulation dogma steam-roll forward (can you say Phil Gram? Oh yeah, there's no story here, Pete.). Now every time a Democrat says anything that can be broadcast in a bad light, rightly or wrongly, our friend Pete is all over the story. If I want to hear Demo-bashing, I'll turn on AM radio or Fox. For now, I will delete my link to this site and bid you all farewell. What a shame.

[Chris]

Hello from K STREET! As a bankin' industry lobbyist I am very happy Barak "don't change nuthin' " Obama realizes that stopping the finance industry's balance sheets from heading into a black hole of red ink is important. Really really important. Giving out $4 billion in free money* to states to purchase foreclosed houses is a great way to price discover a floor in bank owned assets which will go a long way toward helping my stressed out clients on Wall Street get big enough bonuses to put fuel in their private jets. Sorry about the run on sentence, I am just soooo excited rich people having nothing to worry about from either presidential candidate.

*by free money I mean, of course, money stolen from wage earners

[dutchtrader]

BWAHAHAHA

Obama supporters are so thin skinned. If he does get elected these people will make him our first god emperor like the romans did!

[Lou]

If Obama truly only wants to find a "floor" as he says, then why does he support all this legislation that keeps us from reaching that floor sooner?

Obama supporters don't have an answer for that.

[Cassiopoea]

I'm not going to get into a flame war over this...

I'd just like to say it's a shame that we only have two viable parties in this country -- a party that represents those who are fiscally and socially conservative, and a party that represents those who are fiscally and socially liberal. And those of us who are socially liberal and fiscally moderate have to choose the lesser of the evils.

That said, I think Obama is just tossing around some ideas and mulling some things over. Should he have said it on national television? Probably not. Such a proposal would be nearly impossible to implement. How would one determine a national "floor?" Or would it be based on percentages? And is this even something the national government has the right to decide? Don't the states have a say?