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

[Louis Cabeza]

I am actually more surprised at how inarticulate and how off-guard he seems on the topic. Either that or he is being extremely evasive. Either way does not bode well.

In Los Angeles, if you look at prices from 10 years ago and today, there is still a healthy appreciation. So, let me get this straight, we're supposed to subsidize this price level as a nation? No way I will support another redistribution of wealth on this level. There is this myth that home ownership is a great investment, perpetuated for great profit during this recent bubble. I think the Economist calculated the average annual return on home ownership historically at 2%.

Remember, the Savings and Loan disaster, in the end, ended up as one of the greatest redistributions of wealth in our nation's history (from the Upper Midwest and Northeast to the South and Southwest). What a great way to run economic policy.

[Michael T]

When I read the entire quote, I don't hear a call for government internvention in the market as much as I hear the common sense thinking that the overall economic recovery that this country DOES need will not happen until housing prices reach equilibrium and markets start functioning normally again. I did NOT read Obama as saying that we need to force an artificial equilibrium. The problem with quoting anyone in the MSM these days is that everything gets taken out of context and micro-analyzed.

[150 multiple choice questions]

He knows full well he can't put a floor in housing, but as any politician who has done as well as he has, is saying, without actually saying anything, what he thinks:

1. All the stupid Americans will hear and appreciate he's trying to do something!

2. All the smart Americans will hear and know he's just trying to appease the #1's.

This is no different that the current (not the first, probably not the last) bailout bill. Most of the politicians know it will do little good and probably make things worse... or they're # 1's

Which group do you fall in?

[Peter I]

Obamatons?

I'm sorry Peter, but I'm done visiting your blog. I find this sort of talk patronizing and unbecoming of a major newspaper, even if it's coming by way of one of its bloggers.

LATimes, if you are reading this, please replace Peter with someone who actually can moderate a forum in a professional way. Then I will return. Thanks in advance.

[The original RZ]

Creating a floor in the housing market will draw a big line between the "haves" (those who already bought houses) and the "have nots" (those who have been saving to buy but cannot afford it due to the artificial inflation. Obama might think he's helping, but all he's doing is preventing good, honest, hard working people from buying homes that they should be able to afford.

[tarbubble]

Oh yes, J. W., the last 8 years of Republicanism have just been great for the national economy. Deregulation has always had such stellar results for the average Joe and Jane - Enron and its ilk, the current housing mess... and look what liberalism has done for Europe's economy - oh, wait, hasn't the euro been spanking the dollar for a while now? I voted for McCain in the primaries 8 years ago. I'll be voting for Obama this time. It's a different world now. I'm not a wide-eyed acolyte; there are aspects of Obama's plans that I don't care for. It's always agonizing to choose my candidate, there's so much i hate about both the Dems and the GOP. But this time my scale is tipped for liberalism. No matter who wins, we're headed for quite a mess.

[I live in LA, too]

Linus brings up an interesting point, one I thought about last night as I considered Obama's quote. Is he:

1) saying that government needs to install a price floor, so that housing prices don't decline any further?

OR

2) stating that, in general, housing needs to find its bottom, or "floor," and that, for the good of the economy, we neeed to find that floor sooner, rather than later?

I admit my first interpretation was to go with Option 1. I can see, though, that you could make a case for Option 2. In the full context of the interview, it's difficult for me to determine what he meant.

I know Obama's grad degree was in law, not economics, but he has taught at the University of Chicago, so he ought to know that "floor" has a rather precise meaning in economics and that the mere mention of the word in relation to pricing is paramount to endorsing evil. If he says, "We need to find the bottom," I don't think anyone on this blog would disagree. But instead, he said, "And what we need is a floor in the housing market, a, a stop to the decline in housing values." I wonder what his university colleagues thought of that.

[MyLessThanPrimeBeef]

What we need is a floor in the voter-pandering market below which Bullshivik politicians of any party, any mental state, any color, any religious faith, any class, any shoe size, any anything, will not stoop.

By the way, if the housing market is not, in some way, connected to, influenced or affected by the government, and therefore politicians, somebody please remind Paulson, Frank and Dodd.

[FairEconomist]

He doesn't say where the floor should be. We *do* need a floor, and more exactly we need house prices to be on the floor. Do people here really think houses need to keep dropping forever? Or increase in value forever? We need house prices to be fair and (relatively) stable in order to clean up the mortgage mess.

[David Reynolds]

I was a big Obama fan and was excited when get the nomination. Although now, the more I here from him, the more I think I need to start looking closer at some third party choices.

[puckhead]

The only thing worse than Obama wanting to the govt to put a floor on RE prices, are so many whining bloggers complaining about how they can’t afford a decent house on their salaries. Boo hoo hoo!!!!!! Poor poor me!!!! It’s so unfair!!!!! Pathetic whiners.

We have rational renter that makes $200K a year and complains that he can’t find a decent house. What the hell do you expect? A 3000 sq ft house a block from the beach with top tier schools? You make a damn good salary, try looking at Simi, Cypress, Arcadia, La Crescenta, Valencia. You can afford plenty of houses in those areas that are safe and with good schools. But somehow you think that your $200K entitles you something more and instead of thinking of a way to make more money, you expect the RE to fall so that you can get what you’re “entitled”. My wife and I combined make way more than $200K and we would love to get a house by the ocean not only because of the location buy also because it would be good for our son’s asthma. Not once have we ever try to rationalize our not being able to afford that beach house by saying that prices need to come down so that we can afford it because we deserve it GD it.

Manny, I don’t want to sound mean, but your $90K of household income is not going to buy you much in SoCal. You need to get you wife a job because dual incomes are the norm in SoCal and that’s what you are competing against. Getting a decent house in a good neighborhood is all about competition and your $90K of household income is like bring a knife to a gunfight. I’m sorry but that’s just the reality of it.

[Nick]

This is just a microcosm of the problem with Obama's campaign. All his rhetoric and platform is based on being as vague and noncommittal as possible, and the more he specifies actual views, the more he alienates some people. As long as his platform is vague enough (and really, could you have a more substance-free platform?), everyone can read into it exactly what they want as what Obama is saying.

The problem is that people typically want more specific plans and proposals as we get closer to the election, and Obama's brand of extreme socialist views might not play well with all his supporters. Unfortunately for him, vague empty platforms of meaningless rhetoric might not carry him to victory either. He has to walk the fine line between not revealing enough about his actual views to keep the support of people who don't want a socialist America, and revealing enough tidbits to deflect the perception of dodging all questions about anything of substance, and as such nuggets like this are bound to slip out.

[Inland Empire]

Peter, Peter, Peter

Does McCain say anything about housing that you can post so there is some counterblances to Obama views. What is better in your view with what John McCain has proposed? How can we can judge if B. Hussein Obama ideas are better or worse. How might either one of them affects the housing market and it's recovery. Just asking you to be a better blogger if you think Obama has bad idea on housing then post something to help us judge that. Real estate or politics which one is this blog providing commentary for. Maybe you need to hypernet it or alternate the header so we can tell which blog it is we are reading...

[gerald]

Learn how to read.

"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."

He is not advocating the government to fix the floor, or for the government to determine what a house is worth. He is merely stating the obvious, that the sooner prices stabilize, the sooner the financial markets also stabilize and the sooner things can go back to normal. Why? Because part of the reason financial institutions are not lending is because they have no idea how much their portfolios are worth. If they don't know the extent of their losses, they need to set aside cash to cover their potential losses, that's money that can't be leverage to lend. If they can't determine the value of a particular home, they don't want to lend on that home.

Where Obama is advocating government intervention is here:
"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 Obama is saying, in case your politics doesn't allow you to read very well, is that we should help people refinance their loan into a fix rate loan. One problem we have right now is that no one is willing to refinance upside down houses. And because so many of the houses sold have variable interest rates that re-set at way too high interest rates, people are forced to foreclose. We should try to help the people that are willing to pay for an upside down house continue paying an upside down loan rather than just sitting back watching them walk away from the house and their responsibility when they signed a contract. I am not advocating for a bailout, just a refinance.

And one last thing, the bailout bill was also supported by McCain and just signed by Bush. If Obama is responsible for the bill, thank you for your vote, in your mind Obama is already the President.

[anonymous]

Did anyone read all 382 words Obama is quoted in this portion of the interview? Or are you focusing only on 10 words taken out of context?

[It All Happens on the Margin]

Hey puck:

If we bought today in, say, La Crescenta, we would have higher income than the neighbors with a lower quality of life.

Call it whining if you will. It is the essence of why we're still transitioning through bubble pricing.

[gerald]

"Obama's belief that the government needs to put a floor under housing prices."

Peter Vile, it is you who thinks government needs to put a floor under housing prices, Obama, in his quote, is saying that what will stabilize the housing and financial markets is for prices to reach a bottom. With all the layoffs at the Times, I am sad to see so many good journalists go and that they are keeping you Mr. Vile (so long as they keep the blog, I would be happy to see you go).

Why do you let your politics taint your work? Is it so hard to be objective? If you want to make this blog political, why do stay closeted? Come out! Tell us your political views and how you are going to let those views dictate your journalistic integrity. This blog is good when you give objective information, I am tired of your political misinformation. One more time and I'll just have to go elsewhere for information.

Mr. Vile, why can't you be like Steve Hymon and his Bottleneck blog? http://latimesblogs.latimes.com/bottleneck/ I don't go read Mr. Hymon's blog and find some fabricated story on McCain or Bush.

[Giacomo]

Just another politician trying to be on both sides of an issue,.

Oh sorry, did some of you think this joker was different?
He's completely poll-driven. He will say anything to get power, make any compromise, back any program or plan, no matter how irresponsible --as long as it gets him to the White House.

One side wants to bail out lenders, the other side wants to bail out irresponsible borrowers, and it comes to the same thing: the ordinary, responsible, hard-working taxpayer gets the shaft.

[LA-renter]

I agree with Future President Obama that the most loan-owners were not speculators...

(By the way, bubble-believers please stop pandering the nonsense about speculative hoards. Such talk only hurts your cause because, while they empty your treasury, Paulson and friends will deflect your concerns with measures to exclude speculators.)

...Most people just wanted sedentary lives and escape from the nomadic life of our evolutionary forefathers... with a little extra comfort too.

What seems to escape Fut. President Obama is that people were overextended BECAUSE OF housing prices.

The true villians are the lenders. ONLY LENDERS WILL BENEFIT FROM A HOUSING FLOOR. (And maybe also a boon to America's beloved baby-boomers, who bought a house ages ago but neglected to save for retirement.)

If you are a recent loan-owner, with no REAL equity in your house or cashed out the equity in your house, YOU HAVE NOTHING TO LOSE FROM DEVALUATION.

[Hmmmm]

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."
------------

Capitalism never guarantees that a house (even a "decent" one--whatever that means) will be "affordable".

That's SOCIALISM.

[J.W.]

Well, Peter..........You've managed to flush a few more Obama worshipers out of the bushes. I suspect that they won't be happy until you post his picture in every story on your blog each day.
Some people just can't stand to see the light of truth shone upon their hero. Personally, I want to read the truth about any politician who has said or done something that could effect the cost of housing..
PETER...................KEEP UP THE GOOD WORK!

[Laker]

puckhead,
You need to check census data about household income.
I go through very nice neighborhoods in prime areas of the SFV, and see household incomes in the $50,000-60,000 range. Houses on same streets were sold for $1,300,000
WTF???

gerald,
You said the most financially stupid thing here : "We should try to help the people that are willing to pay for an upside down house continue paying an upside down loan rather than just sitting back watching them walk away from the house and their responsibility when they signed a contract..."
Keeping (forcing) someone in a house that is upside down just by artificially convincing him that he can make the payments is stupid. Same dude, better let the place go to foreclosure, turn around, and buy better place, for LESS money. That is a pure business decision.
Also, you suggest that if they refinance their ARM to fixed rate all the problems will disappear and they will live happy ever after. JOKE!!!
The only reason they took the ARM/ Interest only/ negAM is because they could NOT afford the fixed rate payments.....Instead of a fixed payment of say $5,000 they chose the IO $3,000 or the negAM Option ARM loan to pay $1,500....
During 2003-2007, they qualified you based on your current payment without even taxes and insurance....Today they qualify based on Fully amortized payment including all PITI
Forget the fixed vs ARM, when you compare the Debt to Income ratios...you need to give them a 0% fixed loan or reduce their principal balance 50% !

[Rep. Mike]

Wow, liberals sure are thin skinned. You've all been calling Bush a terrorist and monkey for 8 years but god forbid Peter post a story about the chosen ones empty platitude about housing.
Obama says something about housing, its a story on a housing blog. Everyone calm down.

[Nelcisco]

I agree with puckhead,

what do you want Rational Renter? I'll do a loan for you no problem with your $200k/yr. Do you realize you make more that just about 90 to 95% of wage earners in American?? E-mail me at nlopez@oaktreelending.net I'll get you qualified for a loan no problem, as long as you can go full doc and you have reserves and a down payment lets go, I know realors if don't have one but if you're looking in Pacific Palisade, Malibu,B.H. or Encino I may or may not be able to help you depending on serveral factors

[mucker]

Hmmmm:

So for you the affordability of goods is not important in capitalism? It doesn't matter if costumers can afford to buy say a car? It only matters that the seller can price it however he wants? News flash. If you overprice a commodity you fail your market. What I see in your attitude is an imperial position - the haves and the have nots. A return to the fruits of Royal Europe or Roman empire.