Gonzo San Diego broker Jim Klinge, has another video on his site that captures, in one minute, the way bubble markets distort perceptions of value. In this one, he shows us a lot with a tear-down house that sold for $1.3 million a few years ago. It has a view of the ocean, or what Jim likes to call the "Detroit River" depending on which you choose to see. Here's the link.
--Peter Y. Hong
"The Reckoning: White House Philosophy Stocked Mortgage Bonfire," posted Saturday on the New York Times website, is an exhaustive report that attempts to answer President Bush's own question, wondered aloud Sept. 18 when the credit markets froze up, "How did we get here?"
A big part of the answer, according to the article, is housing.
There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk....
From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.
He pushed hard to expand homeownership, especially among minorities.... But his housing policies and hands-off approach to regulation encouraged lax lending standards....
And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away....
There's much, much more to the article, but among the warning signs along the way:
Typically, as home prices increase, rental costs rise proportionally. But Mr. Thomas [Jason Thomas, an economic analyst for President Bush] sent charts to top White House and Treasury officials showing that the monthly cost of owning far outpaced the cost to rent. To Mr. Thomas, it was a sign that housing prices were wildly inflated and bound to plunge, a condition that could set off a foreclosure crisis as conventional and subprime borrowers with little equity found they owed more than their houses were worth.
It was not the Bush team’s first warning. The previous year, Mr. [Lawrence B.] Lindsay, the former chief economics adviser, returned to the White House to tell his old colleagues that housing prices were headed for a crash. But housing values are hard to evaluate, and Mr. Lindsay had a reputation as a market pessimist, said Mr. Hubbard [Al Hubbard, Bush’s former chief economics adviser], adding, “I thought, ‘He’s always a bear.’ ”
In retrospect, Mr. Hubbard said, Mr. Lindsay was “absolutely right,” and Mr. Thomas’s charts “should have been a signal.”
Instead, the prevailing view at the White House was that the problems in the housing market were limited to subprime borrowers unable to make their payments as their adjustable mortgages reset to higher rates.
They weren't the only ones who thought the subprime problem would be contained to a small segment of the market -- I recall talking to several housing experts who assured me the same thing -- and that expanding homeownership was a fine goal. If you can put party politics aside, I think there's a lot to be gleaned here on how we got to this point.
--Lauren Beale
Thoughts? Comments?
More Monday-morning quarterbacking on the Sunday talk shows. This time it's HUD secretary Steve 
Preston, who's been on the job about two months.
Appearing on "Late Edition With Wolf Blitzer" (long transcript, so scroll down), he gave a fairly cogent answer as to who's to blame for the housing mess.
BLITZER: Who was asleep at the switch or who was to blame for this housing crisis that has plagued us now over these past couple of years?
PRESTON: You know, I think all of the factors that have gone into these issues have been multifaceted. I think there was confusion at the closing table as to what people were getting into. I think you had builders overbuilding in many of these markets, and as a result, needing to sell that inventory and doing so aggressively.
And I think at the end of the day you had mortgage instruments that were poor financial risks that ultimately landed in the hands of investors that they probably should never have bought.
On whether the end is in sight:
BLITZER: Are we at the beginning, the middle, or near the end and see some light at the end of the tunnel?
PRESTON: Well, I think we're pushing through the middle right now. We still have very high inventories. If you look at home inventories, they are generally around 10 1/2 to 11 months…
BLITZER: You mean there's a surplus of homes on the market out there, and not enough customers.
PRESTON: Yes. Typically you'd see sort of a six- or seven-month inventory. We're 10 1/2 or 11. So we need new home buyers to come back into this marketplace. And we have to work hard to stem the tide of foreclosures so we don't have more of those homes coming into the inventories.
Preston also reminded homeowners that HUD has "thousands" of counselors poised to help them "understand if they should restructure their mortgage" (at www.hud.gov). He also said counselors would, "if they can," accompany borrowers to their bank or mortgage lender.
He wasn't asked whether HUD's efforts were producing any results yet.
-- Annette Haddad
Photo: Steve Preston taken June 13, 2008
Credit: Getty Images
Today's earlier post on the dramatic median price decline in California was linked by The Drudge Report, and many of you commented on how the Drudge audience changed the tenor of the comments section. Yes, it's a different crowd.
But I learned something from it: I received quite a few e-mails complaining that the post lacked historical context, because it failed to mention, or quantify, the huge run-ups in prices in California that preceded the decline. At first, I reflexively dismissed that criticism -- all of us are well aware of where we stand in the cycle. Then I thought about it, and it struck me that a number of regular readers have made the same complaint recently.
You're right -- this blog needs a bit of a history lesson. I'll start with a modest one tonight, and, with your guidance, keep at it until we've put together a workable history of the bubble.
Tonight, the big picture. In June of 2000, DataQuick reported that median sales prices in Los Angeles had reached $203,000 -- finally reaching the levels of the previous peak, in May of 1991. Though I think a history of the bubble probably goes back to 1997 or so, when prices started rising from the bottom of the previous cycle, June 2000 will do for tonight:
Month/Year Median home price in LA Y/Y % Change
June 2000 $203,000 2.5%
June 2001 $228,000 12.3%
June 2002 $269,000 18.0%
June 2003 $313,000 16.4%
June 2004 $414,000 32.4%
June 2005 $475,000 14.7%
June 2006 $517,000 8.8%
June 2007 $545,000 4.8%
Feb. 2008 $460,000 -12.9%
Thoughts? Comments? Aspects of the Bubble History you'd like to see? I'll try to post more tomorrow.
Email story tips to peter.viles@latimes.com.
Photo Credit: AFP
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