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On the other hand... for the equivalent square feet in Tucson, my rent went up 50% over a decade for the same square footage. When you see your rent go up so dr

On the other hand... for the equivalent square feet in Tucson, my rent went up 50% over a decade for the same square footage. When you see your rent go up so drastically, while everyone is getting low interest rate mortgages, you start to question your "fiscal responsibility." If I had bought in 2006, I couldn't have sold my property today. However, we didn't know where the "new normal" would even out. People took on these home loans, in most cases, because of the fear of rent increasing past their ability to pay. If you buy, you may not be able to afford it now, but eventually inflation will bring the numbers into line, especially not knowing where the "new normal" would be.

yummyfajitas 16y ago
People took on these home loans, in most cases, because of the fear of rent increasing past their ability to pay. This is one of the most retarded ideas I've ever heard. Renting: a small, liquid, short duration, unleveraged short position. Owning: a large, illiquid, long duration, highly leveraged long position. So basically, to follow a short term trend, people decided to tie up a large chunk of their life savings in dangerous, long term leveraged bets. Financial literacy FAIL.
- yequalsx 16y ago
  I guess it's fine to put a lot of blame on people who bought houses they ended up not being able to afford. However, there were fraudulant practices by mortgage companies. Banks have more responsibility for the mess because they are the experts (allegedly) at assessing risk. They are the ones that got ratings agencies to give high scores to the mortgage backed securities. They are the ones in a position to wreck the economy by collective failure. They are the ones who got a bailout and clamored for one. An individual homeowner who makes a bad bet doesn't ruin the economy. Too big to fail banks who make millions of bad bets do ruin the economy. They socialized their losses and continue their extremely high pay and bonuses. The anger should mostly be aimed at the banks. Especially in light of their dubious foreclosure practices. People are mostly financially illiterate. People don't understand percentages and compound interest. People are not rational (most of the time). A regulatory apparatus that isn't beholden to the banks is what is needed.
  - yummyfajitas 16y ago
    They are the ones that got ratings agencies to give high scores to the mortgage backed securities. And that's an issue between them and the people/institutions they sold those securities to. It does not in any way absolve individuals for making dumb bets, particularly when those individuals often lied on their loan applications. The housing bubble simply could not have occurred without financially illiterate people making bets they didn't understand in the hopes of getting rich quick. I agree with you that any individual bank had a more harmful effect than any individual real estate speculator, but that's just a matter of size. Collectively, real estate speculators are just as guilty as banks. I don't disagree with you at all concerning bailouts. We should end "too big to fail". But on the other hand, try to remember that real estate speculators also received massive subsidies (frannie, mortgage deduction) even before the crisis. The banks, excluding GM, have more or less paid back their portion of the bailout (this even includes the AIG portion). Real estate speculators have not paid back their subsidies. The anger should mostly be aimed at the banks. Especially in light of their dubious foreclosure practices. Many loan originators did shoddy paperwork to save a buck, and didn't transfer the lien's to the right party. Real estate speculators are now exploiting the legal problems caused by this shoddy paperwork to break their contracts and squat in homes they don't own. The loan originators absolutely deserve to be sued by the bond purchasers over their negligence. But the real state speculators are also culpable for exploiting legal quirks to steal homes from their rightful owners [1]. We may not be 100% sure whether BankAm Loan Issuing Corp, BankAm Loan Servicing Corporation or the MBS corporation is the rightful owner of a home - but we are quite sure that the squatters currently occupying it stopped paying their mortgage and therefore do not have any right to it. The squatters deserve to be foreclosed upon, and then the loan issuer, servicer and bondholders can fight over who really owns the home. Banks are a convenient political target. But real estate speculators are just as guilty as the banks. [1] Obviously, not all real estate speculators are doing this, but I have read quite a few media accounts of this.
    - gizmomagico 16y ago
      > The banks, excluding GM, have more or less paid back their portion of the bailout (this even includes the AIG portion). I'd be interested in hearing how that happened. It's difficult to believe.
- ebiester 16y ago
  It gets more complicated than that. Historically, a person put 20% down on their property as a down payment. The interest rates were high, at least 8%, sometimes over 10%. Take the house in 1970s tucson that was $30,000. Interest rate was about 10%, the down payment was 6,000, so the payment was about $250 a month. Now, drop the down payment requirement, and drop the interest rates to 5%. that same $30,000 dollar property suddenly costs about $175. But, there are plenty of people who can afford $250. So, they value (perhaps erroneously, but follow me here) the object not as its purchase price, but rather as a comparison to what they pay as rent. Suddenly, people are valuing the property as $45,000. But more importantly, people who don't have savings but have income are looking and saying, "I can afford a house!" Thus, demand rises along with the perceived value of the property. Then, the people with rental property look at increasing mortgages and adjust their rental properties' prices accordingly. Investors look at increasing prices and create a follower effect. Demand increases. Rent increases. The bubble has renters facing higher costs looking at property not as an investment, but as a hedge against increasing rent costs. This isn't necessarily a bad decision: consider if you are buying in 1999. You can barely afford the property, but you are averaging 3% raises. That $35,000 salary in 1999 is $48,000 in 2010, but the housing cost is the same. The problem is if you run into this in 2006.
- ebiester 16y ago
  I forgot to follow this with: The problem with 2006 is not only that the property value is diminished, making a property sale impossible, but it is combined with a recession. If you could afford it before, you can't after you lose your job, at least not past your savings. (I know people out of work for over 9 months.)
protomyth 16y ago
Don't forget the US has tax deductions for home buyers (interest), but nothing for renters.
- ebiester 16y ago
  Also a good point, but that was constant pre and post bubble.
  - protomyth 16y ago
    Yeah, but it was another encouragement for people to buy homes when they probably shouldn't have.

yummyfajitas 16y ago

People took on these home loans, in most cases, because of the fear of rent increasing past their ability to pay. This is one of the most retarded ideas I've ever heard. Renting: a small, liquid, short duration, unleveraged short position. Owning: a large, illiquid, long duration, highly leveraged long position. So basically, to follow a short term trend, people decided to tie up a large chunk of their life savings in dangerous, long term leveraged bets. Financial literacy FAIL.

yequalsx 16y ago
I guess it's fine to put a lot of blame on people who bought houses they ended up not being able to afford. However, there were fraudulant practices by mortgage companies. Banks have more responsibility for the mess because they are the experts (allegedly) at assessing risk. They are the ones that got ratings agencies to give high scores to the mortgage backed securities. They are the ones in a position to wreck the economy by collective failure. They are the ones who got a bailout and clamored for one. An individual homeowner who makes a bad bet doesn't ruin the economy. Too big to fail banks who make millions of bad bets do ruin the economy. They socialized their losses and continue their extremely high pay and bonuses. The anger should mostly be aimed at the banks. Especially in light of their dubious foreclosure practices. People are mostly financially illiterate. People don't understand percentages and compound interest. People are not rational (most of the time). A regulatory apparatus that isn't beholden to the banks is what is needed.
- yummyfajitas 16y ago
  They are the ones that got ratings agencies to give high scores to the mortgage backed securities. And that's an issue between them and the people/institutions they sold those securities to. It does not in any way absolve individuals for making dumb bets, particularly when those individuals often lied on their loan applications. The housing bubble simply could not have occurred without financially illiterate people making bets they didn't understand in the hopes of getting rich quick. I agree with you that any individual bank had a more harmful effect than any individual real estate speculator, but that's just a matter of size. Collectively, real estate speculators are just as guilty as banks. I don't disagree with you at all concerning bailouts. We should end "too big to fail". But on the other hand, try to remember that real estate speculators also received massive subsidies (frannie, mortgage deduction) even before the crisis. The banks, excluding GM, have more or less paid back their portion of the bailout (this even includes the AIG portion). Real estate speculators have not paid back their subsidies. The anger should mostly be aimed at the banks. Especially in light of their dubious foreclosure practices. Many loan originators did shoddy paperwork to save a buck, and didn't transfer the lien's to the right party. Real estate speculators are now exploiting the legal problems caused by this shoddy paperwork to break their contracts and squat in homes they don't own. The loan originators absolutely deserve to be sued by the bond purchasers over their negligence. But the real state speculators are also culpable for exploiting legal quirks to steal homes from their rightful owners [1]. We may not be 100% sure whether BankAm Loan Issuing Corp, BankAm Loan Servicing Corporation or the MBS corporation is the rightful owner of a home - but we are quite sure that the squatters currently occupying it stopped paying their mortgage and therefore do not have any right to it. The squatters deserve to be foreclosed upon, and then the loan issuer, servicer and bondholders can fight over who really owns the home. Banks are a convenient political target. But real estate speculators are just as guilty as the banks. [1] Obviously, not all real estate speculators are doing this, but I have read quite a few media accounts of this.
  - gizmomagico 16y ago
    > The banks, excluding GM, have more or less paid back their portion of the bailout (this even includes the AIG portion). I'd be interested in hearing how that happened. It's difficult to believe.
ebiester 16y ago
It gets more complicated than that. Historically, a person put 20% down on their property as a down payment. The interest rates were high, at least 8%, sometimes over 10%. Take the house in 1970s tucson that was $30,000. Interest rate was about 10%, the down payment was 6,000, so the payment was about $250 a month. Now, drop the down payment requirement, and drop the interest rates to 5%. that same $30,000 dollar property suddenly costs about $175. But, there are plenty of people who can afford $250. So, they value (perhaps erroneously, but follow me here) the object not as its purchase price, but rather as a comparison to what they pay as rent. Suddenly, people are valuing the property as $45,000. But more importantly, people who don't have savings but have income are looking and saying, "I can afford a house!" Thus, demand rises along with the perceived value of the property. Then, the people with rental property look at increasing mortgages and adjust their rental properties' prices accordingly. Investors look at increasing prices and create a follower effect. Demand increases. Rent increases. The bubble has renters facing higher costs looking at property not as an investment, but as a hedge against increasing rent costs. This isn't necessarily a bad decision: consider if you are buying in 1999. You can barely afford the property, but you are averaging 3% raises. That $35,000 salary in 1999 is $48,000 in 2010, but the housing cost is the same. The problem is if you run into this in 2006.
ebiester 16y ago
I forgot to follow this with: The problem with 2006 is not only that the property value is diminished, making a property sale impossible, but it is combined with a recession. If you could afford it before, you can't after you lose your job, at least not past your savings. (I know people out of work for over 9 months.)

protomyth 16y ago

Don't forget the US has tax deductions for home buyers (interest), but nothing for renters.

ebiester 16y ago
Also a good point, but that was constant pre and post bubble.
- protomyth 16y ago
  Yeah, but it was another encouragement for people to buy homes when they probably shouldn't have.