7 ms·

The housing market faces its next crisis as May rent and mortgages come due

47 points by jseliger 7y ago

droffel 7y ago
I saw a proposal recently that suggested the government mandate that existing loans (mortgages and business loans primarily) add the deferred period to the back of the loan, interest free. So if the lockdown is 3 months long, then your 72 month loan becomes a 75 month loan with an internal interest free 3-month period. This feels like a reasonable compromise to just nullifying the debts altogether, considering what an accounting nightmare that would be.
- nickff 7y ago
  I have been thinking about these issues since the beginning of the crisis, and the two big questions I have are: 1) What do you do about bonds? A very large proportion of all debt is packaged into bonds, and reducing their yield will have a substantial effect on many pensions 2) Who is going to pay the wages of the people paid to administer these loans? Are they going to accept a deferral of their wages? I am not trying to dismiss your idea; I had many similar ones early on, but I couldn't figure out how to square the circle.
  - toomuchtodo 7y ago
    > 1) What do you do about bonds? A very large proportion of all debt is packaged into bonds, and reducing their yield will have a substantial effect on many pensions US Treasury pays bondholders some, but not all, of the interest income due. Shared haircut between bondholders and the taxpayers. This is a catastrophic loss with a nation state providing what amounts to insurance, and incredibly cheaper not only economically, but from the struggle and hardship many would face from foreclosure and relocation. > 2) Who is going to pay the wages of the people paid to administer these loans? Are they going to accept a deferral of their wages? PPP loans (forgiven when used for payroll) for mortgage servicers. Those folks are still going to be needed to account for bondholder payments, with the Treasury picking up the tab instead of homeowners.
    - nickff 7y ago
      A taxpayer bailout solves a bunch of problems, at the expense of non-mortgage holders (AKA renters). It seems unjust to take from renters and give to property-holders, given that the latter are generally more affluent, and knowingly took a risk (by taking out a loan).
      - toomuchtodo 7y ago
        > It seems unjust to take from renters and give to property-holders, given that the latter are generally more affluent, and knowingly took a risk (by taking out a loan). Life isn't fair. Renters have landlords with mortgages also, and renters are just as challenged as homeowners currently (30+ million unemployed, 1/5th of the US working population). Broad policy decisions have some moral hazard to be deprioritized. The goal isn't fairness, it is to return to economical equilibrium as rapidly as possible.
        nickff 7y ago
        Your proposal would stabilize the situation, but I am not sure why this bailout is better or worse than other proposed bailouts. We can't go bail everyone out, unless we want to go into hyperinflation. I am not saying I have an answer, I just think there are deep problems with these ideas.
        toomuchtodo 7y ago
        There are always deep problems when the problems are complex. This does not mean you take your time. Just as the Obama administration quickly moved GM through a Chapter 11 reorganization [1] despite objections by free market proponents and shareholders (to save GM workers' jobs), and drastic actions was taken by the Treasury and the Fed to save certain financial services firms (merging them into stronger entities) after the failure of Lehman Brothers during the 2008 GFC [2], complaints can saved for the history book on the topic. In the meantime, move fast to avoid suffering at scale. I'm not saying you're wrong, by any means, but that you have to be comfortable with your solution being unfair and suboptimal. It is not the best course of action, but the least worst course of action. [1] https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reorganization https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reor... [2] https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308 https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...
  - jerf 7y ago
    You speak as if you're hunting for an option where nothing bad happens to anyone? The bonds are going to fail somehow; the question is in the allocation of that failure, not whether they fail. (Partial failure, not total failure.)
    - nickff 7y ago
      That's the big problem for me; I would like for nobody to get hurt, but it seems that the holder of the secured debt has some contractual rights. Given the situation, I don't see how a third party has the right to step in and take from one party to give to the other. Ideally we'd have debt-holders negotiating solutions with their counter-parties, but that seems difficult with securitized loans.
      - AnimalMuppet 7y ago
        Well... "a contract is a contract", but there's some recognition that extraordinary circumstances can need special treatment. My home insurance, for example, has clauses about "acts of God" and "acts of war". (Specifically, earthquakes are included in "acts of God" - or maybe they're specifically excluded, in any event, the policy doesn't cover them. Tornadoes and hurricanes might also be excluded. But I don't live in tornado country; I do live in an area that can have earthquakes.)
  - pm90 7y ago
    Not everyone has lost their jobs. Folks that still have an income should be paying their mortgages/rent on schedule. Those who can’t can defer. This way there’s a reduction in income but not a total collapse.
    - nickff 7y ago
      You'd be a fool not to defer, if the deferral is at almost no cost. We have seen that people will take the financial path of least resistance (as happened with non-recourse loans in the financial crisis), so I wouldn't depend on payment by those who can.
      - kelnos 7y ago
        Is everyone eligible for deferment, regardless of their financial or employment situation? If so, that seems incredibly short-sighted policy-wise.
        pm90 7y ago
        Means testing would cause more problems than it can solve. A somewhat fair compromise would be to increase the amount owed a tiny bit to encourage those who can pay to continue paying.
- SpicyLemonZest 7y ago
  I'm not sure if that's really simpler. I don't know enough accounting to say for sure, but I wouldn't expect the effects of lengthening all loans 3 months to be particularly easy to calculate.
  - thinkingkong 7y ago
    Yeah I hate it when the math is too difficult to not screw people over.
    - wutbrodo 7y ago
      This is an excellent demonstration of one of the reasons the politics of economic policy is so difficult: so many people think that financial crises are caused and averted by magic, and "math" is simply some detached-from-reality thought exercise. It's the modern version of an ancient villager sacrificing goats to ensure a good harvest and sneering at good irrigation practices or crop rotation. Paying attention to the economic effects of a policy as it ripples through the financial system isn't taking a position on who should be protected or prioritized between (eg) capital and labor. Economic outcomes for labor are downstream of the financial system too, which is why the effects of the 2008 GFC didn't play out as simply "the richest people get slightly poorer". Someone 100% interested in outcomes for the poor and middle-class (employment, income, etc) still needs to understand the "math" of how proposed policy will play out in the real world. You may think you're on the side of the rights of labor/the masses against the rich, but you're actually just standing up for ignorance and blind superstition over reality, an approach which hurts rich and poor alike. (Unless, of course, your only goal is to get high on your own misinformed outrage, in which case, congrats)
      - thinkingkong 7y ago
        Other than misinterpreting an (obviously?) sarcastic comment I'm not sure what point you're trying to make. By all means let's not duck into any blind alleys. But decisions need to be made in a relatively short timeframe, and a lot of investigation itself is typically waved off as "can't replicate, wont fix", simply because it's perceived as difficult.
- Mvandenbergh 7y ago
  That's how it works in the UK. Mortgages that are paused are either extended (rare) or have the interest and additional principal rolled into future payments. It doesn't work so well for shorter loans though because the payments get very high.
  - brummm 7y ago
    That's not what the poster above you meant, though. He specifically said the deferment period should be interest free.
- nbclark 7y ago
  Not sure about other banks, but Wells Fargo offered this to me last month (just as a UI in their mobile app).
- 0xEFF 7y ago
  In the U.S. it’s an unreasonable proposal because it violates the contracts clause of the Constitution.
  - sio8ohPi 7y ago
    To be clear, it is not unconstitutional for the federal government to do so. The contract clause only restrains the states.
    - xyzzyz 7y ago
      That depends on what word “unconstitutional” means. Would people who originally wrote the constitution consider it unconstitutional for federal government to do it? Almost surely, yes: they wrote an explicit list of things the federal government can do, and if something was not on the list, it was understood that the federal government cannot do it. Of course, in early 20th century this has all been thrown through the window by the Progressive era Supreme Court, and contrary to intent of the framers of the constitution, it became clear that nothing restrains federal government other than what a group of nine says, and even that is not always true.
      - Finnucane 7y ago
        In this case the language of the Contracts Clause is entirely clear that it applies to the states.
        mattkrause 7y ago
        To put it more bluntly, it literally starts with the words "No State shall...." If you want to go all originalist, the point was to prohibit private bills benefiting a specific person, which is almost the opposite of what's proposed here.
        Finnucane 7y ago
        Well, we know the founders were all like, this is final word, we have foreseen all contingencies, if you ever do anything we wouldn’t like we will haunt you from the grave.
- deleted 7y ago
  [deleted]
- renewiltord 7y ago
  That's what we've been doing with our clients who can't afford it right now. We just extend their licence 3 months when they've already paid us. They're happy, we don't get a meaningless churn and it slows us down only 25%.
- twblalock 7y ago
  Any proposal for forgiving or delaying payments needs to consider the position of the lenders, or we are going to end up with another bank bailout.
- Animats 7y ago
  Add the deferred payment to the back of the loan at the current Fed funds rate. That's currently 0.25%. Banks can borrow at that rate, so they don't lose money on this. Cheaper than processing a default. Banks don't want to foreclose; unloading the real estate is a huge money-loser.
foota 7y ago
Part of me has wondered... What if we just went through the motions of the economy? I.e., average everyone's spending over the last year and require everyone to make 1/12 those payments to their recipients per month. Obviously we wouldn't be realizing the benefit of the things we mock buy, but it seems to me like it would largely preserve the economy in the sense that no one would have to face a deficit? Anything still possible to deliver (i.e., food, rent, etc) would be delivered for the money and anything that couldn't would just not be. Obviously there are many practical issues with this, namely that it would require way more and detailed data on purchases than anyone has and would be completely politically infeasible.
- twblalock 7y ago
  > Obviously there are many practical issues with this, namely that it would require way more and detailed data on purchases than anyone has and would be completely politically infeasible. And the fact that a lot of people don't have any money right now, and haven't made money since March, and don't know when they will be able to make money again.
- Udik 7y ago
  Different idea: just hibernate the economy. Completely. No money transfers. Nobody pays rents or food or bills; nobody gets paid either salary or pensions (but still has to show up for work if required/ possibile). This could help preventing businesses or private individuals or families going broke during the lockdown; when it's time, everything can be restarted at once. It might work (or have worked) for a short period of time, though I imagine it's practically inconceivable.
  - basch 7y ago
    is food free for a month at walmarts expense, or nobody can buy food for a month?
    - Udik 7y ago
      Free at walmart's expense (with some refund from the government for products already in stock- and walmarts doesn't have to pay wages or rents either) but new orders towards the supply chain are also free. I understand it's almost ceertainly unfeasible, but the rationale is preventing a situation in which labour and small businesses are bled dry while capital (from rents, etc.) keeps accumulating. Costs should be distributed as evenly as possible across society.
Shivetya 7y ago
forbearance and tax relief will do wonders for those who own properties however this does nothing for renters or cover the other considerations, food and utilities. the only solution is to replace lost income with a maximum cap of how much is restored. As in, take the reported income filings or individuals across a set period prior to the nationwide lockdown and use that to determine aid to go to those people. No wholesale just because you are breathing you get money. No bonus on top of it for children. Hence the number will likely need to be larger than $1200 for one month and taxes at all levels need to be forgiven for the air. I am betting on nearly $2000 per income earner up to their income or that cap. however you will have to accept you will have people who will waste this money as well, you can easily find numerous cases where people treated the last stimulus as a bonus
twblalock 7y ago
This is why I don't expect a "V" shaped recovery. Consumer spending will be down because a lot of people will be spending their income on paying their past-due bills. Credit reporting is going to hurt a lot of people too, and that will also decrease consumer spending because people will have less access to credit.
- jlbnjmn 7y ago
  Also, many of the lost jobs are in consumption and service industries. I'm not going to get extra haircuts, eat extra meals, or drive extra miles. So business owners and workers in those industries aren't going to catch up.
rwmj 7y ago
This is paywalled for me, an archive.is link: https://archive.is/TSF1O https://archive.is/TSF1O
JMTQp8lwXL 7y ago
As a millennial renter, part of me wants to see lower home prices, but that also means other people being underwater. It's a tough generational predicament we've placed ourselves in. We want to encourage homeownership, but millennials aren't buying. We want homeownership to be profitable, because for most middle class families, the home is the largest financial asset. It's impossible to make all of these promises to people. If a 2008 repeat occurs again, it will only further reduce personal home ownership and increase institutional ownership.
- api 7y ago
  There is no painless way out of this mess. The first option is to inflate housing prices away. A $600k starter home would become reasonable and a loaf of bread would be $8-$10. The second option is to let housing crash and burn. The first option is politically more palatable but pretty hard to do against such powerful deflationary headwinds, so my money is on the second when the boomers dump their real estate. Anyone who bought at these prices is already underwater. The thing to look at is housing as a multiple of median income. If it looks insane, it is insane.
  - JMTQp8lwXL 7y ago
    Given the inflexibility of wages, I question the effectiveness of this potential strategy, but given the problems we face, any possible strategy deserves a thorough review. I certainly agree on the political viability of inflation, since it isn't as perceptible. If someone sells a house 20 years after they bought it for the same nominal value, it doesn't like as much of a loss?
- Analemma_ 7y ago
  The way I like to describe it is that people want home values to go up but home prices to go down, and never seem to realize that this is impossible by definition.
  - seph-reed 7y ago
    > that people want home values to go up but home prices to go down People want _house_ values to go up, but _home_ prices to go down. And those are two different things. If it's your home, who cares how other people value it. Lesser price is better. If it's a house that you don't consider home, then you only want to sell it for what you can. Personally I think home-owners > house-flippers and that laws should reflect that.

47 points by jseliger 7y ago

I saw a proposal recently that suggested the government mandate that existing loans (mortgages and business loans primarily) add the deferred period to the back of the loan, interest free. So if the lockdown is 3 months long, then your 72 month loan becomes a 75 month loan with an internal interest free 3-month period. This feels like a reasonable compromise to just nullifying the debts altogether, considering what an accounting nightmare that would be.

nickff 7y ago
I have been thinking about these issues since the beginning of the crisis, and the two big questions I have are: 1) What do you do about bonds? A very large proportion of all debt is packaged into bonds, and reducing their yield will have a substantial effect on many pensions 2) Who is going to pay the wages of the people paid to administer these loans? Are they going to accept a deferral of their wages? I am not trying to dismiss your idea; I had many similar ones early on, but I couldn't figure out how to square the circle.
- toomuchtodo 7y ago
  > 1) What do you do about bonds? A very large proportion of all debt is packaged into bonds, and reducing their yield will have a substantial effect on many pensions US Treasury pays bondholders some, but not all, of the interest income due. Shared haircut between bondholders and the taxpayers. This is a catastrophic loss with a nation state providing what amounts to insurance, and incredibly cheaper not only economically, but from the struggle and hardship many would face from foreclosure and relocation. > 2) Who is going to pay the wages of the people paid to administer these loans? Are they going to accept a deferral of their wages? PPP loans (forgiven when used for payroll) for mortgage servicers. Those folks are still going to be needed to account for bondholder payments, with the Treasury picking up the tab instead of homeowners.
  - nickff 7y ago
    A taxpayer bailout solves a bunch of problems, at the expense of non-mortgage holders (AKA renters). It seems unjust to take from renters and give to property-holders, given that the latter are generally more affluent, and knowingly took a risk (by taking out a loan).
    - toomuchtodo 7y ago
      > It seems unjust to take from renters and give to property-holders, given that the latter are generally more affluent, and knowingly took a risk (by taking out a loan). Life isn't fair. Renters have landlords with mortgages also, and renters are just as challenged as homeowners currently (30+ million unemployed, 1/5th of the US working population). Broad policy decisions have some moral hazard to be deprioritized. The goal isn't fairness, it is to return to economical equilibrium as rapidly as possible.
      - nickff 7y ago
        Your proposal would stabilize the situation, but I am not sure why this bailout is better or worse than other proposed bailouts. We can't go bail everyone out, unless we want to go into hyperinflation. I am not saying I have an answer, I just think there are deep problems with these ideas.
        toomuchtodo 7y ago
        There are always deep problems when the problems are complex. This does not mean you take your time. Just as the Obama administration quickly moved GM through a Chapter 11 reorganization [1] despite objections by free market proponents and shareholders (to save GM workers' jobs), and drastic actions was taken by the Treasury and the Fed to save certain financial services firms (merging them into stronger entities) after the failure of Lehman Brothers during the 2008 GFC [2], complaints can saved for the history book on the topic. In the meantime, move fast to avoid suffering at scale. I'm not saying you're wrong, by any means, but that you have to be comfortable with your solution being unfair and suboptimal. It is not the best course of action, but the least worst course of action. [1] https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reorganization https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reor... [2] https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308 https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...
- jerf 7y ago
  You speak as if you're hunting for an option where nothing bad happens to anyone? The bonds are going to fail somehow; the question is in the allocation of that failure, not whether they fail. (Partial failure, not total failure.)
  - nickff 7y ago
    That's the big problem for me; I would like for nobody to get hurt, but it seems that the holder of the secured debt has some contractual rights. Given the situation, I don't see how a third party has the right to step in and take from one party to give to the other. Ideally we'd have debt-holders negotiating solutions with their counter-parties, but that seems difficult with securitized loans.
    - AnimalMuppet 7y ago
      Well... "a contract is a contract", but there's some recognition that extraordinary circumstances can need special treatment. My home insurance, for example, has clauses about "acts of God" and "acts of war". (Specifically, earthquakes are included in "acts of God" - or maybe they're specifically excluded, in any event, the policy doesn't cover them. Tornadoes and hurricanes might also be excluded. But I don't live in tornado country; I do live in an area that can have earthquakes.)
- pm90 7y ago
  Not everyone has lost their jobs. Folks that still have an income should be paying their mortgages/rent on schedule. Those who can’t can defer. This way there’s a reduction in income but not a total collapse.
  - nickff 7y ago
    You'd be a fool not to defer, if the deferral is at almost no cost. We have seen that people will take the financial path of least resistance (as happened with non-recourse loans in the financial crisis), so I wouldn't depend on payment by those who can.
    - kelnos 7y ago
      Is everyone eligible for deferment, regardless of their financial or employment situation? If so, that seems incredibly short-sighted policy-wise.
      - pm90 7y ago
        Means testing would cause more problems than it can solve. A somewhat fair compromise would be to increase the amount owed a tiny bit to encourage those who can pay to continue paying.
SpicyLemonZest 7y ago
I'm not sure if that's really simpler. I don't know enough accounting to say for sure, but I wouldn't expect the effects of lengthening all loans 3 months to be particularly easy to calculate.
- thinkingkong 7y ago
  Yeah I hate it when the math is too difficult to not screw people over.
  - wutbrodo 7y ago
    This is an excellent demonstration of one of the reasons the politics of economic policy is so difficult: so many people think that financial crises are caused and averted by magic, and "math" is simply some detached-from-reality thought exercise. It's the modern version of an ancient villager sacrificing goats to ensure a good harvest and sneering at good irrigation practices or crop rotation. Paying attention to the economic effects of a policy as it ripples through the financial system isn't taking a position on who should be protected or prioritized between (eg) capital and labor. Economic outcomes for labor are downstream of the financial system too, which is why the effects of the 2008 GFC didn't play out as simply "the richest people get slightly poorer". Someone 100% interested in outcomes for the poor and middle-class (employment, income, etc) still needs to understand the "math" of how proposed policy will play out in the real world. You may think you're on the side of the rights of labor/the masses against the rich, but you're actually just standing up for ignorance and blind superstition over reality, an approach which hurts rich and poor alike. (Unless, of course, your only goal is to get high on your own misinformed outrage, in which case, congrats)
    - thinkingkong 7y ago
      Other than misinterpreting an (obviously?) sarcastic comment I'm not sure what point you're trying to make. By all means let's not duck into any blind alleys. But decisions need to be made in a relatively short timeframe, and a lot of investigation itself is typically waved off as "can't replicate, wont fix", simply because it's perceived as difficult.
Mvandenbergh 7y ago
That's how it works in the UK. Mortgages that are paused are either extended (rare) or have the interest and additional principal rolled into future payments. It doesn't work so well for shorter loans though because the payments get very high.
- brummm 7y ago
  That's not what the poster above you meant, though. He specifically said the deferment period should be interest free.
nbclark 7y ago
Not sure about other banks, but Wells Fargo offered this to me last month (just as a UI in their mobile app).
0xEFF 7y ago
In the U.S. it’s an unreasonable proposal because it violates the contracts clause of the Constitution.
- sio8ohPi 7y ago
  To be clear, it is not unconstitutional for the federal government to do so. The contract clause only restrains the states.
  - xyzzyz 7y ago
    That depends on what word “unconstitutional” means. Would people who originally wrote the constitution consider it unconstitutional for federal government to do it? Almost surely, yes: they wrote an explicit list of things the federal government can do, and if something was not on the list, it was understood that the federal government cannot do it. Of course, in early 20th century this has all been thrown through the window by the Progressive era Supreme Court, and contrary to intent of the framers of the constitution, it became clear that nothing restrains federal government other than what a group of nine says, and even that is not always true.
    - Finnucane 7y ago
      In this case the language of the Contracts Clause is entirely clear that it applies to the states.
      - mattkrause 7y ago
        To put it more bluntly, it literally starts with the words "No State shall...." If you want to go all originalist, the point was to prohibit private bills benefiting a specific person, which is almost the opposite of what's proposed here.
        Finnucane 7y ago
        Well, we know the founders were all like, this is final word, we have foreseen all contingencies, if you ever do anything we wouldn’t like we will haunt you from the grave.
deleted 7y ago
[deleted]
renewiltord 7y ago
That's what we've been doing with our clients who can't afford it right now. We just extend their licence 3 months when they've already paid us. They're happy, we don't get a meaningless churn and it slows us down only 25%.
twblalock 7y ago
Any proposal for forgiving or delaying payments needs to consider the position of the lenders, or we are going to end up with another bank bailout.
Animats 7y ago
Add the deferred payment to the back of the loan at the current Fed funds rate. That's currently 0.25%. Banks can borrow at that rate, so they don't lose money on this. Cheaper than processing a default. Banks don't want to foreclose; unloading the real estate is a huge money-loser.

foota 7y ago

Part of me has wondered... What if we just went through the motions of the economy? I.e., average everyone's spending over the last year and require everyone to make 1/12 those payments to their recipients per month. Obviously we wouldn't be realizing the benefit of the things we mock buy, but it seems to me like it would largely preserve the economy in the sense that no one would have to face a deficit? Anything still possible to deliver (i.e., food, rent, etc) would be delivered for the money and anything that couldn't would just not be. Obviously there are many practical issues with this, namely that it would require way more and detailed data on purchases than anyone has and would be completely politically infeasible.

twblalock 7y ago
> Obviously there are many practical issues with this, namely that it would require way more and detailed data on purchases than anyone has and would be completely politically infeasible. And the fact that a lot of people don't have any money right now, and haven't made money since March, and don't know when they will be able to make money again.
Udik 7y ago
Different idea: just hibernate the economy. Completely. No money transfers. Nobody pays rents or food or bills; nobody gets paid either salary or pensions (but still has to show up for work if required/ possibile). This could help preventing businesses or private individuals or families going broke during the lockdown; when it's time, everything can be restarted at once. It might work (or have worked) for a short period of time, though I imagine it's practically inconceivable.
- basch 7y ago
  is food free for a month at walmarts expense, or nobody can buy food for a month?
  - Udik 7y ago
    Free at walmart's expense (with some refund from the government for products already in stock- and walmarts doesn't have to pay wages or rents either) but new orders towards the supply chain are also free. I understand it's almost ceertainly unfeasible, but the rationale is preventing a situation in which labour and small businesses are bled dry while capital (from rents, etc.) keeps accumulating. Costs should be distributed as evenly as possible across society.

Shivetya 7y ago

forbearance and tax relief will do wonders for those who own properties however this does nothing for renters or cover the other considerations, food and utilities. the only solution is to replace lost income with a maximum cap of how much is restored. As in, take the reported income filings or individuals across a set period prior to the nationwide lockdown and use that to determine aid to go to those people. No wholesale just because you are breathing you get money. No bonus on top of it for children. Hence the number will likely need to be larger than $1200 for one month and taxes at all levels need to be forgiven for the air. I am betting on nearly $2000 per income earner up to their income or that cap. however you will have to accept you will have people who will waste this money as well, you can easily find numerous cases where people treated the last stimulus as a bonus

twblalock 7y ago

This is why I don't expect a "V" shaped recovery. Consumer spending will be down because a lot of people will be spending their income on paying their past-due bills. Credit reporting is going to hurt a lot of people too, and that will also decrease consumer spending because people will have less access to credit.

jlbnjmn 7y ago
Also, many of the lost jobs are in consumption and service industries. I'm not going to get extra haircuts, eat extra meals, or drive extra miles. So business owners and workers in those industries aren't going to catch up.

rwmj 7y ago

This is paywalled for me, an archive.is link: https://archive.is/TSF1O https://archive.is/TSF1O

JMTQp8lwXL 7y ago

As a millennial renter, part of me wants to see lower home prices, but that also means other people being underwater. It's a tough generational predicament we've placed ourselves in. We want to encourage homeownership, but millennials aren't buying. We want homeownership to be profitable, because for most middle class families, the home is the largest financial asset. It's impossible to make all of these promises to people. If a 2008 repeat occurs again, it will only further reduce personal home ownership and increase institutional ownership.

api 7y ago
There is no painless way out of this mess. The first option is to inflate housing prices away. A $600k starter home would become reasonable and a loaf of bread would be $8-$10. The second option is to let housing crash and burn. The first option is politically more palatable but pretty hard to do against such powerful deflationary headwinds, so my money is on the second when the boomers dump their real estate. Anyone who bought at these prices is already underwater. The thing to look at is housing as a multiple of median income. If it looks insane, it is insane.
- JMTQp8lwXL 7y ago
  Given the inflexibility of wages, I question the effectiveness of this potential strategy, but given the problems we face, any possible strategy deserves a thorough review. I certainly agree on the political viability of inflation, since it isn't as perceptible. If someone sells a house 20 years after they bought it for the same nominal value, it doesn't like as much of a loss?
Analemma_ 7y ago
The way I like to describe it is that people want home values to go up but home prices to go down, and never seem to realize that this is impossible by definition.
- seph-reed 7y ago
  > that people want home values to go up but home prices to go down People want _house_ values to go up, but _home_ prices to go down. And those are two different things. If it's your home, who cares how other people value it. Lesser price is better. If it's a house that you don't consider home, then you only want to sell it for what you can. Personally I think home-owners > house-flippers and that laws should reflect that.