For a city that vows to wipe out homelessness by 2015, and whose anti-density old timers pine for the semi-urban, working-class neighborhoods of yore, it is instructive to look at how the rest of the nation is achieving the laudable goal of assuring an abundant stock of affordable housing. From the AP:
Sales of new homes plunged in March to the lowest level in 16 1/2 years as housing slumped further at the start of the spring sales season.
The median price of a new home in March, compared with a year ago, fell by the largest amount in nearly four decades.
The Commerce Department reported Thursday that sales of new homes dropped by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units, the slowest sales pace since October 1991.
The median price of a home sold in March dropped by 13.3 percent compared with March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.
And from Reuters:
Falling U.S. home prices and a lack of available credit may result in foreclosures on 6.5 million loans by the end of 2012, according to a Credit Suisse research report on Tuesday.
The foreclosures could put 12.7 percent of all residential borrowers out of their homes…
The new forecast includes 2.7 million subprime loans whose risky characteristics sparked the worst housing market since the Great Depression. Subprime foreclosures, on top of the 676,000 already in or through the process, will hit 1.39 million in the next two years alone, an upward revision from the 730,000 predicted by Credit Suisse in October.
Falling home prices have made an increasing number of U.S. homeowners more vulnerable to default, they said. Nearly a third of subprime borrowers owed more than their home was worth at the end of last year, and that figure will double to 63 percent in 2009, they said.
[…] Credit Suisse expects home prices will fall by 10 percent in 2008 and 5 percent in 2009, before rebounding.
That’s about a 25% drop from peak prices (a projection many analysts consider very conservative), which puts a lot more than just subprime borrowers at risk. While Credit Suisse projects an astounding 50 percent or more of subprime loans could ultimately end up in foreclosure, Alt-A and prime mortgages represent a much larger pool of borrowers, and as many as 4 million of these are also at risk, including many young couples who had the poor judgment to come of age and start families during a real estate bubble.
Yup, that’s one way to address our shortage of affordable housing, but I’m not sure that knocking the bottom out of our local market is a palatable solution, or that dumping millions of families out of their homes and onto the streets is a constructive step toward ending homelessness. Nor do I think we should embrace the BIAW’s dream of make WA state a zero regulation zone, were they can freely perfect their innovative new black-mold-and-kindling building technology.
It is a complicated issue, and any attempt by one side or the other to claim that they have the solution should be met with skepticism. As our region has grown, and congestion has grown with it, the days when homebuyers could reasonably trade commute time for square footage has come to an end.
If we want to maintain the natural splendor that makes our region so attractive, while accommodating the hundreds of thousands of new jobs and residents that continue to prop up our housing market above the rest of the nation, then both consumers and builders are going to have to change their expectations. And judging by the dozens of condo towers continuing to sprout throughout the downtown, and the thousands of townhouses and apartments being built along Sound Transit’s light rail route, it looks like expectations are starting to do exactly that.
In debates over gas prices and transit policy, I’ve pointed out that transportation isn’t an “elastic” commodity, which can quickly stretch or contract as various market forces dictate. For example, if you just bought an SUV on a four-year loan, you probably aren’t going to just pay it off and go buy a hybrid as soon as gas prices jump up a nickle. Instead, you are going to wait until your next vehicle purchase – maybe five years from now – and make your decision based upon market conditions at that time. And once committed to the investment in a vehicle, you are less likely to keep it parked and pay transit fares in addition to your fixed vehicle costs. In addition, there are other factors at play which aren’t strictly related to the price of gas – commute times door-to-door from home to work, two-job households (sometimes in opposite directions), availability of quick transportation to deal with kids, medical emergencies, outside appointments, etc.
The cost of housing is even less elastic. Sure, we can make some big decisions such as whether we want to live near where we work (assuming that’s an option), how much we can afford to pay for housing, the type of neighborhood we live in, etc. But once we purchase a house, our ability to quickly reverse that decision due to changing housing prices, interest rates, etc. is virtually nill. There are substantial costs to buying a house (broker’s fees, closing costs, new furniture, moving expense) which most families can’t incur frequently. In addition, there are social considerations – moving away from neighborhood friends & schools, etc. And then there is the very practical consideration of whether you can really sell your house and buy a new one under the current market conditions.
That is why the government should watch very closely to encourage STABILITY in housing prices. Sure, existing homeowners have some benefit from rapid inflation in the housing market, but not as much as they might think – they can’t realize it without selling & buying elsewhere at a similarly inflated price, or by borrowing against equity (which has it’s own costs). And, of course, rapidly rising housing prices tends to leave a lot of folks behind, as the prices tend to rise faster than wages or the ability to save from wages.
But you also have problems caused by “deflation”, which we are now experiencing. In a deflationary market, a drop in housing prices has some serious consequences. People can’t refinance their loans because their equity dissapears. Potential sellers might find that they can’t sell, because they are “underwater” – they owe more than the property is worth, and they don’t have enough cash to make up the difference. At best, this means that some potential sellers might choose to stay put for several years, keeping their house off the market until the market prices stabilize resulting in equity. But lots of people can’t wait. People who lose their jobs and have to move elsewhere to take a new job can’t stay in their home forever. Those who have ARMs or balloon mortgages are going to be forced to rind a way to re-finance, or lose their homes to foreclosure, regardless of whether their equity has dissapeared.
That is why the government needs to be careful to keep businesses from over-heating the housing market with predatory lending practices. Each rise and fall of the housing market brings adverse consequences with it, so stability in the housing market should be one of the primary goals of government. Some inflation should be expected and isn’t undesirable, but the boom-and-bust cycle should be carefully avoided.
Unfortunately, the current Bush administration turned a blind eye to what was going on in the housing market in this country, content to let predatory lendors create a housing-price bubble for their own short-term profit, and leaving millions of victims in their wake when the bubble bursts.
Just one more reason not to ever, ever let a Republican be in charge of any important government function.
Yeah, I’m watching this and I’m glad my only debit on the books is a really small student loan and a car that will be payed off in a couple of months.
Damn, rhp, you really get off on this issue. Well, we all have our pet items…and I won’t even bring up Iraq. Oops, I just did.
We’ll have a lot more affordable housing when all the crap projects that got started late in the bubble come onto the market.
@1 “And once committed to the investment in a vehicle, you are less likely to keep it parked and pay transit fares in addition to your fixed vehicle costs.”
And you’re even less likely to willingly pay transit taxes in addition to your fixed vehicle costs.
Cost overruns are only part of the reason for Seattle Monorail Project’s spectacular collapse. I knew the monorail was doomed when they eliminated parking near the stations to save money. But in reality, it was doomed from the beginning, because voter approval depended the loophole that allowed voters to evade paying the monorail tax. What actually finished off the monorail was the Legislature’s act of closing that loophole and forcing Seattle voters to actually pay for what they had voted for. At that point, the public demanded a revote and killed the project. This tells me the monorail was never viable; it was always built on smoke and mirrors.
rhp6033 has put his finger on a fundamental weakness of transit schemes that depend on massive taxpayer subsidies. Nearly everyone who needs to own a car will still need to own a car after the system is built. As roughly 90% of car ownership expenses are incurred whether the car is driven or not, car owners can’t make major reductions in their vehicle budgets by taxing themselves to build public transportation. Thus, an expensive transit project as an additional expense in most family budgets, not a cheaper transportation substitute that saves them money. And this basic fact of transportation life makes it difficult to get voter approval for expensive tax-financed transit schemes that cannot and will not fundamentally alter our car dependency.
The mortgage meltdown is a prime example of laissez faire capitalism devouring itself, and affirms the necessity of regulating “free” markets so they don’t self-implode. Capitalism, you see, is self-destructive and needs the symbiotic relationship with liberalism that FDR created in order to survive.
American capitalism was saved by the New Deal and the generations of liberal regulators who followed — not by the flag-waving, red-baiting, shrieking extremists of the far right.
Most Americans don’t yet understand how vulnerable the economy is, how dangerous the situation is, or how much worse things may get. Let me explain. In 1929, the stock market’s margin requirement was 5%. This meant that people could buy stocks with only 5% down and leverage the other 95%, which resulted in bubble share pricing — and also meant that a minor decline in share prices could trigger cascading margin calls and selloffs. And that’s exactly what happened.
To prevent this from happening again, New Deal-era legislation raised the stock market’s margin requirement to 50% — you have to put up at least half of the cost of the shares you’re buying. (Roger Rabbit pays 100% cash for his stocks and has never traded on margin.) So, with this 50% margin law in place, it can’t happen again, right? Guess again. The ever-ingenious whiz kids of Wall Street have figured out ways to get around the law. And the Bush administration, which embraced bubble-creating laissez faire capitalism with both arms and did everything it could to thwart enforcement of the economic regulations that managed to survive 10 years of GOP dominance of Congress, did nothing to stop them.
In other words, the Bushies unlocked the door and let the wolves in.
The hedge fund is the 21st century’s hot new vehicle of robber-baron capitalism. Now think about this. The leverage ratio of all American hedge funds is 16-to-1. That means they’ve put up only 6.25% of the value of the assets they own and the other 93.75% is owed to banks. And as asset values drop, banks are calling those loans. You think 1929 can’t happen again? Sit back and watch, because it’s happening right now.
All the elements are there — dangerous leverage, bubble asset prices, a financial house of cards built on a quicksand foundation of leverage — for the same kind of economic apocalypse that triggered the Great Depression and sowed the seeds of Hitler’s rise and another world war.
America’s housing supply isn’t necessarily overbuilt. When the numbers of vacant housing units and houseless families increase in tandem, what you’re looking at is not a mismatch between supply and need, but a short circuit in the nation’s economic circuitry that could set the whole economic edifice on fire. What is collapsing isn’t people’s need for homes, but the economic organization of our society.
This is the natural and predictable consequence of the conservatives’ laissez faire economic philosophy. It’s happening because conservatives rose to power. Once they got power, it was inevitable that it would happen, just as Hitler’s ascent to power assured another world war. The one follows the other as surely as the cart is pulled along behind the horse.
Conservative economic philosophy not only is a bankrupt idea, it also literally leads to bankruptcy.
Funny – five hours since the original post, and no wingnut response? No defense of the “Bush economic miracle?”
6 They pretty much blew their wad a few threads ago whimpering something about tax cuts.
Tax cuts? Gee, I’m not sure if I heard right, but didn’t McCain just say that his prescription for all our economic problems was more tax cuts?
Definition of insanity: seeing that something isn’t working, and continuing to try the exact same thing over and over again.
Of course, McCain’s definition of “working” might be different from yours or mine. You and I can clearly see that the Bush tax cuts for the wealthy has had considerable negative affects on both our economy and our society. But if McCain defines “working” as “fooling the voters long enough to win an election”, he has some relatively recent history to argue that promising to cut taxes does work – to win an election, that is.
Gee, over a day, and still no wingnut defense of the efficacy of the “Bush economic plan”. I guess the “affordable housing” phrase in the headline scared them off.
At least the stock market is rising, finally passing 12,891 at closing on Friday. It might actually pas 13,000 well before Bush leaves office. I guess when all else fails, printing money and throwing it out both windows (half to the wall street firms, the other half to the public) seems to have some affect. Funny, I don’t recall Bush ever mentioning any of this as part of his economic policy when he ran for election.
Of course, this just puts the DJIA with an annual increase of only 2.97% during Bush’s term of office, which would apparantly be less than the rate of inflation over the same term (even if you accept the current government’s rigged definition of the CPI by excluding food and oil from the calculations).