Jan232015
Did Obama reverse 100 years of housing policy by saying nothing?
The US needs to rethink it’s policies toward home ownership and housing subsidies. Some are suggesting Obama’s silence signals a radical change.
Every presidential administration of the last 100 years has promoted home ownership. The ideal of homeownership has become so sacrosanct that we never abandon this ideal even when the policies it spawns turn out disastrous. Instead, we clean retool our policies, pretend they weren’t a failure, and begin work on the next housing catastrophe. We have a long history of supporting home ownership.
When the 1920 census revealed a small dip in ownership rates since 1910, from 45.9 percent to 45.6 percent of all households, Herbert Hoover, as secretary of commerce, initiated the first major Washington campaign to boost homeownership. According to Hoover, “Nothing is worse than increased tenancy and landlordism” — except perhaps a massive housing bubble that destroys the collective wealth of America’s middle class and traps millions in their underwater homes.
Franklin Roosevelt formed the Federal Housing Administration to promote home ownership through extending credit with 30-year amortizing mortgages. It was the last reasonable innovation in home finance, and it boosted home ownership rates to about 64% where it remained for about 60 years.
Each administration since Roosevelt launched housing initiatives and contributed to the bloated bureaucracies that expound the virtue of home ownership without managing to increase the rate of home ownership in a sustained manner. We temporarily boosted home ownership from 1995 to 2005 under both Clinton and Bush, but the collapsing housing bubble wiped out those illusory gains and left us with the same home ownership rate we had under Roosevelt.
Perhaps it is time to rethink our obsession with home ownership.
The Quiet Shift in Housing Policy
Nela Richardson, January 21, 2015
It’s hard to discuss middle-class economics without more than a passing reference to the housing market. Housing has been the primary engine of wealth creation for the middle class since World War II and has underpinned middle class economic mobility. Yet, in last night’s State of the Union, housing policy took a back seat to other economic issues: the minimum wage, free access to community college and child care tax credits. …
…In recent months the Obama administration has announced lower down payment requirements and a decrease in FHA annual premiums, which will both help middle-class buyers. Rather than a significant change in policy, these announcements mark a return to underwriting protocol from before the crisis.
(See: Mortgage standards of 1990s were normal and prudent, and Lowering FHA insurance fees will spur the housing market)
Freddie and Fannie’s chief regulator has proposed keeping the 2015-2017 goals for low-income households at a much more modest 23 percent.
What has been permanently altered, however, is the White House practice of escalating affordable housing goals for Fannie and Freddie to increase middle-class homeownership.
Does the fact that Mel Watt didn’t try to increase the GSE share of low-income loans really a sign of a permanent shift in housing policy?
It’s more likely a reflection of the current political environment where proposing to increase subsidies low-income and subprime borrowers would set off a political firestorm, particularly with a Republican Congress.
I think Ms. Richardson jumped the shark. This is not evidence of any permanent shift in housing policy, but rather a patient waiting for the political winds to blow the other direction. Wouldn’t a seismic shift in housing policy, a dramatic change to an ideal embraced by every presidential administration of the last 100 years, wouldn’t that change at least be accompanied by a speech or a public statement?
In a speech packed with policy aimed at middle class economics, homeownership received barely a mention — and that is the true legacy of the financial crisis.
For almost 20 years we’ve had housing policy in which affordable access to homeownership through purchase goals for Fannie and Freddie was a central tenant of middle-class economics.
Last night we heard a quiet, and perhaps permanent, shift in that approach. Homeownership used to be the means by which middle class economic security was obtained; from now on it will be the ends by which that economic security is measured.
Does anyone have any idea WTF she is talking about? Does anyone else read this into the President’s silence?
For as much as I would like to believe America would seek to find a more balanced policy toward home ownership and renting, nothing in the President’s silence even implies any change occurred.
Perhaps there were other reasons Obama didn’t mention housing….
Economist Breaks Down Why Obama Omitted Housing Policy From State of the Union Address
Author: Brian Honea January 21, 2015
So with all the administration’s talk and actions surrounding housing policy in the last year, why was the topic noticeably absent from the State of the Union Address?
Trulia chief economist Jed Kolko suggested three reasons why housing policy was omitted from the address: the urgency has faded; the most pressing housing challenges are local, not national; and the best housing policy is economic policy.
- The urgency has faded. In Trulia’s latest housing barometer released last week, home sales, home prices, and delinquencies were measured at more than three-quarters of the way “back to normal” (i.e. pre-recession levels). The GSEs and the FHA are enjoying profitability again and the excesses of the housing bubble (overbuilding and loose lending) have been corrected, according to Kolko. “And, with the homeownership rate near two-thirds, most of the middle class are homeowners who care about their home values, which areup year-over-year in 97 of the 100 largest metros,” Kolko wrote.
In my opinion, this is the most likely reason Obama said little about housing. The political crisis is past, and there is little to be gained by announcing an initiative now. Plus, with a hostile Congress, Obama isn’t going to get anything done over the next two years anyway.
- The most pressing housing challenges are local, not national: Kolko asserts that the challenges facing today’s housing market such as foreclosures and affordability are “ultimately local.” The states with the highest foreclosure rates are generally judicial foreclosure states (such as Florida and New Jersey), meaning the process has to go through the courts to be completed and therefore takes much longer. Affordability has returned to near pre-crisis levels in many major metros in New York and California, according to Trulia. “An essential solution to high housing costs – building more – depends on local rules and regulations, not national policy,” Kolko wrote.
This is also true. There is no grand federal policy that will benefit housing right now — other than perhaps to reduce the subsidies already in place.
The federal government can’t force local officials in California to approve more housing construction, and the federal government can’t force the judicial foreclosure states to process foreclosures any faster.
- The best housing policy is economic policy. Many analysts and economists, including Kolko, believe that full housing recovery depends on millennials (the 25- to 34-year-old age group) finding good jobs and moving out of their parents’ houses. It also depends on income growth that will allow first-time buyers to save enough for a down payment, which is the top obstacle to homeownership. … “The housing market depends most on the economic recovery – and economic policy was a centerpiece of tonight’s speech,” Kolko wrote.
He is right again. I’ve said on many, many occasions what the housing market needs is more jobs and higher wages; until those features manifest, housing will go nowhere.
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Mellow Ruse says:
June 28, 2013 at 12:43 pm
el numeraire is toast.
Gold is a bubble. The selloff is not recent. It has been going on for two years. What has changed is that we’ve entered the acceleration phase of the decline.
My prediction: Gold will bottom at $500 and stay there.
When will gold bottom at $500? This year? Next year? Five years? More?
What do you mean by, entered the acceleration phase of the decline.? And if I have misquoted you, please clarify.
Or, when well gold reach a price of $1000?
Mellow Ruse22-01-2015, 13:00
“As you know, I sold all of my gold when it was above $1,600 and I warned you and others to do the same. Needless to say, you didn’t listen and took a major bloodbath as a result.
Instead of being gracious and admitting I got it right, you try act as if my prediction was wrong even though gold hit a new cyclical low just a few months back. I never said gold would go down in a straight line. You know that financial markets don’t act like that.
All I can assume is that this is the only consolation you have. It helps salvage your pride over the untold thousands of dollars you lost by not listening to me. Sad really.”
Just curious, if someone bought a home in 1990, watched the value fall through the nineties, and sold the home at a profit in 2000, did that person lose untold thousands in your opinion? When they were living in their home in 1995 and were underwater, had they lost untold thousands, in your opinion?
Do you think people should listen to you and act on your advice on financial matters, such as buying or selling a house or buying or selling gold?
Do you think people can make money by listening to you? Has your net worth or the net worth of others increased substantially from your insight?
Is someone mistaken or stupid or uninformed if they buy a home to live in without regards to the possible future appreciation or depreciation? Is someone mistaken or stupid or inconsolable if one buys gold for some other reason than for it’s appreciation in dollars?
Is your gold buying and selling advice applicable to people in other countries who use currencies other than the dollar?
Reminder: oil, copper, and lumber are primary indicators of economic growth.
QE ended ~3 months ago.
Let’s review…
http://finviz.com/futures_performance.ashx?v=14
They may have been good indicators of economic growth in the past, but with QE, they were recipients of speculative money playing with cheap debt that inflated market prices. Apparently, whatever is left of those speculative binges has plowed into equities.
Into equities indeed, but, seems a whiff of ‘change’ is in the air looking @YTD stats….
http://finviz.com/futures_performance.ashx?v=17
For now 😉
The great rotation from stocks to orange juice has begun.
When will gold bottom at $500? This year? Next year? Five years? More?
What do you mean by, entered the acceleration phase of the decline.? And if I have misquoted you, please clarify.
Or, when well gold reach a price of $1000?
Do you think people should listen to you and act on your advice on financial matters, such as buying or selling a house or buying or selling gold?
Is your gold buying and selling advice applicable to people in other countries who use currencies other than the dollar?
Stocks is in neutral position for now. Wait until bond market blows up than stocks will really take off per Martins Armstrong. Money will always flow to where there are least problems which IMO is the private sector and maybe hard assets aka real estates or gold in the next phase. PE and valuation touters would never understand or comprehend flow of [international] capital which is the real market mover. Eventually everything will go down due to the deflationary cycle (maybe except gold) but stocks will be seen as the safe haven next IMO before everything boils over.
A few low-end homeowners will move up, but most of the increase in value flowed back to the bank as many of these owners were (and still are) underwater.
Zillow: Will owners of low-end homes start moving up?
Homeowners at the bottom of the housing tier emerged from 2014 in a stronger position than in previous years, with home values up 6.8% year-over-year, Zillow (Z) said.
Lower-valued homes were hit hardest by the recession and experienced an unsteady recovery compared to high-end homes, and according to Zillow Chief Economist Stan Humphries, those lower-value homes are key to the overall recovery.
“In many ways, for the housing market to fully normalize, it has to start at the bottom,” Humphries said.
“More lower-end home sellers will help meet demand from entry-level buyers, and these sellers in turn will re-enter the market in search of a slightly pricier home, which will entice more middle- and upper-tier sellers to list their homes. As the economy gets stronger, we expect more young adults to strike out on their own, moving out of friends’ and parents’ homes. This will create strong demand in coming months, especially for less expensive homes,” he explained.
Homeowners in the bottom price tier are still 17% shy of their pre-recession peak values.
IMO, the CFPB is doing a great job. The major players in finance are afraid to rip off customers because the CFPB will go after any such behavior. The main critics of the CFPB are lenders who want to rip off consumers.
CFPB goes after Wells Fargo, JPMorgan for mortgage kickback scheme
The Consumer Financial Protection Bureau and the Maryland Attorney General took action against two of the top mega banks, Wells Fargo (WFC) and JPMorgan Chase (JPM), for an illegal marketing services kickback scheme they participated in with Genuine Title, a now-defunct title company.
The CFPB and Maryland also took action against former Wells Fargo employee Todd Cohen and his wife, Elaine Oliphant Cohen, for their involvement.
According to the bureau, Genuine Title gave the banks’ loan officers cash, marketing materials and consumer information in exchange for business referrals.
As a result, Wells Fargo would be required to pay $24 million in civil penalties, JPMorgan would be required to pay $600,000 in civil penalties, along with $11.1 million in redress to consumers whose loans were involved in this scheme.
Additionally, Cohen and Oliphant Cohen will have to pay a $30,000 penalty.
“These banks allowed their loan officers to focus on their own illegal financial gain rather than on treating consumers fairly. Our action today to address these practices should serve as a warning for all those in the mortgage market,” said CFPB Director Richard Cordray.
“Homeowners were steered toward this title company, not because they were the best or most affordable, but because they were providing kickbacks to loan officers who referred consumers to them,” said Maryland Attorney General Brian Frosh. “This type of quid pro quo arrangement is illegal, and it’s unfair to other businesses that play by the rules.
Maryland woman sent to prison for stealing from open houses
In what should serve as a stark reminder to secure any valuables before conducting an open house, a Maryland woman is on her way to prison for one year after she visited open houses posing as a potential buyer and stole jewelry from the homes’ owners.
According to a report from ABC News, Sally Spaisman will spend the next year in jail and the next five years on probation after she was found guilty of stealing more than $82,000 worth of jewelry from approximately 12 homes in the Bethesda, Chevy Chase and Potomac areas of Maryland.
According to local authorities, Spaisman, 58, would search the internet for expensive homes that were on the market, show up at the open houses pretending to be a buyer and use her free reign of the house to steal expensive jewelry from the owners.
From the ABC News report:
Ramon Korionoff of the State’s Attorney’s Office says the case resonated widely because “anyone who has had to sell their home or property has a visceral reaction to this kind of crime.”
“Because you open up your home. You trust Realtors and prospective home buyers to honor your home and not steal anything from you,” Korionoff told ABC News today. “And that’s a violation of that trust. And I think a lot of people can relate to that situation.”
One victim told the local ABC affiliate that Spaisman stole three items from his $1.1 million home, including a gold bracelet he inherited from his parents.
“It was a piece that I meant to give to my daughter and now I’m not going to be able to,” Carlos Bonilla said. “When these things hit the resale market after a theft, they just get melted down for scrap.”
Another reason Obama might not want to talk about housing…Obamacare has an unusual tax provision that kicks in if the capital gains on a home sale exceed a certain amount. I think its $250K. Then you can be hit with 3.8% tax.
Thanks, I didn’t know that.
realtors didn’t oppose that one because it encourages people to turn over their real estate before their capital gains get that high.
The 3.8% tax kicks in if your married income exceeds $250k and your capital gains from selling the house exceed $500k. For single filers, it’s $200k income and $250k cap gains.
And that’s on MAGI, not Taxable Income. So you might think you’re safe because your household income is “only” $200K, but your large cap gain pushes your AGI over the threshold subjecting you to the Net Investment Income Tax.
Oh, good catch.. So you could be a janitor earning $30k per year that has owned a home in OC for 40 years and be considered “rich” as Obama defines it ($250k income), simply due to the capital gains.
I don’t see what is so difficult about my questions. Maybe you are not confident in your predictive abilities? Too afraid to be shown how wrong you are?
Weakest post-war wage growth.
Chart shows inflation adjusted wage growth 60 months from start of recession recovery:
http://pensionpartners.com/blog/wp-content/uploads/2015/01/wg7.jpg
That is a powerful chart. We might see some wage growth this year, but it won’t be the sort we are used to coming out of a recession.
I view that chart as a timeline for globalization. The post-recession wage growth has been trending down for decades. It’s not just a recent phenomenon.
Yes. But globalization seems to be seen as some kind of act of the evil corporations or powers that be.
After about 25 years of rebuilding, western Europe and Asia (mostly the losers of WWII), got to be competitive with the rest of the world around 1970. So, competition for profits and wages increased.
The communist bloc of nations basically added to the supply of labor between about 1985-1995 by a huge percentage. This was another competitor for profits and wages.
I think our “problems” are that the fabulous advantages we (USA and somewhat so western Europe), naturally eroded during this time frame. The economic performance we are seeing now is probably more the norm over history.
Home Sales in 2014 Down 3.1% from 2013
Existing home sales recovered after last month’s drastic tumble, increasing 2.4% to a seasonally adjusted annual rate of 5.04 million in December from 4.92 million last month, the National Association of Realtors’ newest housing report said.
From last year, December sales were higher by 3.5% and are now above year-over-year levels for the third straight month.
Lawrence Yun, NAR chief economist, explained that sales picked up at the end of 2014 despite a slow start to the year.
“Home sales improved over the summer once inventory increased, prices moderated and economic growth accelerated,” he said.
For the whole year, there were 4.93 million sales, a 3.1% decline from 2013 (5.09 million).
[As usual, Yun identified all the wrong reasons. The reasons he identified are half-truths that fit within the spin and bullshit he peddled all year. The truth is that sales improved at the end of 2014 because mortgage rates fell back below 4%, something he didn’t mention.]
There are a few reasons why Roth IRA doesn’t work for me, but one serious reason why Roth IRA holders should be concerned was illustrated in this State of the Union Address. Obama proposed changes to the rules for 529s, out of nowhere.
You might think the growth in your Roth IRA will be income tax free, but can you be sure? As sure as 529 holders are? Both of these items are utilized disproportionately by the upper middle class and higher.
If Roth IRAs lose their status, everyone who put away after tax money would be taxed twice, whereas people who used conventional IRAs only get taxed once. It would be a travesty.
Well, not technically. The proposal would be similar to Obama’s 529 proposed change.
e.g. You invest $10K of after-tax dollars every year for thirty years in a Roth IRA, you’ll have invested $300k total in after-tax dollars – your “basis.” If you earned an average of 10% annually for 30 years, your growth/gain is $830K+. It’s the gain in Roth IRAs I could see being subject to some sort of taxation, just like Obama’s proposing for the gain in 529s.
Social Security income is double taxed. You pay income tax on the FICA when it gets deducted from your paycheck, and then you pay income tax on the Social Security again when the government pays the money back to you. Most people don’t consider it a travesty because they don’t even think about it and just accept that they should pay taxes on their “income” from SSA benefits.
I still prefer the Roth because there’s no 10% penalty for withdrawing your contributions early. What if I have an emergency and need that money? What if I need capital for a non-traditional investment or to buy a bigger house or to fund college for my kids? I would much rather have the flexibility of the Roth.
I think the Roth is the best retirement and savings investment program the government ever came up with.
It’s a great option, especially if you have decades before retirement. It’s just too bad they put income limits on those eligible to save in a Roth IRA. There are backdoor ways to convert a traditional IRA into a Roth when your income exceeds the caps, requiring you to pay a lump sum of current taxes on the amount.
…unless you plan to retire to a state with no income tax. Then you’re just throwing your money away. 😉