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lucas
something we can agree on. this bill is arguably the worst thing that’s passed since the bankruptcy “reform” act.
broken down to its simplest form, this bill is an utter rejection of economic concepts and social and corporate stewardship. in short, the bill attempts to place a false floor on the pricing of homes (which will only exacerbate and prolong the housing downfall) while at the same time, bails out those that now need to take a punch on the chin.
Sorry fellas,
Have to disagree with you on this one. This bill will not affect speculators, nor will it affect most of those who refinanced to the point that they are irretrievably upside-down. The bailout simply allows for ARM’s to be frozen at the teaser rates for up to five years, for those who live in the home as their primary residence and are not more than 30-60 days behind. In other words, this is not going to help those who cannot even afford their current mortgages. Thus, it will only impact a couple of hundred thousand borrowers. I really don’t think that the fact that these people will be able to refinance out of their ARM’s and into stable, long term FHA loans is necessarily a bad thing — yes, Jcrimes, it will prolong the purging and cleansing that the market needs, but not to the point where it will jeopardize any meaningful recovery; the bill simply will impact too few borrowers to make a real difference either way. The true culprit to a necessary purge is the bad faith individuals who, for a song, are delaying foreclosure proceedings and enabling borrowers to live in homes for up to 9 months for free by filing motions demanding to see the original promissory note — truly disgusting.
LUCAS, Smart to oppose this expensive waste of taxpayer $$$$……more national debt = higher interest rates to service it & that means higher mortage rates which you guessed it leads to more downward pressure on housing prices and makes it harder to get deals funded…..Brilliant move DC!! Oh well, should help my Swiss Franc and Gold positions.
Lucas,
You sound really worked up over this bill. I don’t think I ever read such a scorching critique on anything on your blog. I can’t say that I’m fully on board with your assessment of the situation. For every one person that I know that was irresponsible with their mortgage, I know 3 people that truly didnt know what they were getting themselves into by getting ARMs. Sadly, many have already lost their homes and all their live savings that they used to put as a down payment. Sometimes in life we have to take the good with the bad, I have a fairly large tax burden – however, I will throw the fat cats a bone if it means that Mr. and Mrs. Jones down the street and Mr. and Mrs. Lopez get to keep their homes. Government is not just about numbers folks. It’s about safeguarding the morals and principals of those that it serves. That includes corporations. It’s a constant give and take, and simply because corporations are thought of as bad and evil, it doesnt mean they dont have the right to have members of congress advocating for their well-being. Ultimately, the citizen has the power to no elect the member of congress that they feel does not represent their interests. If the uniformed and apathetic electorate chooses not exercise their right to do so, then we cant blame corporations for doing what they were structured to do, i.e. turn a profit. All in all, if this bill can help 300,000 people keep their homes, and it helps 25,000 irresponsible borrowers – It’ll be a great bill. I’d rather that my tax dollars go toward buying my fellow American a pair of designer jeans here at home than buying bombs to blow up people aboard.
my 2 cents.
I have to agree with Lucas on this one… there might be a VERY small amount of people who trully didn’t know what they were getting into, but come on, a lot of people that got ARM’s were counting on selling their homes at a profit and knew that they were getting into a property that they really couldn’t afford.
To me, this is just another bailout of banks like WaMu and Wachovia to help them when their $120 Billion ARM loans reset in 2009-2010!
If you made a stupid investment decision, you should pay for it. That’s free markets at its best.
I think that Hugo P hit the nail on the head when he said that “this is just another bailout of banks…” This is definitely the case and unfortunately its a necessary evil to support and maintain these banks where we all hold our money and which we intrinsically believe cannot fail. The reality is that the cost of systematic bank failure would really reach into the trillions of dollars and this probably will only cost 100 billion.
J Crimes wrote : “… in short, the bill attempts to place a false floor on the pricing of homes…”
I too wonder about the logic of this bill… who’s really behind this bill. As long as families and children have a roof over their heads, who really cares how much a home costs… the prices are falling simply because they should, and if more people can afford a roof over their heads, then doesn’t that work for AMERICA? Why prop up higher housing prices? For who?
The people who’ve lost their homes will rent probably cheaper than owning. The prices will rise again, they always do… The rich folks will continue to buy at Apogee, the middle folks will have buying opportunities, the investors will come back to the table, and the poor will be able to afford a decent home… all this without spending $100B.
Let the market flow. I guess we only love capitalism/free markets when people are getting rich… as soon as people lose, then we become a socialist nation. I say spend the $100B on emulating Brazil’s energy dependence.
The government “had” to something. They could not just sit there and watch this train wreck. Looking at the details, only a few people will qualify for this program. I am sure many investors will be helped by this, but so will people who really need help.
This bill will help blunt the force of the foreclosures. It will not change the state of the housing market in any significant way.
This bill represents everything that is wrong with this country. Why should the country take on more debt (already ~ $10 TRILLION) to bail out people who made a bad investment? Where is my money from the federal government (taxpayers) when I lodt money investing in some stocks? This bill’s main aim is to lubricate the wheels a bit for the system and delay th e inevitable. Why should congress give more power to the Fed and the Treasury when they aren’t elected and they set up the table for this mess.
Yes the politicians had to ‘do something,’ They are up for re-election in a few months and they know that when times get tough they must appear to ‘do something’ so people wont pick up their pitchforks and torches. They want to seem like they are helping the problem, but they are delaying the inevitable. By borrowing more money and putting the nation in more debt there will be a run on the dollar soon. The dollar will lose its reserve status and then tough times will really happen.
The sad thing about this 600 page bill? The IRS now will collect data from every single credit card transaction and paypal transaction. Smooth how they added this into the bill. If you thought we are losing privacy, this is the nail in the coffin. What better way to pay for a bailout than make sure everyone is taxed to their eyeballs with nowhere to hide? I am sorry but this is no free market democracy. The USA is fast becoming a fascist state and Obama will surely make FDR’s New Deal look like peanuts.
If there is one person in Congress who probably read more than the front page of the bill it is Ron Paul. He explains what the bill is all about in plain english.
http://youtube.com/watch?v=Wy6SlUpbnIU
Our government and press are waaaaay toooo concerned about the people who are in over their heads in this housing downturn. Anybody who purchased from say 2004 and on are in trouble. Compare that number with the number of people like myself (responsible people who did not buy into the bubble), and I bet you will see more than enough pent up demand to offset the foreclosures. Granted the price we will pay considering the risk is in the neighborhood of 2001-2002 prices, but that is the way capital markets work. This pent up demand will put a floor on the total loss the banks will incur-if the government would just allow it to happen. All this bill will do is avoid the additional 10-15% loss the banks would have incurred had the government stayed out. the bill was written essential by bank of america after all.
if banks and govt were really interested in turning this train wreck around, they would be aggressive in selling their foreclosures and short sales. get it off the books today and at whatever price is needed, instead of stall tactics and incompetence. the sooner you create activity in the market, the sooner the prices will stabilize or increase. right now its bleeding to death by a million paper cuts!
The housing bill means that, while profits from the great housing ponzi scheme were privatized — going to aggressive “flippers” and fund managers — the losses shall be socialized. Seems kinda unfair.
Keep in mind the $300B is in the form of FHA mortgage guarantees for refinancing into fixed rate loans. Lenders would have to write down principle to 85% of the current appraised value, and the borrower would have to pay FHA a 1.5% annual fee on the unpaid balance. The homeowner would also have to pay the government a portion of any appreciation. As long as the appraisals are reasonable, the government should not lose too much. And the Feds might actually make a profit.
I remember having a dinner meeting about 3 years ago with a very successful mortgage broker. She told me that most of the loans that she made at the time were negative amortization loans. She would explain to her clients the various loan products that were available as well as the pros and cons for each of them. She told me that most of her clients would select the negative amortization loan because it had the lowest monthly payment and that her clients were betting on the continued appreciation in real estate.
There may be some cases where buyers were duped into selecting ARM products but I just don’t think that there were that many uneducated buyers that were unaware of the consequences to warrant a bailout of this magnitude.
To me, it’s like going to Vegas, losing all of your money at the craps table and then the casino giving you a wake-up call in the morning to let you know that they’ll help you out in your troubled times. Meanwhile, the people who were perusing the town the night before, and not gambling, are the ones who will help pay the bill.
When I was in high school, it seemed like there might be a chance to perhaps eliminate the federal deficit over time. Now, I just don’t think that chance will ever come. The governmental budget cuts that we would need to make in order to pay just the interest on our outstanding loans is unimaginable. I still don’t understand why U.S. Notes and Bonds hold as much creditworthiness as they do. Is it because everyone knows that we’ll just borrow more money to pay the expired debt?
Frustrated American,
Thank you for the Ron Paul video. I added the video to the bottom of my post. I’m an advocate of Ron Paul. I feel that he best represents the opinions of the American public. I just wish he were still a presidential candidate.
From the CNN link “The Congressional Budget Office on Tuesday estimated the potential cost of a rescue could be $25 billion. CBO said there is probably a better than 50% chance that Treasury would not need to step in. It also said there is a 5% chance that Freddie’s and Fannie’s losses could cost the government $100 billion. ”
If the CBO (Congressional Budget Office) is pegging a 5% chance on an ultimate 100 Billion Freddie/Fannie cost, I’ll officially put the Over/Under at 200 billion and take the Over.
600 pages of legal mumble jumble and congress says that looks good to me. The Iraq war is 40 times the government estimate–lets hope this estimate is closer to being correct.
This won’t help the failed Miami flippers as most do not live in their condos. Miami RE has a way to fall. This will take years.
This post surprised me, and in a good way. You truly do have a head on your shoulders.
Wish I would have had you as my agent when I bought my property.
One good element of the bill is that the conforming limit will be raised to $625,K enabling those buyers of homes in the $500K to high $700Ks to obtain more affordable loans.
Note: I am not weighing in on the whole bill but on one positive aspect.
Lucas
While I agree with your overall point in some ways the bigger problem is the build up to what caused these political taxpayer paid bailouts.
Lets face it, the only winners in the rampant home price inflation & subprime mortgage issuance of the lastr 5 years are realtors & mortgage brokers. Two groups that certainly could see the idiotic financial overextension that many buyers happily succumbed to. These groups are not responsible for the mortgage calamity but I have to think crying foul now is a little redundant especially since if all goes according to plan these two groups will be helped again by this bailout.
I’d rather have the bailout money get put in a fund to go after the criminals (mortgage brokers/appraisers/”investors”) who broke the law and seize their assets.
There’s quite a few people walking freely around the streets right now that are knee deep in recent RE mortgage fraud activity.
The only good that can come out of this is to fully prosecute and chase down the criminals to set an example for the future.
You don’t set an example by letting 95% of the criminals go free and by propping up a few overextended homeowners nationally.
What’s ironic about this push to prop up housing is that it just keeps housing out of the affordable range for many people so what’s so bad about letting the market crash housing back to the affordable range as a matter of public policy?
Want to see the urban core of Miami revitalized and bustling with life? Let the Condo prices come down to a historical trend and you’ll see a real urban core develop. No Performing Arts center or Bridge or Tunnel or Mall or Park or Baseball Stadium will do it.
Free. Market. Economy?
Don’t worry people. This bailout will delay, but not prevent the inevitable reversion to mean. Just wait until interest rates hit 9%. That is going to DESTROY resale values.
Just met someone who is stressed about house they need to sell because of divorce. Bought it in 2005 for $650K with $40K down and with a conforming non-jumbo loan with a second loan to cover the difference. Well, the current list price is $400K and they are working with a lawyer to do a short sale. Meanwhile both ex-spouses are living in expensive rentals ($3K+ per month each). They think they can do a short sale and let the bank hold the loss??? What?!?!? These two people are each living a high lifestyle driving $50K+ cars! Won’t the banks go after them for the rest of the loan loss???? It isn’t like these two are bankrupt since they both have good paying jobs and simply didn’t pay down the mortgage since they were living very large! I sure hope banks, etc. go after them for the shortage since they can pay it back. If the banks forgive the loan I will be sick. Why bother being a good responsible citizen when your stocks suffer as these people try to stiff the bank for $200K. Anyone know how banks are handling this stuff???
JL
Don’t get me started.. The FBI tracked 18 cases of fraud starting in September 2006 in one building alone. I don’t mean after the fact, some of those deals were in contract and could have been stopped. Instead of stepping in to prevent the activity they allowed it to build their cases. Buyers walked away with $200,000 plus in their pockets at each of those closings. Lenders like Countrywide, IndyMac and WaMu were also sent notices of the activity and still they allowed it.
Consumers were greedy and wanted to live large even if it meant beyond their means, that’s the American dream. The FBI and other government agencies should have taken action when they knew there was a problem (at least two years ago). Local and State government agencies also knew what was going on but kept their heads up their asses. They should be held accountable.
There are four “short sale” units at Waverly right now all by he same owner. The owners bought all over $600K and now wants the banks to suffer the loss for their bad investment decision. All units are listed with the same Agent who by the way asked our client to pay a $700 fee (non-refundable) for the Seller’s Attorney to negotiate any offers.
Like Renter Tom I too will be sick if these units are sold as short sale with the lenders absorbing the loss.
Yesterday I was expressing my frustration with a friend, mostly about the state of Florida allowing over 10,000 felons to obtain a Mortgage Brokers license. He reminded me that Florida is the bottom of the barrel where all the scum settles along side of the good folks.
Mr Waverly,
I too have heard of 3-4 units at Vue at Brickell that are now short-sales that are owned by the same owner. It’s insane!
Some of the advocates of this housing bailout who left comments earlier are saying that the bailout is not directly assisting speculators. However, it is doing so indirectly. The bailout is assisting Fannie Mae and Freddie Mac, two large entities that would not be experiencing so much hardship if there wasn’t so much mortgage fraud and speculation going on in the industry a few years ago.
I think the government should have allowed the real estate market to resolve matters on its own. It may have taken some time but I think our economy is going to be worse off in the long run for them not doing so. We just keep passing the bill to the next generation of Americans. As a result, our U.S. Dollar continues to lose value.
So has Hernan Gould of Fortune Interntional..
Just my opionion from the shady contracts I witnessed.
Just a Dude – Hey, feel free to donate your money to help these people out that got in over their heads. Geesh. Just keep your mitts off my hard earned money. Why the heck should renters pay for homeowners??? (although I do actually own a home in another state, I am just renting in FL until the prices shake out). Seriously, if you took on too much debt, that is just too darn bad for you. It isn’t like the interest rates are 25% or something. You can drag out the pity cases all you want, but the fact is there are ALWAYS pity cases out there no matter what the housing prices are doing. I remember just reading an article about some lady who committed suicide over her debt obligations, obviously she must have had a few issues going on in her life (probably mental, compulsive spending, etc.) but the article made it seem as if the mortgage was the cause of the suicide but then you learn the lady had tons of other debt too. What, are we going to start bailing out people’s credit card payments too??? Heck, I bet credit card debt actually results in far more suicides then home mortgages. Seriously, the has to be negative consequences for the people that made absolutely dumb decisions (when 30 fixed rate was 5.5% why the heck would anyone in their right mind go for a variable rate?).
The ONLY help that seems reasonable is getting people to convert their loans into a fixed rate mortgage now. Do NOT negotiate the purchase price (the mortgage amount), just facilitate getting into a fixed rate mortgage instead (as if there isn’t already enough incentive to do so).
Just end all the damn federal government programs and tax deductions and tax credits and go for a flat tax and let the states run their own stuff how they see fit. You can’t just keep taxing the hard working and honest Americans to pay for a bunch of dumbasses and deadbeats.
Renter Tom,
You are correct in saying why should we pay for those who made bad decisions. I have a three part plan..
1. for those who qualify with current income, all resets shall remain the same, with a min of 5.5%.
2. for those who do not qualify with current income, reset to 35, 40 or 45 years. Stretch it out to lower the monthly payment.
3. for all others, they should lose their homes NOW. The banks should then have sixty days to sell off that loss.
Homeowners, Lenders, Government and Consumers would benefit from this plan.
Who cares about short sales. Those are actually good because they force the comps DOWN DOWN DOWN. Then more and more speculators dump their 2-3 properties/building, further forcing down prices. Lucas is out of his mind if he thinks that “prices will trend sideways”. There were 40% more units built than people in Miami-Dade to occupy them. Population is actually shrinking in fact. Check out the county tax records and you will see in nearly every building most people own 2 or more units. What do you think they will do once the comps are 150K below their entry price? Dumping dumping dumping. Short sales are great.
well, since there’s been 8 years of horrible management of this country’s affairs (if you can even call it “management” …), this is just another temporary patching of a huge problem that is not being properly dealt with – which means further down the road, we will all pay for it in a far bigger way. just like these dumb checks that have been sent out (again, another temporary patch). they just refuse to DEAL with the problems because that may require some actual sacrifice! we’ve become the world’s laughing stock.
bottom line is you just canNOT thrive until oil is sub-100 (yet, another issue they just refuse to deal w/head on).
even their patches don’t work – THIS is the most ridiculous part of their so-called plans! this gigantic cluster**** is being left for the next guy who will have to make the tough decisions to repair 8 years of neglect … and he will probably be villified for it.
just once i’d like to hear bernanke, paulson, bush use the term socialism … just once. i just hope people in the country aren’t stupid enough to buy into more of the same crap from these inept clowns – sadly, these are the same sheep who’ve voted bush in for a second term. this country could’ve taken leaps and bounds in the past 8 years but very sadly, it’s been a TOTAL waste of 8 years … 8 years just gone POOF!
8 years? You mean 28 years of mismanagement….but this can present great opportunities for savers. Mortgages are linked to 10 and 30 year treasuries. The world is already demanding higher rates for our debt …. Eventually the rates will skyrocket. What do you think this does to condo prices ? 9%….12%….15% interest will CRUSH prices….save your money in Swiss francs or gold and pick up some firesale condos in a few years.
no. i meant exactly 8 years.
and take a good look at the 10yr treasure and overlay it on where the 30yr mortgage rates have been and you’ll see the correlation is gone.
Renter Tom and Mr. Waverly,
I totally agree with you guys! Everybody should have the honor of sinking or swimming on their own, ESPECIALLY on VOLUNTARY PURCHASES of anything, including housing!
Bush should have NOT caved in on this. God help us if we wind up with four years of Obama’s socialist “nanny state”. You only THINK things are terrible now!
un-related,
SOMEONE has to clean up all this mess…so spare us the anti-obama nonsense. we’re ALREADY a ‘nanny state’ – consider a country that is bailing out it’s corporations with tax payer money AND sending out checks to it’s citizens … what would you call that?
and yes, things WILL get tougher because someone has to fix all this mess and those decisions are not popular but in the long run, it’s the best thing that could happen for this country.
i’d rather have someone run the country that has it’s citizens in it’s best interest. take a long hard look at what’s been done in the past 8 years…and stop thinking there’s an easy way out – don’t villify someone who has to step in and fix this massive mess…and again, yes, there WILL be some pain involved but at least things will start to get repaired for the long run. not ONE single thing has gone right for the past 8 years – no ONE.
so if you think obama will cause a socialist state, maybe you should be more cognizant of EXACTLY what is going on in front of you right now!
cyrus
i think you’re being a little biased here throwing this whole mess at the feet of the current administration. the housing bubble is a function in part of greenspan’s low rates and the overabundance of leverage. in effect, greenspan moved us from the tech bubble to the housing bubble.
as for the current housing bill, it’s a bipartisan effort that in large part emanated from congress, not the executive branch. the sole stinkbomb is the fannie/freddie aspect, which is paulson’s brainchild. as much as i hate the housing bill, i’ll give paulson a little respect based on his goldman days. the guy has a plan and will execute it. my problem is that fannie/freddie shouldn’t be allowed to function the way they wanted for all these years (something that the bush admin was trying to crack down on but the democrats refused…yet i digress).
the real issue facing the country is what should be done about it? do you allow market forces to act, unimpeded, no matter how hard it might be on people in the short term, or do you take a bunch of painkillers and try to mask the pain?
jcrimes,
i do agree with that – but one thing to remember is that greenspan is one part of it (a large part, albeit, one part). and many tend to forget that while lately (past 2 years) it has been bipartisan…but the residue we are dealing with are not the result of the past year and a half – it’s the residue of FULL control of a republican congress under bush. the congress right now is not responsible for what’s going on … partially yes, because they are not allowing anymore horrible policies to go through (w/the exception of passing around checks)…
and you’re right – what can we do right now to resolve these gigantic problems that are the result of horrible policies? i am not totally against helping those in need…what angers me is when some people, ignorantly, want to blame the next guy because he’s a democrat w/o realizing that it’s the guy presently in office that’s socializing losses (yet, some think that it’s the democrat who would do this…maybe they don’t link socialism w/receiving checks in the mail). it’s absurd.
Note, I like Ron Paul but he, most of the mainstream financial press , and the comments in this forum are wrong about fiscal policy and government deficits.
1) Government deficits are needed in order to support private sector consumption.
2) The government doesn’t face any insolvency risk because it can and does print money and can do so ad-infinitum.
3) The government does not tax and then spend. It spends and then taxes. It doesn’t need
taxes to fund itself. This includes entitlement programs like social security and medical care.
4) The only issue with running large pro-active deficits -which we should do- is overstimulating the economy which can lead to inflation.
Ron Paul and the mainstream are stuck in a gold
standard economic model which is not applicable today. In a gold standard model there is a cost to running deficits because you have to acquire the gold.
I agree that the only “fix” that should be offered is (1) an easier way to convert to a fixed rate mortgage (as if there isn’t already enough incentive, unless of course you can do a short sale with no consequences to personally) and (2) extend the payment terms to 40-50 years instead of 30.
Stocks, just like housing, are subject to supply and demand regardless of its perceived “actual value”. If Obama gets elected we will see the stock market continue to dive (both as the election approaches and right afterward) for one simple reason that he has promised to raise capital gains taxes significantly — so many people will want to cash out this year. So, not only will we have people holding declining price homes but then their stock holdings will also decline and we will get pulled into a very very serious recession. Then the government will need to spend money and run up the federal deficits, which will cause the US dollar to decline more, etc. the negative feedback loop could cause a depression. I am totally serious here and am not trying to be partisan. There are other issues that cause me to believe an Obama presidency could cause a severe economic downturn…needless to say he simply doesn’t have the experience leading anything nor has he even done anything in Senate these last 2 years. At least W was a 2 term governor with a track record. Anyway, this blog isn’t a political blog and I’m sure there are plenty of Obama supporters out there but I just wanted to point out the obvious regarding capital gains tax increases will cause stock prices to go down (and in the long term since taxes take out a bigger slice they are worth less to any investor anyway). So, we have historic declines in your home asset and soon historic declines in your stock assets with your cash getting weaker everyday…..maybe gold/metals isn’t such a bad idea!
I do agree that more affordable homes for people waiting to buy is a good thing, but allowing the owners to stiff the banks/etc. is very bad.
bubbleRefuge – “In a gold standard model there is a cost to running deficits because you have to acquire the gold.” You did not just write that implying that there is no “cost” to printing more money cause the value of all the existing currency to decline. There is no free lunch. You either buy the gold or you devalue your currency… While I do not advocate going back to the gold standard, I do advocate a balanced federal budget taking into account economic cycles. The other problem with your thinking is that the government isn’t reducing its outstanding deficits which is a cause for concern.
bubble refuge,
the gold standard SHOULD return because with the fed running the show, you are looking at a few people in charge of your money supply – which is why dollar is where it is. with these clowns controlling your money supply, while trying to bail out every institution that took horrendous risks … guess where your dollar is. try to find one civilization in history that has been able to devalue it’s currency into prosperity. IF this is how they’re going to run things, then the stability that the gold standard would provide is welcomed! again, not sure why you think that large deficits are necessary – would you like to clear that up also?
also, would anyone like to look back and see what higher taxes across the board, much higher interest rates and capital gains taxes from 1996-2000 accomplish? where was the stock market then? bottom line is PROPER management of what’s coming in and out. you could increase revenue by 100 fold…but if you pee 200 fold away, what’s the difference?
there is a proper set for rates also…too low (as you see now) is TERRIBLE (see: japan)…and too high (above 9%) also tells you there are inherent problems. rates HAVE to be higher…will also reverse the borrowing mentality and improve the mentality to save. this way spending comes from a position of strength (out of surplus savings) and not from weakness (indebted borrowing).
that’s my 2 cents for a while…
AJ,
Where are you ?
I miss your posts.
guys
you can move people into a fixed mortgage all you want, or for that matter, give them a payment plan they can afford to keep the house…but the simple fact remains. if the house is worth less than the outstanding debt owed, regardless of the fact that people can afford to live in that home, there is a strong likelihood that they will turn in the keys and walk.
that’s why this whole bill is a gimmick. you need to let value go back to fundamentals.
Bubble refuge, you are very observant. The govt can’t keep doing this unless it wants some sweet sweet hyperinflation. They just might do such a thing….in that case we’ll be buying condos for $1 billion/sq foot….
In other news Case Shiller is out and Miami is down 28.3% yoy. We are in a death match with Vegas which is down 28.4% yoy. 2000 prices and lower, here we come!
No! We should not go onto a gold standard. The government would go bankrupt ( default on gold obligations) as it did in 1934. We would have deflationary recessions and possibly depressions.
A balanced budget makes no sense in our
floating non-convertible currency regime.
It is not an unbalanced budget that necessarily causes inflation. Today we have commodity based inflation due to Saudi Arabia and possibly
Russia hiking oil prices and acting as monopolistic producers and with enough worldwide oil demand to allow them to do so. Our fiscal balance has little to do with this.
Remember Japan has run fiscal deficits twice our size with no inflation; in fact they had been suffering from deflation.
What has caused the dollar to drop is the fact that foreigners ( china,korea,japan,Saudi arabia) are no longer saving dollars to the extent that they were. They are in aggregate dumping those dollars ( whereas before they were accumulating them) and its putting downward pressure on the dollar. Many of those dollars are being spent on US goods and services ( notice how us exports are ripping) which is inflationary and bad for us. Why are they dumping ( or not saving) US dollars. Henry Paulson was calling china “currency manipulators”. Bushes unpopular foreign policy maybe a factor. Lets face it, the Bush administration has had a week dollar policy.
They want exports to prop up GDP. We need to to increase our fiscal balance , the supply of oil ,
and create viable alternatives to gasoline such as pluggable hybrids powered by nuclear plants as we have here in Florida.
See Bankrate article below….looks like this will be just another negative factor to consider when buying a second home in Florida….one negative factor among many and yet another headwind that the Miami housing market faces….it just can’t get a break can it? It just makes it less attractive and people will be less enthusiastic about buying a second home which is one thing that helped drive this housing bubble. Pop!
————————
Second-home sellers take hit
Second-home sellers take a tax hit
You’ve probably already read Bankrate’s top story today, “What does the housing bill mean for you?” In it, my colleague Holden Lewis does a very nice job of explaining some of the key provisions in the American Housing Rescue and Foreclosure Prevention Act, which should be law any time now.
The beauty of most federal legislation, and this housing bill in particular, is that there are always plenty of provisions to go around. So I’m going to look at yet another housing-related tax section in the bill.
Unfortunately for me, while Holden talked about some of the new law’s tax breaks, I’m looking at a change that’s going to cost some folks.
Yep, the sad fact of tax breaks is that they have to be paid for somehow. And part of the new housing law’s $15.1 billion price tag is being charged to homeowners who at some point rented their house or used it as a second residence.
Under law that’s in effect until Dubya signs the housing bill, homeowners can exclude from taxation profits on the sale of their home to the tune of up to $250,000 if they’re single taxpayers, $500,000 if married filing joint returns.
This great tax break has one main requirement. You must own and live in the property as your main residence for two of the five years before you sell it.
A lot of property owners took advantage of that to convert a vacation home or rental house to a primary residence. They just moved into the place, lived there for a couple of years, sold and pocketed the tax-free profit.
Now, however, when they sell such homes on or after Jan. 1, 2009, they will have to factor out those periods and pay taxes on that portion of the profit.
Here’s an example:
Jim and Joan are in their 50s and next January buy a vacation home for $200,000. Ten years later, they retire, sell their old principal residence and make the vacation home their new principal residence. Fifteen years after that, Jim and Joan, now in their 80s, move to an assisted-living community and sell the vacation-turned-primary-residence for $700,000. That nets them a gain of $500,000.
Under pre-housing bill statute, Jim and Joan wouldn’t face any tax on the entire $500,000 gain.
The new law, however, means that Jim and Joan can exclude only 15/25, or 60 percent, of the gain. That would give them $300,000 of nontaxable property sale profit and $200,000 upon which they would owe long-term gain taxes.
“These possibilities may complicate planning for people looking at a second home,” says Mark Luscombe, principal tax analyst for CCH, a Wolters Kluwer business. “It may also have the effect of depressing the market for vacation property, something that legislators may not have intended.”
And some folks who are in the process of converting a second home to their main residence right now could be out of luck. If they don’t have enough time left in 2008 to meet the two year lived-in rule and dispose of the property, then when they do sell next year, they’ll pay.
Great to see all of the comments on this blog-it goes to show the readers here are diverse but still quite educated on our world of real estate and finance.
If mortgage interest rates begin to climb higher-say to near 8% by year end, how quickly will that impact the price declines. i still see too many condos priced beyond $300k, and at 8% the payments are still way to high for even a $75k/year income. How quickly will REO drop their prices?
Renter Tom, i disagree to an extent with your arguement regarding capital gains taxes impacting the market. This will only occur if you have someplace to put your money into which can offset any taxes on profit-ie you need to find another profitable investment vehicle. Pulling money out because of a declining future market is different from doing so because of increase taxes on profits and should not be confused. the market will most likely decline, but due to deteriorating fundamentals, not the capital gains tax hike. if have yet to meet a rich person who would walk away from a profit making venture just because the tax rate increased slightly-its still a profit and not a loss!
gables – While I respect your posts, I have to disagree. Markets are made AT THE MARGIN. Right now there are enough people at the margin that will cash in for the lower cap gains rate…if they were going to cash in within the next 24-48 months anyway, they may just consider doing it before year end. Having 24-48 months worth of these people cashing out in a 4 month period will have a larger then expected impact on stock prices which will further erode confidence, investment, and could instill some panic. It is the people at the margin that make markets and we’re going to see them do it in a very negative way should the capital gains tax increase look likely. The people that aren’t concerned about the next few years will also be affected as they see their monthly statements show less wealth….this really could tip us into a very serious recession. We are already seeing the people exit the market ahead of the curve here….there is a certain investment flight that Obama’s proposals are causing, I know several people who are making the adjustments now rather than later.
Bennigans and Mervyns are out of business. This recession is going to destroy the service sector. This has been the growth area since Reagan, Bush, Clinton, Bush gutted our manufacturing….this recession is going to be a DOOZY.
BubbleRefuge,
A large portion of the commodity price inflation we have seen in the past few months is a function of the weakening dollar.
A simplification: Assume €1 = $1 (or fantasize, perhaps), if Mr. Shiek can sell his barrel of oil for $100 today or €100 …great. As the dollar gets weaker against the Euro– let’s say €1=$1.10, Mr. Shiek has to sell that same barrel for $110 to get those same €100.
Same logic applies to Ma and Pa farmer who can sell their corn to a global market.
The situation was exacerbated as the U.S. markets took a dump in the beginning of the year…that money had to go somewhere…and when the possibilty that your cash may lose value seems more like a likelihood, commodities start to look like a good hedge…and the specultors follow (or lead)…and there’s your commodities bubble in a nutshell…
One man’s opinion, but your commodity based inflation is actually just another symptom of the underlying cause– a weak currency.
So, your commodities
If you look at 2008 I believe the US dollar index is slightly up to flat while crude oil is up about 50%.
Saudi Arabia is setting prices. They are the only producers with significant excess supply thus giving them monopolistic powers. Monopolies raise prices. That’s why they are illegal.
SO lets have a poll, what is your entry price on a $/sq foot basis?
I will start: $150-175 for new construction (non-high end).
I dont know why you guys are so worried about the national debt, you know that in a few years the U.S. will screw over China someway and tell them that our debt to them must be forgiven. And in the end they will do it and our national debt will decrease by a wholeeeeeeee lot. I mean come on, this is the U.S. we have screwed over every country, I dont see why this will end any differently. so back to Real Estate…….I think the bail out plan is a complete waste of time and is just prolonging the inevitable as others on this blog have said.
The US will default on the debt because it is unpayable. It is too big, but say bye bye to Bretton Woods II after that. That means living within our means, producing as much as we consume and reasonably priced condos. So, what is your entry point?
Well, if can start drilling in areas where we know there is a ton of oil, the US can sell oil to China…..we need to drill drill drill now that oil has gone up. The US has tremendous natural resources to trade for all those Chia Pets….
Hi Visionary,
I am just miffed that Lucas gave a higher rating to the motel by the highway (Blue) than The 1800 Club. So I am protesting with silence, LOL. Just kidding, I came back from LA after a long trip and taking stock of the situation before I get back on the blogosphere.
It’s funny how people bitch and moan about gas and food prices going up, but nobody was complaining when home prices were going through the roof. They cheer when the price of a gallon of gas goes down 20 cents, but they panic like its the end of the world when the cost of housing goes down.
It’s pretty illogical, if you think about it. Home ownership makes up a greater portion of living expenses than food and gas. So, why be unhappy about a huge part of your expenses going down? It only makes sense to cheer for higher home prices if your goal is ultimately to unload your “investment” to the next greater fool for a profit. Well, we finally ran out of those “greater fools”, so now housing will actually have to go back to being a place to live instead of a get-rich-quick Ponzi scheme.
As far as I’m concerned, it’s a good thing.
All this legislation is being driven by banking lobbyists – and banks are the only ones will will benefit at all from this. The impact on the market will be very minor.
Many of these banks deserve to fail. Trying to keep zombie banks going will only prolong the inevitable. Japan tried similar things to what the US is doing now to prop-up the banking system. What was the result? A decade-long recession, and home prices went down for 14 years.
Better to get it all over with quickly than prolong it like Japan did. Unfortunately, it looks like our government is choosing Japan’s path.
Meanwhile, home prices, in real terms, will continue to reset to levels supported by fundamentals. Unfortunately, the fundamentals are also deteriorating as well (worldwide credit crunch and recession setting in, unemployment climbing), so the bottom in this market may be much lower than anyone can predict at this point.
Bottom line is, it’s out of the government’s hands at this point. None of these types of government solutions have worked in the past, and they won’t work this time, either.
Yes, the taxpayer will get screwed to help bail out these greedy banks. But none of the current or future legislation will have its intended effect (just like every government-sponsored idea).
Add Steak and Ale to the filled for bankrupt today along with Bennigan’s.
People are out of work and were told “not to come back cause they didnt have enough money to pay them for the week.”
More job losses….bad market, still overpriceced housing we’ll see that $125 – 200 price range soon for new buildings.
Hi Renter Tom,
Regarding your post no. 47, I read the entire 2 page story in the bankrate. I did not find any mention of the 250/500K primary home profit exemption. Can you tell me where you saw it or post the entire article? It is of a major concern for me as I am in that situation.
Secondly, Is the law taking effect as of 1st Jan 2009 or as soon as W signs it?
«I know 3 people that truly didnt know what they were getting themselves into by getting ARMs»
Wow.
Should people with such a limited skill set are probably better off renting for life.
bennigan’s is going bust? oh man, the monte cristo was one of my favorite sandwiches back in the day
bubble refuge,
you said: “Today we have commodity based inflation due to Saudi Arabia and possibly
Russia hiking oil prices and acting as monopolistic producers and with enough worldwide oil demand to allow them to do so. Our fiscal balance has little to do with this. ”
respectfully, you are way off on this assessment. when our dollar is devalued as much as ours has been, it’s forced EVERY dollar denominated commodity to shoot up as it becomes much cheaper for any country that is not pegged to the US dollar. many of these countries HAVE to buy these commodities either for accumulation purposes or hedging purposes (ie, foreign airlines, trucking/shipping buying crude to protect their businesses). and let’s not get into yet another moronic idea, corn ethanol (which costs more than crude oil by the way). THIS is why we have massive inflation…it’s base root is the federal reserve’s ridiculous monetary supply policies.
what you’re also missing out on your comment regarding crude oil up 50%…is that it was up almost 100%. take a good look at what’s happened in the past 3 weeks…as the dollar has shot up, commodities across the board have dumped. this is no coincidence.
if you think that OPEC/arabs are controlling prices…to a degree you are correct…but look at 1998. we he a super strong dollar based on a solid, broad based economy in our country. when the euro was introduced, it was at 88c to the dollar. imagine this … our horrendous policies in ALL facets for the past 8 years has sent it to a 160 to 100 (at it’s recent high). guess where oil was in 1998? it hit a tad under $10/barrel…you think arabs didn’t want higher prices then? why didn’t they control it then? crude oil is a free market.
while there certainly has been more demand for oil, it’s no coincidence that it was priced in the low $20’s right when we attacked iraq (and yet another collosal F’up)…as of 2 weeks ago, it was $147 – we all know that worldwide demand has NOT increased more than 7 fold in 6 years !!!
it’s ALL based on where the dollar is if you’re going to at proper pricing of dollar denominated commodities! moving the dollar around, will move these prices around accordingly.
[…] borrowers and suddenly thought… boring next please! Read about it here on CNN and here on MiamiCondoInvestments blog. In the meantime, we’ll look at recent ratings on South Beach real estate noted by […]
….also read my note from early this morning, pre-market open. i stated we need a sub 100 oil for this economy to improve from ANY standpoint (this is regardless of taxes, rates, etc).
…again, oil dropped nicely today – dollar was very strong, dow up 266. these mkt statistics should explain something …
in a nutshell, strengthen the dollar, and everything else will fall into place for us. add to the mix that the euro is probably the most overvalued currency on earth … which means there could be a tremendous move in the dollar and a possible large counter trend move in the mkts, staging a slow reparation of the economy … i still think it will be a very slow process, if this happens.
First, I don’t think it is accurate to call a country a monopoly for producing ~ 11% of the daily oil supply. Global demand is around 85 million barrels a day and Saudi Arabia produces roughly 9 or 10 million daily. Definitely influential, but by no means a monopoly.
Second, lets assume that if as of today there would be a complete freeze on the amount of dollars (actually Federal Reserve notes) in circulation and this number would stay the same until the end of time. Would overall prices go up (price inflation)? No. Some assets, commodities, or services may go up in price based on supply and demand, but overall price inflation would remain the same because there is the same amount of money in circulation. So oil could go up to $300 which might make UPS charge more for packages and such, but that means there is now less money to chase other goods. So these other things will drop in price because more people will spend a greater amount of the money supply buying oil and there is now a smaller pool of dollars chasing the remaining goods. If I, as a consumer, have to pay more money on gas or transportation then I will have less money to spend on other stuff, thereby limiting the demand of other stuff (and potentially on a small scale the price). It is a zero sum game in a closed example such as this. As one slice of the pie grows, another slice becomes smaller.
But now lets assume that there is no rule about the amount of dollars in circulation and it can increase by any amount. If there is now 15% more dollars in circulation this year than last year, there will be more dollars chasing these goods. So now oil may be $300 a barrel and there is still 15% more dollars around to buy other goods, so the other goods do not necessarily go down in price. The pie just grew larger by 15% and overall prices should go up 15%.
People often think of inflation in terms of prices, when it is best to think of it as money dilution. It is no wonder the government no longer release M3 statistics, it would be humiliating. We haven’t felt the effects of inflation in the past few years because we have gotten a lot of our goods from cheaper places. With China and everywhere else producing what we used to produce but for a fraction of the price, many product prices stayed flat or even decreased because they were much cheaper to produce. So China and other places are holding a lot of the excess dollars in their bank. This masked the total debasement of the dollar in the past few years. But we are by far not the only country to be suffering the effects of inflation, just about every country in the world is feeling it.
AJ – Re: #60, the answer was in post #47??? So not sure what you are asking, just reread #47…
What?
Just to make sure I understand the position of this post.
1) Bailing out Main Street is a bad idea
2) Bailing out Wall Street is a good idea (Bear Stearns)
People really need to take economics and truly understand the micro and macro effects.
This administration has been a disaster, but, they actually recognize that this is the worst crises we have seen since the depression. When both sides of the aisle move and agree to take swift and decisive action one should take notice.
I like everyone else do not like or think it would be fair for taxpayer’s to pay for someone elses losses with no invested gain. However part of reason for the backstop of the banks, Fannie and Freddie is to eleviate the immediate credit crisis that is permeating the global markets. The backstop was to stop the decrease in confidence in the US banking sector, particularily the smaller regional banks including Fannie and Freddie. If however Congress let Fannie and Freddie fail it would create significant global knock on effects that would stagnate global demand ultimately affecting demand for US products and goods. The failure of Fannie and Freddie could spiral and drag down other regional banks(in other countries) into failure and further drag those economies into recession. This I believe was the immediate threat that Congress had to act upon and not to prop up a declining R/E market which I would doubt would have much of an impact on anyway. As the IMF has noted in the below article, the US housing crisis is starting to spread to other countries and the failure of such a large entity(Fannie/Freddie) could trigger a further credit tightening and would choke off any signs of recovery. Just imagine trying to purchase a property without Fannie/Freddie and 1/2 of the current regional banks available for mortgage financing. It is unfortunate for taxpayers but the housing crisis is too large and is spreading to other economies.
As for inflation/interest rates, keep in mind that CPI/core CPI reading are always backward looking, meaning that they measure past months. Additionally prices always lag demand whether they are up or down. As such, while we may see a short term spike in prices/interest rates, you also should look at a long term view to match longer term R/E holdings. As such some bankers are forecasting a short term spike in 2008 but a return to lower inflation in 2009/2010 to match the lower demand as the global economies slow down.
Talk about a bailout !
‘Extreme Makeover’ house faces foreclosure
Mon Jul 28, 11:32 AM PDT
More than 1,800 people showed up to help ABC’s “Extreme Makeover” team demolish a family’s decrepit home and replace it with a sparkling, four-bedroom mini-mansion in 2005.
Three years later, the reality TV show’s most ambitious project at the time has become the latest victim of the foreclosure crisis.
After the Harper family used the two-story home as collateral for a $450,000 loan, it’s set to go to auction on the steps of the Clayton County Courthouse Aug. 5. The couple did not return phone calls Monday, but told WSB-TV they received the loan for a construction business that failed.
http://tv.yahoo.com/extreme-makeover-home-edition/show/36736/news/urn:newsml:tv.ap.org:20080728:tv_extreme_makeover_foreclosure
I live in a Central European country.
Most things go pretty well, even with gas prices of $7-8 !
When I read the posts on this blog, I think that I
live on another planet !
Why did the Americans behave economically so unreasonably ?
I cannot understand.
Ha………..heres an idea, dont charge the absurd prices for medications. that might bring down the healthcare bills by 60%. Prescription drugs in the U.S. is like oil for saudi arabia.
Can anyone explain to me, how the homo sapiens americanus oeconomicus funtions ?
Correction:
Can anyone explain to me, how the homo sapiens americanus oeconomicus functions ?
Visionary,
Borrow and spend as long as someone is willing to lend.
Tom,
Yes, you mentioned about the 250/500 exemption rule is being done away with. I have read many related articles on the subject, but cannot find the mention anywhere. It may be tucked somewhere in that 700 page document but I need to know the details. Do you know where I can get the complete nitty gritty on the subject?
Also before 1997 when the 250/500 exemption was not on the books, they had the one time exemption for those 55 and over. They also had the buy a more expensive home within 2 years to avoid paying any capital gains. So you are trying to tell me that they have done away with 250/500 but did not give a single loophole to circumvent it? That would be disastrous for a retiree selling his only home and had to pay a large chunk towards capital gains.
So can you check your sources and let me know where in the housing bill is it mentioned that this exemption is being taken away, starting when and if there are any other provisions to avoid this.
thanks
I have heard nothing regarding elimination of the 250/500 exemption. I can’t imagine that the powerful real estate lobby would allow it.
Elimination would mean that the deadbeats benefit, and law abiding mortgage payers are f***ed.
I hope it’s not so…
Jcrimes,
I too enjoyed the Monte Cristo from B’gan’s, but I was loathe to exchange the opportunity for the surly service that accompanied this sweet grease-bomb… Likewise, I concur that the freemarket forces should be allowed to be the predominant mover — most of the time. (believe me I put my money where my mouth was having lost a ton betting that BS would file for BK). Unfortunately, this time the market forces, if unimpeded (regulated) would simply overwhelm and destroy the patient instead of giving him a harsh dose of medicine.
Back to Lucas’ original post (and in response to your, “if the house is worth less than the outstanding debt owed…” — the housing bill does reduce the debt owed; lenders must refinance to 90% LTV (current appraisal) to be eligible for the FHA guarantee. Likewise, the borrower must pay mortgage insurance. Again, it must be the borrower’s primary residence. This provision alone will rule out probably 75% of lis pendens being filed. Finally, the program is completely voluntary; the lenders must agree to it, but would be fools to not jump all over it. I’m not sure how these lenders are being “bailed out”.
I think some people are confused about the 250/500 exemption.
They’re not eliminating the exemption when you sell your primary residence. They’re just taking away some loophole where you could convert a previous investment property into a primary residence and then sell that tax-free as well within a certain time period.
They’re not taking the whole exemption away, just a certain provision of it.
BFG,
From your mouth to gods ears. If you are correct, I should not have anything to worry about. If not I will be F’ed big time. You do make sense in the fact that a subarban Chicago home owner, who wants to sell his home and retire to Florida has to pay 15-30% capital gains on the proceeds? That would leave nothing for him to buy a retirement home in FL or AZ.
But I still would like more info on this from anyone else. Appreciate your input.
a question for all…………I heard that if you have a property that you owe lets say 300k and it goes into foreclosure and the bank sells it off for 200k then YOU have to pay taxes on the 100k loss. is this true?? it doenst make sense but i hope its true so all these losers in foreclosure who are trying to screw everyone get screwed themselves.
kim
i think they’re being bailed out because today’s appraised values are still unrealistic. every economist that isn’t part of the NAR and CEO of a home builder is saying as much (Barron’s be damned). thus, if we go fixed at today’s rates, what happens in a year from now when there still is no equity in the property and the owner has to share any upside with big brother under the program? i just don’t think the proper incentives are in place here.
for what it’s worth, most rmbs loans will not be a part of this program – too many competing constituents. and i’m not even sure how you can restructure the debt if there is a second on the property (if someone who has read this thing can explain it to me…i’d really love to know).
as for the monte cristo…a sad day for all. i went to lunch with a well known professional athlete a few years ago to bennigans…watched him eat two of these things at lunch (with an order of fries to boot). it was the single most amazing thing i’ve ever seen.
Raffi,
you may be confusing two issues here: the fact that a 1099 is generated when you short-sell a property and the lender forgives the difference. The IRS considers loan forgiveness a source of income that is taxable — the bank is writing off the loss and getting a tax break, so the seller is on the hook for paying taxes. There are exceptions to this, of course.
Jcrimes,
The second mortgage holders must agree to the terms as well — under the plan they will be wiped out, but have a cut on future appreciation. That’s why this bill won’t help those who used their house as an ATM (the most culpable and egregious offenders whom everyone assumes will benefit) — the 2nd lienholder mortgagees will not agree to take part of such a plan; remember all parties must agree for the plan to work. Likewise, the bill forbids refinancing on a property that is secured by the bill’s FHA refi provision (for five years). This is all in section 1402 of Title IV of the bill (approx. page 400 of the House version, which was not modified).
Raffi,
You are wright, I read recently an article about this topic.
The tax authorities treat it as debt remittance by the lender = capital donation = income to the borrower.
Thanks Kim and visionary, makes me feel a bit better inside. haha.
Raffi, you are correct about the loss being counted as taxable income by the IRS. However, they recently passed a law that exempts primary residences for the next couple of years. It only covers primary mortgages, though. Not re-fi’s or equity lines.
So people that are short-selling or losing their own home to foreclosure won’t have to worry about the 1099. But there is no guarantee that the lender will “forgive” the debt, either. If they think you can pay it back or have money hiding somewhere, they can simply come after you for the judgement.
Investors, on the other hand, are on the hook for the taxes. However, in some cases, if the person is insolvent and declares bankruptcy, they won’t have to pay the taxes. Not sure how that works, but that is what I’ve heard.
Tom,
I surveyed all the net world and still cannot find more info on 250/500 exemption on second/investment homes.
I really want to know where you got the cut off date of Dec 31 2008. You said any home sold after 1st Jan ’09 will lose this benefit. Can you tell me where you found this info?
AJ,
you may want to check out calculatedrisk blog, they have some links on the 2nd home issue.
Gables,
Thanx a million. That is the best lead I got so far. That is the only site that links to the actual bill itself. Barney Frank should be ashamed for writing or sponsoring this nonsense. And where are they going to get $300B from anyway for this toilet flush?
But reading the comments, It looks obvious that it created lot of confusion. people do not seem to agree about the ratio, if it starts after 1,1,2009 or before. I mean if the clock starts ticking after jan 1, ’09 or from the time you bought the unit. It is a very shitty rule open for interpretation and confusion. I do not know what the tax lawyers will deduce.
No matter what, it will kill second home ownership. This is the worst news we can hear for a long time to come. These assholes in the congress have just f***ed the Florida and other vacation destination real estate.
How come not a single NAR guy saw this before hand and object to it? They have lobbyists in the house to get this offending portion removed. But now it is too late as the bill is already passed.
I am absolutely livid. It is like changing the rules of the game in the middle.
AJ – The government giveth and the government take it away. Soon we the government may be doing a lot more taking away if the election turns in favor of the democrats this fall. I think you will be livid for a while…. 🙁
The good news is, you still have great views in your building.
AJ,
remember the bill was actually written by Bank of America in its original form. its real purpose is to provide a floor to the losses the banks may have to incur through loan modifications. any direct help to homeowners is just a fortunate byproduct. the goal was to get the financial giants back on there feet again so they could continue to do business and make money, cloaked under the goal of providing increased liquidity. and dont forget, for the majority of americans, 2nd and vacation homes are just dreams and do not rate high on the priority list.
personally i think the bill is a joke and does not solve the real problem, unfordable home prices. until home prices match fundamentals, which in miami’s case means substantial drops yet to come, the RE market will continue to struggle and no amount of legislations can change this fundamental affordability issue.
Tom, if the Democrats will take us away from Iraq and irresponsible governance, then I say hurry up and bring ’em on.
Bender – LOL….er, OK. Bring on the higher taxes, flight from US investment, and big government spending programs that tax the people who actually work to pay for those that don’t…
AJ,
A little word of comfort for you:
We Europeans will still be buying vacation homes in the Miami Area, because USA became very cheap for us and tax considerations are of inferior importance for us!
visionary
if that’s your strategery…then it’s not terribly bright. lock in your currency gains, sure, but don’t turn around and then invest it in a declining asset.
Tom, the government has to get its budget balanced and stop devaluing our currency. You can’t spend your way out of a deficit. The government’s debt is your debt, too.
It’s funny to me how the word “liquidity” is being used in place of “insolvency” by so many of these institutions. It sounds better, but it’s a bunch of BS.
Many of these banks and companies are insolvent – plain and simple.
If I borrow $1000 from you and I buy a collectible painting worth that same amount, and then you ask me for the money back, I have a liquidity issue. I still have the money (assuming the painting didn’t go down in value), but it’s not liquid. I have to sell the painting to repay you. That’s a liquidity issue.
If, however, I borrow the money from you and I go invest that money in some investment that goes down 50% in value, I don’t have a liquidity issue – I am insolvent. I now only have $500 to pay you back.
That is the issue with many of these banks and companies that are talking about “liquidity” issues. The money that they invested is gone. The Fed providing “liquidity” won’t help them at all. The only way they will be helped is through a direct bailout.
However, this mess we’re in is so huge, the goverment is going to have to play favorites when choosing who is too important to fail, and who will be left to the dogs.
As Mish pointed out in his excellent blog recently:
“Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.”
Scary, huh?
Why do people still seem to think that democrats are the only party that supports big government? Some people still believe Republicans actually stand for limited government and free markets. What a bunch of bull. Republicans have consistently increased the size and scope of the federal government while at the same time limiting our freedoms. Both parties want the same goal of a bigger government, with the main difference being that Republicans pay lip service to being conservative and Democrats talk about equality in an effort to raise taxes. Democrats tax us, while Republicans tax a bit less and use the deficit to increase government power. The sooner people realize they are the Republocrats the sooner they will demand better politicians.
Are we all so blind?
Tom, I am probably never selling my Miami homes. So The taxes on the gains of my FL props are not an issue. Yeah, the views are here to stay. Thank god for that!
I am planning to sell my NYC flat and that is where the problem is. I have never rented that flat. So as per the records, it is not an investment property. I live on Long Island in a home that is not on my name. I bought this NYC flat in 2001 and I can sell it for 145K more than I bought. For some stupid inexplicable reason, I declared my address on my tax returns as Long Island instead of NYC for the years of 03,04,05 and 06. I realized my folly and reestablished my residence in NYC as of Jan 1st 2007. So by all accounts I will complete the 2 year requirement by Dec 31st 2008. So if I have a buyer ready and we close exactly on Dec 31st 2008, I can avoid this tax. It seems like a long shot but I can try.
I have also just learned a chilling news that the state of NY taxes the gains like it is ordinary income!!!, irrespective of the federal exemption or not. Suddenly I love Florida even more now.
Looks like after I pay off everyone, I will be left with just half of my gains. Is this Scandinavia or what?
Another question, if someone can throw some light on this,
Being a NY state resident and Considering that I do not own any other prop in NY state other than this flat in Riverdale, and that I never rented it out, is it still considered my second or vacation home, just because I declared that my address was in Long Island for the years of 03,04,05 and 06? Any thoughts are appreciated.
ha!,
Keep dreaming. Truth is Far from your fantasy.
I am not selling my NYC flat because I am going broke, but because I am just downsizing. I have 4 props in this country and 3 elsewhere. I am tired of keeping tabs on all of them. So I am consolidating. But if it makes you happy to imagine what you are imagining, suit yourself.
Ha! and jcrimes,
For your information, I am not an RE agent. I am private investor on my own
In Italy there is not a general RE crash, only some little declines in a few areas. I know Italy quite well, I own there Re in different places (and in other European countries also).
For Spain you are absolutely right.
Buying RE abroad I do all in cash because I can refinance at home at half the interest rates you know in the USA. The Investment in Miami I hold only for pleasure and I can wait.
BTW, I have a positive net yield on my Miami investment.
I never held any property with a negative yield.
Don’t forget, there are more and more affluent people in Europe (Eastern Eeurope) and Asia.
AJ,
Do you also think, it seems that some bloggers are a little envious of us ?
ha !
Keep slandering, you have no idea of the euoropean economies, you lump all together and you mix all up.
renter tom,
i usually agree with you … except for politics. you said: “Bender – LOL….er, OK. Bring on the higher taxes, flight from US investment, and big government spending programs that tax the people who actually work to pay for those that don’t…”
this sounds exactly like what’s going on NOW…not what will happen. bottom line is SOMEONE has to clean up this total disaster that has been left – either you can add to this cr*p or fix it (which will be unpopular).
ha!,
visionary is right. outside of some areas (like spain, esp southern and UK, ireland), most of europe’s economy is what’s slowing…they’re nowhere close to r/e crash like we are. even during the runup, in many areas you still had to put down 50% to own (as opposed to the US 102% financing). doubtful that in europe, people received loans w/zero documentation, income, etc. also….go to europe right now and see what you get for $400k. real estate in miami for a european is a dream compared to the old junk you get in europe for 1.20 mil!
To all of you talking about Europe’s economy not slowing as much as here… just wait for the other shoe to drop. The Fed has a dual mandate – monitoring growth and inflation. The ECB only has one – controlling inflation. What do you think the ECB’s high rates are going to do to the European economies??
ha!,
i follow roubini and like him…prefer faber who’s somewhat similar (and more polished 🙂 )
where did i contradict myself and where did i say prices are not inflated? my implication was towards a european buying something in the US vs. what he can get in his own country. throw in the currency conversion and the US is very cheap for europeans! … furthermore, many large major european cities and tourist destinations (s.spain, s.france etc) are flooded w/russian and arab money. go to any of those parts … it’s not the brit visiting from liverpool … it’s the russians and arabs that have gobbled up the properties. arabs used it as diversification, russians used it to remove large sums out of their own countries. europe is already experiencing a recession – so are we. remove export growth from our country (currency based) and look at the real numbers – we’ve BEEN in a recession for a few quarters – just because some corporation made lots of money overseas does not mean internally we’ve been doing ok. our GDP is not negative due to us selling overseas – this is also why unemployment hasn’t run up hard yet … as the slowdown expands around … our unemployment could dramatically shoot up. we’ll see tomorrow’s payrolls
There’s a very good indication that the Obama Bailout plan is working. According to news last June 10, Bailout plan turned a profit” of $1.8 billion in interest payments on the first set of bank loans that were repaid.