Thursday, October 22, 2009

"$15,000 Home Buyers Credit Costs $292,000/home"

Barry Ritholtz's "The Big Picture" is one of my first reads every day. Today's post begins with a simple synopsis of the cause of the housing bubble:
I have long argued that home prices are elevated, and until they normalize, the economy will be stuck in the doldrums. I even wrote a chapter of Bailout Nation, titled “The Virtue of Foreclosure.” I make a basic economic argument that the excess credit of the 2001-07 era is unwinding, and foreclosures are part of that process.

The simple premise is that the abdication of lending standards by both bank and nonbank lenders created an enormous credit bubble. Easy money drove home prices to unsustainable and unaffordable levels. People bought homes far more expensive than they could reasonably afford. Many assumed they would be able to refinance, paying for the excess costs by cashing out the price appreciation everyone knew was sure to follow.

Of course, we know what happened next. Prices rose unsustainably, credit tightened up, and the supply of greater fools abated. So much for the real estate perpetual motion machine.
He concludes:
Its one thing to argue as to whether the government should be so brazenly intervening into the housing market, and I can understand reasonable people disagreeing. But the subsidy — whether its $133,000 or $292,000 — is absurd.


Anonymous said...

You have to watch this...How to buy a bank owned home....hilarious!

Anonymous said...

why is it so damn quiet on this blog????

Anonymous said...

I think we're all on waiting mode. It feels like something big is coming. Who knows.

Anonymous said...

Yeah I think we have all been put off by the fact that the SM housing market hasn't shown any further decline since March. At least not the 20 to 30 percent people were predicting and/or hoping for. Maybe things will fall off a cliff in January again. ;)