The New Road to Serfdom--Your Mortgage

walto · May-29th-2006, 04:53 PM

This article by Dr. Michael Hudson in the new Harpers rocks! It's "The New Road to Serfdom - An Illustrated Guide to the Coming
Real Estate Collapse."

http://www.shloky.com/files/housing%20boom.pdf

claude · May-29th-2006, 07:29 PM

Interesting article, but if you think that an article about the dangers of over-valued real-estate "rocks" you really should get out more

walto · May-30th-2006, 01:22 PM

No kidding. In fact, that probably explains why the current list of registered participants for the June the DC hang is so..um..slim.

But those that are coming and willing to put up with my snoresvillitude are, as they say, cherce.

Al in NYC · May-30th-2006, 02:07 PM

"Rocks", well, no, but it is an interesting article on the inevitability of market downturns, and why this one could be profound. However, it ignores one factor that is keeping housing markets in NYC and elsewhere in the US active and rising, and that is immigration and its effect on population growth. This is certainly one factor that really differentiates our situation from the Japanese one cited in the article.

One can certainly see evidence of this in my current neighborhood, where houses sell as soon as they're put on the market, usually at asking price or above, and almost all of them to relatively recent immigrant families. Very few, if any, of them buy with no money down or on interest-only loans, as the housing pressure in this area means that mortgage companies and banks simply don't need to resort to these things. Prices are just now stagnating a bit in some of the better neighborhoods in the city, but certainly show no signs of dropping back down to levels of even a couple of years ago. And in areas like mine with a quickly increasing population of home-hungry (and investment property-hungry) immigrants it shows no signs of slowing at all.

On the other hand, in my hometown of Detroit - tethered to one (very sick) industry, with very little immigration, an overall declining population, and quickly falling real incomes for most families - I know many people who are already in a negative equity situation. But the low immigration there is more the exception than the rule in American cities.

walto · May-30th-2006, 02:42 PM

Interesting. FWIW, the entire population of Massachusetts has been declining for awhile. (Maybe since Romney?)

Scott Dolan · May-30th-2006, 02:52 PM

Quote:

Originally Posted by walto

Interesting. FWIW, the entire population of Massachusetts has been declining for awhile. (Maybe since Romney?)

Walto, I'm smacking you on the back of the head when I see you for that one.

walto · May-30th-2006, 04:07 PM

Just trying to fix the date, bro--not suggesting the cause.

willy · May-30th-2006, 09:50 PM

Between gay marraige and mass abortion I can see why.

Then again, who would want to have a kid that looks like Ted Kennedy or John Kerry.

Tom Hall · May-31st-2006, 07:42 AM

Mass abortion? Huh?

Oh, you must mean that lil' thing with the pedophile Catholic priests?
Yah, I guess less devout catholics does equal less babies...

willy · May-31st-2006, 12:22 PM

Most of them are gay priests. Not gonna have many babies raping boys (very sick stuff, but no babies as a result).

Dr Dave · June-2nd-2006, 10:41 AM

The article is fun to read--I love me some charts with my explication of home finance--but it does leave out one major source of debt relief, which is inflation. Owing hundreds of thousands of dollars that are worth about half what they used to be is the easy way out of debt, and if there is anything Americans love, it's the easy way out.

You can plug in your own inflation assumptions and use this handy Inflation calculator to come up with your own scenario.

And if you'd like to know what's doing with the dollar at this very moment:
Bloomberg: Dollar Drops on Employment News

Gary Sisco · June-2nd-2006, 11:00 AM

Only holds true if the interest rates remain the same over time and inflation continues to increase.

The danger isn't in the value of real estate, which is inflated, doubtless. The real danger is that people have been using their homes as lines of credit for many years. When the bills come due, they come due, and they always do come due. Matters not how much your home is "worth." In the end, it's worth whatever anyone agrees to pay for it and no more or less.

To show how mad the inflation can become, however: We bought our land a little more than eight years ago. We were the last ones in town to be able to pay three-digits per acre. The other day I received a copy of the appraised value (this year) of all the properties in town. There is a three acre field adjacent to our barn we've been wanting to buy ever since we bought our land but the people haven't wanted to sell. It's appraised value today, *three acres*: $83,000 US. Madness. Of course the trick would be to get someone to pay $83,000 for it. That somebody hasn't won't stop the town from taxing its owners on that much, however, though entirely unrealized.

If we are to believe the appraisal, our barn has appreciated in value more than 35% in three years, just being there. We've done nothing further to the building since building it. And if we're to believe it, our house and land apart from the immediate farm area has doubled in value in less than eight years.

But, again, it's all abstraction. It's not worth a penny more or less than what it gets when sold for someday. So using it as a line of credit is an irrational gamble. (Ignoring that we didn't build it to sell it someday but to live in it for the rest of our lives.)

Nevertheless, it is a fact that there are many more than one suckers born every minute who believe that there is a way to violate an ironclad law of the universe: Everyone has to pay the man. No way around it. If you sell your house for less than you thought you would while you were using it as a credit card, you will still own the debt you're carrying, regardless, and it will still have to be paid back, regardless.

That's the real danger of real estate inflation in the US. When people actually have to start living within their means, including paying back their existing debt, they will necessarily be forced to cut back on consumer spending (which is hugely in credit, the savings rate in the US being less than zero). Consumer spending is the thing that drives the US economy, period. Cut it back and see what happens.

jesus marion joseph · June-2nd-2006, 11:08 AM

Quote:

Originally Posted by Gary Sisco

There is a three acre field adjacent to our barn we've been wanting to buy ever since we bought our land but the people haven't wanted to sell. It's appraised value today, *three acres*: $83,000 US. Madness.

That's nothing. The *1 acre* lot we bought to build our house on cost us $180Ka few years ago. The town assesses the current value (with structures) at $538,800.00. These valuations are typically lower than the going market value, though.

Gary Sisco · June-2nd-2006, 11:19 AM

Just another example, because many of those places on the Cape are examples, I'd bet anything, of people "owning" things on credit.

But no one owns anything on credit, of course. The creditor owns it. And the debt. And the interest.

Boomers especially, because of their age, are going to pay a savage price for their casual ways towards these issues, one day. There's no escaping it.

jesus marion joseph · June-2nd-2006, 12:13 PM

If it weren't for buying on credit, I'd be living in a shoebox! I do often consider selling out and moving somewhere where I could either by some property outright, or maybe just get a very small mortgage (like Vermont maybe). Unfortunately, the Cape is such an awesome place to live (inflated prices aside).

walto · June-30th-2006, 11:05 AM

Take back our beaches
By Steve Bailey, Globe Columnist | June 30, 2006
Think of this long Independence Day weekend as the weekend we begin freeing our beaches.
In Massachusetts there are far too many beaches where I can walk along the shore with a fishing rod in my hand, but not hand in hand with my kids. I can swim in the ocean as long as my feet don't touch the bottom. If it all sounds crazy -- if it all sounds frankly un-American -- that is because it is.
Is there anything more obnoxious than a ``private, no trespassing" sign on a stretch of sandy beach? People who come from civilized places -- that is, almost anywhere else -- can't understand the concept. The ocean is our Grand Canyon; it belongs to everyone. It's wrong to fence it off.
But what the emperor gave, Massachusetts' Colonial authorities gave away. A very long time ago -- in 530 A.D. -- Roman Emperor Justinian put into writing all the empire's civil laws. Among them: ``By the law of nature these things are common to all mankind: the air, running water, the sea, and consequently the shores of the sea."
That public nature of the tidelands and the water became embedded first in European law, and later American law.
Not, however, in Massachusetts. In the 1640s, our forefathers gave away much of the public's right to the land between the mean high tide line and the low tide line in an attempt to spur the development of wharfs and maritime commerce. It was the greatest land give away in the history of the Commonwealth, leaving three-quarters of the state's precious 1,500 miles of coastline in private hands. You would think that now, 350 years later, those development rights would have expired.
You would be wrong.
The courts have consistently ruled in favor of private property owners and against the public's interest. The original law reserved the public's rights of ``fishing, fowling, and navigation," but the courts have ruled that you don't have the right to walk on the wet sand to get to the ocean to go swimming. Fowling yes, swimming no.
William Bulger, who like me grew up on the beach, tried to do something about this elitist lunacy when he was Senate president. Having been tossed off a private beach, Bulger passed a bill that would allow the public to walk the wet sand. But nothing came of it because the law also required -- to satisfy the courts -- that private owners be compensated for the inconvenience of having walkers on their land. That never happened.
Bulger thinks it is time to try again. ``What you need is a test case, an actual case, so this thing is challenged," he says.
Times have changed since the 1640s, and the law needs to change, too. If the state's Supreme Judicial Court were as progressive on the beaches as it is on the state of marriage, it would recognize that how we use public resources, like marriage itself, has changed dramatically. Fowling is not what it used to be. And the cost to sharing the shore is small. Is a homeowner's property worth less on Long Island than on Cape Cod because people can walk the beach there and not here?
The attorney general's office has produced a dandy little pamphlet explaining the rights of property owners and the public when it comes to the beaches. What I want is an attorney general who will get my rights back. To win, we'll need creative thinking, looking for whatever leverage we can find, whether it is eminent domain or something else. And we'll need to be as persistent and organized as those who think they can expel us from the beaches. We can't go away after Labor Day.
I hope to see you on the beach this weekend. And eventually in court, too. Take back our beaches.
Steve Bailey is a globe columnist. He can be reached at bailey@globe.com or at 617-929-2902.
© Copyright 2006 Globe Newspaper Company

Coda · June-30th-2006, 11:56 AM

You have to separate the financing from the real estate. Saying that folks are overextended on credit and using that to say that real estate is overpriced as a result does not make business sense.

Buyers and Sellers in aggregate will always set a fair market value. When the demand shifts then prices will either rise or fall to a new equialibrium. You could argue that demand is falling as interest rates are rising. If builders do not build new homes, then supply is fixed. (This is what is taking place in Boston due to restrictive zoning laws and is one of the reasons why Boston is seeing an exodus of people.)

Overextended people with variable rate mortgages and helocs may not be able to meet their obligations due to interest rates rising....but this is due to either taking out loans without a full understanding of the consequences, a reduction in income, or poor spending habits.

You could make a 'soft' argument that there was a run up in prices due to speculation once the internet bubble burst that people put their money into real assets and out of the stock market. I'm not really buying into this theory because the stock market has rebounded and investments are back to pre 2001 levels. If there was a bubble we should have already seen a major drop in sales prices.

The only 'negative' information that I see published talk about year over year changes - houses are staying on the market longer this year relative to last year...yada yada yada. Well, duh. After 5 consecutive years of record growth how could one expect that trend to continue forever? Lets see some publications that look at housing over an extended 10 or 15 year period.

walto · June-30th-2006, 12:02 PM

Quote:

Lets see some publications that look at housing over an extended 10 or 15 year period.

Fred Harrison has two books that look at housing over about a 400 year period: he claims there is very strong evidence for an 18-year housing cycle.

jesus marion joseph · June-30th-2006, 02:30 PM

Quote:

Originally Posted by walto

Take back our beaches
By Steve Bailey, Globe Columnist | June 30, 2006
Think of this long Independence Day weekend as the weekend we begin freeing our beaches.
In Massachusetts there are far too many beaches where I can walk along the shore with a fishing rod in my hand, but not hand in hand with my kids. I can swim in the ocean as long as my feet don't touch the bottom. If it all sounds crazy -- if it all sounds frankly un-American -- that is because it is.
Is there anything more obnoxious than a ``private, no trespassing" sign on a stretch of sandy beach? People who come from civilized places -- that is, almost anywhere else -- can't understand the concept. The ocean is our Grand Canyon; it belongs to everyone. It's wrong to fence it off.
But what the emperor gave, Massachusetts' Colonial authorities gave away. A very long time ago -- in 530 A.D. -- Roman Emperor Justinian put into writing all the empire's civil laws. Among them: ``By the law of nature these things are common to all mankind: the air, running water, the sea, and consequently the shores of the sea."
That public nature of the tidelands and the water became embedded first in European law, and later American law.
Not, however, in Massachusetts. In the 1640s, our forefathers gave away much of the public's right to the land between the mean high tide line and the low tide line in an attempt to spur the development of wharfs and maritime commerce. It was the greatest land give away in the history of the Commonwealth, leaving three-quarters of the state's precious 1,500 miles of coastline in private hands. You would think that now, 350 years later, those development rights would have expired.
You would be wrong.
The courts have consistently ruled in favor of private property owners and against the public's interest. The original law reserved the public's rights of ``fishing, fowling, and navigation," but the courts have ruled that you don't have the right to walk on the wet sand to get to the ocean to go swimming. Fowling yes, swimming no.
William Bulger, who like me grew up on the beach, tried to do something about this elitist lunacy when he was Senate president. Having been tossed off a private beach, Bulger passed a bill that would allow the public to walk the wet sand. But nothing came of it because the law also required -- to satisfy the courts -- that private owners be compensated for the inconvenience of having walkers on their land. That never happened.
Bulger thinks it is time to try again. ``What you need is a test case, an actual case, so this thing is challenged," he says.
Times have changed since the 1640s, and the law needs to change, too. If the state's Supreme Judicial Court were as progressive on the beaches as it is on the state of marriage, it would recognize that how we use public resources, like marriage itself, has changed dramatically. Fowling is not what it used to be. And the cost to sharing the shore is small. Is a homeowner's property worth less on Long Island than on Cape Cod because people can walk the beach there and not here?
The attorney general's office has produced a dandy little pamphlet explaining the rights of property owners and the public when it comes to the beaches. What I want is an attorney general who will get my rights back. To win, we'll need creative thinking, looking for whatever leverage we can find, whether it is eminent domain or something else. And we'll need to be as persistent and organized as those who think they can expel us from the beaches. We can't go away after Labor Day.
I hope to see you on the beach this weekend. And eventually in court, too. Take back our beaches.
Steve Bailey is a globe columnist. He can be reached at bailey@globe.com or at 617-929-2902.
© Copyright 2006 Globe Newspaper Company

If there were no "public" beaches around, I'd be pretty fired up about this. As it is, I barely even care.