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  • derryl: 
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  Before reading this article I wasn't aware that the mortgage interest deduction was legislated in the same year as the Fed was legislated into existence-1913-not coincidentally in the year prior to the beginning of the greatest financing program in history to that time-World War I. So in 2 fell swoops the banksters gained control of the issue of US$ and a permanent lucrative source of new lending targets-homebuyers, as well as the power to create and 'lend' the money America would be needing to finance its war effort.
  
  Sugrue's article notes that before the rise of mortgaged home ownership only 2 classes of people owned houses: people rich enough to pay cash and workers with the skills to build modest houses for themselves. I don't know the statistics but I am confident that the houses bought for cash by rich people in the 1920s were significantly smaller and more poorly appointed than the 2000 square foot suburban 'starter homes' subprime borrowers were buying in 2007.
  
  The lesson is that home ownership in and of itself is something of a decades long bubble, and certainly the size, luxury and cost of modern houses is a bubble unaffordable to most potential homebuyers. Zoning laws and architectural restrictions now prevent people from building their own little affordable houses. So it appears that finance capitalism has captured the housing industry in the US to the detriment of pretty much everyone except themselves.
  
  But this time the banksters have outdone themselves with securitization and the massive and now unwinding housing bubble. The irony and the tragedy is that the big bankster banks, now insolvent due to the collapsing value of real estate and its derivatives that comprise so much of their balance sheets, will never suffer bankruptcy and dissolution which is the capitalist punishment for investment errors and excesses. To keep the looting scheme alive they have now captured the political process itself so they buy exemptions for themselves, and are rewarded with trillions of US taxpayer dollars to restore their destroyed balance sheets and resume profits and bonuses.
  
  This is "capitalism". But it certainly isn't free enterprise as foreseen by America's Founding Fathers and protected in the constitution.

  Aug 16 12:39 AM | Link | Reply
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  • Anthony Alfidi: 
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  • Alfidi Capital LLC
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  Bravo! Home ownership for all is completely unrealistic on many counts. A civilization dominated by suburbs and exurbs is ecologically unsustainable due to the amount of energy needed to provide transportation links from detached homes to economically productive urban areas.
  
  The New Urbanist movement has done excellent work in pointing the way to sustainably designed living spaces. Densely packed housing designed around electirifed mass tansit is the future for most Americans. German communities are also good models; small urban cores surrounded by farmland and linked by rail.

  Aug 16 02:38 AM | Link | Reply
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  • Tack: 
  • Comments (448)
  Home ownership has worked fine for America for decades and is a laudable aspiration for anybody who works hard enough to attain it. The problem began with the usual do-gooder legal mandate from Congress (Dodd/Frank) that banks had to make loans to people, whose ability to repay those loans was nonexistent. The whole trend to securitization of mortgages was amplified by the lenders' desires to get these risky (perhaps, suicidal is a better word) loans off their books.
  
  Take away the absurdities that passed for lending and "packaging" during this Congressionally-sponsored period of excess, and the ownership of homes and lending on same is as ordinary as it always was, and it's that to which we need to return.

  Aug 16 08:09 AM | Link | Reply
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  • just.a.guy: 
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  The home mortgage interest deduction is a ridiculous piece of tax law that needs to be removed, given that it only distorts the market and artificially supports asset values (by changing the cash flows, which is how properties are fundamentally valued). The problem is that it will be virtually impossible to get rid of since it's popular among homeowners (who don't realize it doesn't provide them net benefit at all), and even if we COULD get rid of it it would be a one-time transfer of wealth from sellers of properties bought when the deduction was in place to buyers after its removal.

  Aug 16 09:25 AM | Link | Reply
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  • The Geoffster: 
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  It's time for Americans to wake up to the fact that socialism is a fairy tale.

  Aug 16 09:58 AM | Link | Reply
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  • Mad_Max_A_M...: 
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  Listen, you can't have imbeciles like Frank and Pelosi voted back in (time and time again) by states like California and the Peoples Socialist Democratic Republic of Massachusetts and expect that they aren't going to screw up everything that they touch. Look at California: A model for big unions, ground zero for short sales, and State bankruptcy. Did I mention they now have to release 40,000 over crowded convicts back into society? Priceless! At this rate, America will be a California in about 4 more years.

  Aug 16 12:15 PM | Link | Reply
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  • Wisely Inve...: 
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  • wisely-investing.blo...
  I believe most people can own their own home - but it takes sacrifice. You have to be willing to give up things. What about giving up cable TV and hi-speed internet, cutting back the cell phones? Shop at discount grocery stores and don't buy name-brand foods. Stop going out to eat all the time. There are plenty of ways to save money. If you want something you have to work for it. Personally, I think that banks should make it a requirement that you put down at least 10% of your own money (no gifts or down payment assistance programs) toward your home. If you can't sacrifice to save up for a down payment then you probably won't sacrifice to pay your bills when money gets tight.
  
  The problem is that people do not live within their means. They want a huge house, a brand new car, and all the best forms of entertainment possible.
  
  I work with defaulted student loans and I see this all the time: a couple will bring home $2,500 a month, they have a $1000+ mortgage, a $500 car payment (sometimes 2), $200 cable/internet bill, $200 cell phones, $500 groceries, and they wonder why they don't have any money left at the end of the month.
  
  Another thing that added to all the trouble was organizations like ACORN, who made lenders accept things like food stamps and welfare as sources of income. "...income measurements include less traditional income sources such as food stamps, unemployment, part-time jobs, non-court-ordered child support and foster care payments." See the brochure by ACORN boasting about it here (pg. 3).
  www.capitalresearch.or...

  Aug 16 01:49 PM | Link | Reply
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  • anesthesiaman: 
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  I pay $1100 PITI for my 2006 house that I bought foreclosed - the same as I used to pay in rent for an apartment. But now I have 3x the space, plus granite, tile, crownmoulding, blah, blah.
  
  As an anesthesiologist, I could buy a lot more house - sure. But I feel happy knowing that I am living very well within my means - not like other Americans who earn less and spend more.
  
  The rest of my money goes into rental properties (90%), Euros (5%), and stocks (5%).
  
  America needs some basic financial lessons!
  
  Lesson #1 - Don't get into debt unless the debt brings in positive cash flow or it is your house. And if it is your house - your PITI should not be more than what you'd pay in rent.

  Aug 16 04:51 PM | Link | Reply
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  • Duude: 
  • Comments (389)
  Not sure exactly what you mean. I would say that the benefits of socialism is a fairy tale. However, we already have forms of socialism built into our economy now, and unfortunately will likely add more as time goes on. It rarely goes the other way. Even if it becomes apparent that certain programs were stupid ideas, people become dependent upon them. It much like developing a dependency on pain killers.
  
  
  On Aug 16 09:58 AM The Geoffster wrote:
  
  > It's time for Americans to wake up to the fact that socialism is
  > a fairy tale.

  Aug 16 05:03 PM | Link | Reply
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  • Longinvestor: 
  • Comments (102)
  So to whom do we pay for the "home"? Is it to a mortage company or to a landlord? Exactly the same amount of money for rent or for mortgage...don't you think?

  Aug 16 05:37 PM | Link | Reply
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  • Fat Squirrel: 
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  It seems to me that the fundamental issue here is the relationship between home prices and incomes. Historically these have been reasonably stable at around 2.5 – 3x (as I've posted elsewhere). When things go much above that range, homes become unaffordable for ordinary people and provide ample incentive for "shut out" buyers to start playing games to get into overpriced properties. In the present situation, lender and securitizer fee incentives also gave rise to the innovative “fog a mirror” mortgage underwriting standard whose aftermath we will be dealing with for years to come.
  
  While I have enormous respect for Professor Sugrue (he has an awesome lecture series on The Teaching Company which I count among my most prized possessions), I think it's a bit of an overgeneralization to conclude that homes are now *permanently* out of reach of ordinary people. I grant that, for many, homes are currently out-of-reach and that they will remain so until prices fall significantly to more rational levels, but to say this is a permanent state of affairs seems to ignore the cyclicality of markets. If real estate were to fall to a much lower multiple of income (as I believe it ultimately will), simple economics would begin converting current renters into buyers as it always has.
  
  In addition to the issues raised by other posters, I'd add that US demographics don't augur particularly well for future housing demand. Our fertility rate is barely above “replacement” level, and although immigration is helping somewhat, we're still aging as a population and will continue to do so for the forseeable future. As people die off, their real estate holdings will become part of supply or will pass to their heirs, thereby reducing demand. Also, this multi-decade real estate boom relied partly upon a robust rate of net family formation which is now almost flat (prospective critics: note that I said 'net', ie family formations less 'dissolutions' due to mortality). I'd also argue that family formation is partly a function of economic prosperity, so a period of protracted deleveraging will not help matters either.
  
  I'm sure that the NAR freaks will point out that articles with titles like this are excellent contrarian indicators much like the “Death of Equities” articles that appear in mass-market periodicals at markets bottoms. But then their very livelihoods depend upon keeping up the animal spirits (ie transaction volumes) up, so what would we expect them to say?
  
  NB: And one more 'R' to NAR and we obtain the German word Narr meaning 'fool'. Interesting coincidence.

  Aug 16 07:59 PM | Link | Reply
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  • Fat Squirrel: 
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  Oops, wrong Sugrue. In my comment above I confused the article's author Thomas Sugrue with Micheal Sugrue at Princeton. My apologies, professors!

  Aug 16 09:25 PM | Link | Reply