FUZZY HOUSING FORECLOSURE PICTURE

WaPo

IS AGAIN WASTEING OPPORTUNITY AND EFFORT

As some of you may have noted the ‘A’ section, page 14 on Thursday, 30 July had an impressive looking graphic on house foreclosures titled “Geography of Distress.”

Lets start with the big problem: The graphic is based on Zip Codes. EMR has pointed out the problems with Zip Code maps on a number of prior discussions.

This map is worse that usual. WaPo scales the grpahic to number of foreclosures per Zip Code. Almost everyone knows that the number of Households varies greatly from one Zip to another. For this reason a Zip Code with 70,000 dwellings and 1,001 foreclosures would be ‘in greater distress’ than a Zip Code with 11,000 dwellings and 999 foreclosures.

Second the mapped area does not correspond to any known geography except the advertising focus of WaPo. Howard and Anne Arundel Counties are included but they are not in the Washington DC MSA.

Howare and Anne Arundel Counties are in the Washington Baltimore CMSA but St. Mary’s county is on the map but it is not even in the CMSA – it is a new Micropolitan Area. What is worse is that Fauquier, Stafford, Spotsylvania and Fredericksburg are in the Washington MSA but are not on the map.

For this reason the map does not relate to the very good data that Brookings is now distributing in its Metro Monitor. It also does not relate to the Case / Shiller data upon which Richard Florida relies to support his views of the reshaping of America.

In addition there is no radial scaling so one cannot compare apples with apples without drawing lines themselves.

In spite of all this the map does show – if one understands and compensates for the errors and omissions – the impact of Wrong Size House in Wrong Location.

It also supports the observations of Richard Florida in “How the Crash Will Reshape America” in the March Atlantic for those not afflicted with Geographic Illiteracy.

Speaking of WaPo and the foreclosure impact on the Affordable and Accessible Housing Crisis, the 28 July coverage (“Foreclosures Are Often In Lenders’ Best Interest”) only focuses on Households that cannot pay the mortgage and not on mortgages that have gone underwater and the Households that do not want to pay the mortgage. That is a growing problem because while monthly unit sales are up in some areas from the lows of a few months ago, the prices are still going down.

Yes, EMR will get to the Elephant Clan Transport ‘plan’ soon.

EMR


Share this article



ADVERTISEMENT

(comments below)



ADVERTISEMENT

(comments below)


Comments

48 responses to “FUZZY HOUSING FORECLOSURE PICTURE”

  1. Anonymous Avatar
    Anonymous

    "In spite of all this the map does show – if one understands and compensates for the errors and omissions – the impact of Wrong Size House in Wrong Location."

    Amazing.

    After five paragraphs of what is wrong with the map, it still "proves" exactly what you want it to, as long as you redefine and correct everything about it.

    In other words the WAPO map is worthless for EMR's purposes although it may have met its own purpose pretty well. But if EMR drew his own map or corrected the WAPO map according to his own coda, then all would be perfect, and we could easily see that anyone who has the wrong size house in EMR's wrong location is the root cause of all of our problems.

    So, having read this I am absolutely convinced of the impact of wrong size houses in the wrong location. I suggest we cut them all in half and move the pieces to Arlington, and send Arlington the bill for the work.

    Or if Deeds gets elected we can send them to Bath instead: he wants to move jobs to rural areas.

    ————————–

    "That is a growing problem because while monthly unit sales are up in some areas from the lows of a few months ago, the prices are still going down. "

    It is a growing problem because the market works exactly as predicted? Prices go down and sales go up. Will wonders never cease?

    RH

  2. Anonymous Avatar
    Anonymous

    I'm going to float a plan to pay for roads by taking the money out of education.

    It's a sure fire way to make everyone hate the idea of new roads, and then I won't actually have to come up with the money.

    In Virginia, that's a transportation plan with success written all over it.

    RH

  3. Larry G Avatar

    Our trip this year was up through Michigan to the UP then across to Duluth and up to Grand Portage and then west to Ely, International Falls – south to Minneapolis/St. Paul and thence to Lasalle, Ill then south to Cairo then east back home.

    In many, many places, I take the time to observe the settlement patterns….

    Duluth – an a very neat port city.. with a vibrant downtown… still has most of it's retail "up the hill" in your standard shopping centers.. not down town.

    Down town looks a lot like other trendy places that have "revitalized" their down towns.

    In this case the famous ship canal .. aquarium, etc.. draws throngs of locals and tourists on weekends… all on foot (after parking their SUV/Mini Vans of course)…. but if you want a pound of Folgers or a prescription filled..you go up on top to the shopping centers – in your car of course.

    this "pattern" has been pretty much replicated in most of the cities that we've seen.

    In the towns, like Ely.. there are food stores and pharmacies in the town but usually in the outskirts or in a redeveloped parcel.

    cars – are ubiquitous… no matter whether it's the town of Macinaw or Ely or Minneapolis/St. Paul.

    The REI = Recreational Equipment Incorporated ( an outdoor recreation store) has scads of on-site parking.

    None of the customers who bike, canoe, hike, etc …arrive on those conveyances.. all of them in their Suburus and other vehicle adorned with a roof rack to carry their outdoor toys.

    What I have noticed is the width and breath of how the vast majority of Americans live – who do not live in cities – live.

    They live in modest abodes… neatly kept… out in the hinterlands… most of them not fancy and not anything like the homes we see in Great Falls or Loudoun….

    much more modest… warm..cozy.."liveable" "affordable" … but not what we see around NoVa….

    this is the "real" America and it's not dense.. and it usually has a backyard garden.. and it almost always has some kind of vehicle in the driveway.

  4. Larry G Avatar

    the other aspects of our camper-van trip are that for the most part – we do not use the interstates (except to get back home)….

    and as such, we see a LOT of smaller cities, towns, hamlets… many 10,000 and under,,, in fact many, in the 500 to 3000 range.

    these are not "new" places.

    Virtually all of them have a "downtown" that often looks to be decades old….

    many of the storefronts DO have upstairs living quarters but also very typical is that arrayed out and around from the core business district are… single family homes on 1/4 acre (give or take) lots… and they extend out for many blocks in all directions…and sprinkled in among the homes are fire stations, schools, libraries, repair shops, car dealers, etc.

    Virtually none of these towns core districts extend higher than 3 or 4 stories.

    Virtually none – ZERO – of the homes resemble the kinds of homes we have in ..Fairfax and Loudoun County.

    what "connects" these towns to other towns and bigger towns and urban areas is two things.

    Most of them have a rail line. Sometimes it's still a "working" rail line and other times it is abandoned.. and in some cases… it's been converted to a hike/bike trail (and usually used by the townfolks).

    this "pattern" is replicated by many of the major urban areas like Minneapolis, St. Paul, Rochester, Duluth, etc… where you have a central core and arrayed out around it are single family houses in various neighborhoods and communities…

    One of the BIG differences between these urban areas and NoVa is that the jobs and housing are arrayed more uniformly such that.. when they have their rush hour – there is no morning and evening "direction".

    Both "in" and "out" are equally crowded with cars – in the morning and in the evening….

    The sad thing about the smaller communities across the countryside.. is that most of them are "farm" towns and their economies were predicated on more people doing more manual work … and now the workers have been replaced with machines.

    You don't see "workers in the fields".

    What you see… is one guy in a huge combine or tractor.. tending to acreage as far as the eye can see….

    so many of these smaller towns/communities are shells of their former selves.

    They still function as a community but there are no jobs for the kids.

    They must get their education and then go somewhere else to add on to it ..and look for a job.

    And that brings us back to places like NoVa and environs which is one of those places where these kids go to find work – and in the process…sooner or later… do not want to live in a two-room flat within walking distance of their work.

    most of them…also expect to have to move multiple times in their career… sometimes far from their current housing…

    and at some point.. they often get married and have kids … and do not want to raise them in an urban atmosphere… if the neighborhoods are not safe and the schools not good – because – remember – many of these folks – they came from small towns and rural areas where they did feel safe and the schools were adequate and that's something they want to keep… in their lifestyles.

  5. Robert Shiller was on TV the other night. It's not a bad little snippet. If you are interested, here is the link;

    http://www.charlierose.com/view/clip/10530

    Anyway, if you look at the chart for Fairfax County (http://tinyurl.com/mad7j6), it has the highest number of Foreclosures with nearly 2,400.

    But, guess what? Fairfax County is the place where most of the jobs are!

    So, is Fairfax County also the place where most of the houses are the wrong size and in the wrong location?

    I would say no if the wrong size house is "wrong" because it's too big and too far away from where the jobs are….I mean most houses in Fairfax County are smaller and closer to jobs, right?

    Or, should we use some other metric, like "total square ft. in foreclosure", to determine where the wrong houses in the wrong location were built?

    What gives??

  6. E M Risse Avatar
    E M Risse

    Larry :

    EMR always enjoys your observations from the road.

    You do a nice job of telling us what you saw. Some of your observations sound like EMR’s “A View from the Heartland” Column 68, 3 Oct 2005

    Especially liked your Duluth observations. Duluth / Superior MSA is one of the largest MSA’s in the US of A where EMR has not spent time.

    EMR does a lot of business with Duluth Trading. You probably do too. Duluth Trading today is what Eddie Bauer and LL Bean were 60 years ago and what Patagonia and Banana Republic were 30 years ago and what REI still was until 15 years ago.

    While you are doing a good job of describing what you see, you also seem to be saying that because of the way you see these places, it somehow proves there is no need to have a Fundamental Transformation of settlement patterns.

    What you are really saying is that there will be a lot of pain across the whole US of A to convert to functional settlement patterns.

    Two observations:

    One: As your own citation of a graphic of Waterloo, Iowa shows – another place EMR has not spent a lot of time – when you look at the settlement pattern from 50,000 feet there is more reason to be optimistic – a lot of these places have a functional armature to build on.

    Two: All those small places – even up to the scale of Duluth / Superior are a drop in the bucket compared to the economic engines of the nation-state as noted correctly by Florida in the March Atlantic.

    RBV:

    Bob Shiller did make some good points. However, he still does not talk in terms of human settlement pattern. He will soon.

    But then you say:

    “Anyway, if you look at the chart for Fairfax County (http://tinyurl.com/mad7j6), it has the highest number of Foreclosures with nearly 2,400.

    “But, guess what? Fairfax County is the place where most of the jobs are!

    “So, is Fairfax County also the place where most of the houses are the wrong size and in the wrong location?”

    This is a trick question, right?

    Fairfax has 2,400 foreclosures out of 350,000 Households. Prince William has 2,000 foreclosures out of 130,000 Households. Prince William is 2.25 times worse off and most of Prince William is still inside R=30.

    Fairfax is 244,000 acres spanning from R = 6 to R = 20. If you look where the housing market is weakest, it is a long way from the jobs in the County.

    You really need to understand geography and demographics before you ask questions.

    “I would say no if the wrong size house is "wrong" because it's too big and too far away from where the jobs are….I mean most houses in Fairfax County are smaller and closer to jobs, right?”

    No. Some smaller Dwellings are close to some Jobs – Holland Hills – but a lot of the Units that are close to the Jobs are big ( McLean / Tysons / Vienna & Reston) but the occupants work even closer to the Core. In other words lack of Balance even if the number of Dwellings is the same as the number of Jobs. Mismatch, not Balance.

    The path to salvation is Critical Mass AND Balance at the Alpha Community scale. There are 9 +/- Beta Communities in the area now covered by Fairfax County.

    The saving grace is if all the location-variable costs were fairly allocated (that is an informed market) most of these mismatches would go away. But there will be some hurt as Shiller suggested because of bad prior decisions.

    “Or, should we use some other metric, like "total square ft. in foreclosure", to determine where the wrong houses in the wrong location were built?”

    That would be interesting but not a solution. There are a lot of small Dwellings that have gone into foreclosure because of bad lending practices as we have noted before. Some are close to Jobs, some are not. The well located ones have found buyers.

    There are many Dwellings that are much larger than the occupants can afford and they are in the wrong location. Some have been foreclosed, many more are underwater and those in R=30 Plus will stay that way.

    EMR

  7. E M Risse Avatar
    E M Risse

    ERROR!

    Sorry I was going from memory without looking at a map. It is not "Holland Hills" it is Pimmit Hills near Tysons to which EMR was referring.

    EMR

  8. Anonymous Avatar
    Anonymous

    when they have their rush hour – there is no morning and evening "direction".

    Bingo.

    RH

  9. Anonymous Avatar
    Anonymous

    and now the workers have been replaced with machines.

    Just like every other business. We used to have teams of people with slide rules. Now we have a few kids with mathcad.

    I can see a time whenyou have to win a lottery to have the privilge of working. At most, we need fifteen percent of the population actually doing anything.

    RH

  10. Anonymous Avatar
    Anonymous

    Or, should we use some other metric, like "total square ft. in foreclosure",…..

    How about something simple like cost per square foot divided by years in residence?

    Focusing on foreclosures is looking backwards: looking forward, homes are more affordable than in some time–maybe decades.

    Things are looking up.

    RH

  11. Anonymous Avatar
    Anonymous

    "What you are really saying is that there will be a lot of pain across the whole US of A to convert to functional settlement patterns."

    Which is why it probably won;t happen. We will continue to muddle through, dysfunctional and reasonably happy.

    Especially if the alternative is pain, misery, lower expectations and 15 levels of government running our life.

    RH

  12. Anonymous Avatar
    Anonymous

    "Prince William is 2.25 times worse off and most of Prince William is still inside R=30."

    How many of those people who lost their homes in Prince Wiliam could even consider owning a home in Fairfax?

    Not ALL of PW is 2.26 times worse off as your simplistic hyperbole suggests. In fact, the family that lost its home in Fairfax is probably a lot worse off than the family that lost its home in PW, because they lost a lot more money. They may have even lost more money relative to their income.

    Of course, the people in Fairfax and PW that have not lost their homes are also "wose off" in tht their homes are not wrth as much. I imagine those in Fairfax had a lot more downside risk than those in PW.

    I don't think you can say an entire county is better off or worse off just by consdering forclosures.

    RH

    RH

  13. Anonymous Avatar
    Anonymous

    "The path to salvation is Critical Mass AND Balance at the Alpha Community scale. "

    Jesus is going to be really sorry to hear that. Especially after he gave up so much.

    RH

  14. Anonymous Avatar
    Anonymous

    "But there will be some hurt as Shiller suggested because of bad prior decisions."

    No. The hurt will occur because the rules were changed without the winneres compensating the losers.

    If there has to be hurt involved, then it is a bad policy to begin with.

    RH

  15. Anonymous Avatar
    Anonymous

    Larry:

    Is that your camper, or a rented one?

    RH

  16. Anonymous Avatar
    Anonymous

    "The well located ones have found buyers."

    What a crock.

    I bought a home, less than a mile from my office. It was wlll located and found a buyer, despite substantial problems.

    Then the office moved 35 miles out into the country.

    Then the suburbs grew up around it (again) and once again it was no longer a safe place to fire off rocket engines.

    So, they bought new facilites, 70 miles away and 1000 miles away, where they could detonate stuff in peace.

    My first house was "well located" for nine years: as far as my employer was concerned. After their first move, the Farm was no worse located than my first home, and after the second move the farm was more convenient, Although not very.

    If we really wanted to have well located homes, we would have mobile homes: we could just park them in the parking lot at the local Walmart, and walk to all our shopping.

    RH

  17. Anonymous Avatar
    Anonymous

    There are a lot of small Dwellings that have gone into forclosure but there are a lot that have been supersized, too. that have been supersized, too.

    RH

  18. Larry G Avatar

    camper is ours.. it's a pop-top… like the old VW campers but a Ford….

    re: settlement patterns and observations…

    here's the deal.

    I can't tell if EMR is advocating a RETURN to the ways that settlement patterns were originally done…

    or if he is saying that we've done them wrong from the get go.

    If it is the latter… then we've got a real problem on our hands…

    and that's why I mention places like Duluth, Richmond, Indiana, Waterloo, Iowa,, etc…

    MOST of these places have a central business district – which is surrounded by residential….and other mixed uses including some industrial…

    These places have been around for a long, long time and, in fact, long ago.. the Washington Area itself looked more like this.. and Fairfax was a rural enclave…

    EMR has also never really answered my question about who should plan and operate transit – if transit is going to serve a region.

    Regional Transit – requires a regional governance… no?

    Each beta community cannot just build it's own transit – right?

    so the deal is that transit (and their are others) is regional by it's very nature.

    It's functionality is directed rooted in it's regional nature.

    So I ask this question – don't we need.. for some things…MORE than local governance at the Beta scale?

    yes or no?

  19. Anonymous Avatar
    Anonymous

    My parents had a dodge van remanufacured into a mini home. Traveled all over in it while they were retired.

    I go off to work and discover the van was in the back yard and think, Oh, goody, Mom and Dad are here to visit.

    Then I'd come home and they would be gone. I was just a station on their way…..

    They liked the small size and easy operation of theirs and used to laugh at the antics of people trying to manage and operate what amounted to behemouth rolling warehouses full of nonessential crap.

    RH

  20. "Not ALL of PW is 2.26 times worse off as your simplistic hyperbole suggests. In fact, the family that lost its home in Fairfax is probably a lot worse off than the family that lost its home in PW, because they lost a lot more money. They may have even lost more money relative to their income."

    Precisely.

    And, the people in Fairfax are closer to jobs….talk about adding insult to injury!

  21. Larry G Avatar

    we've been out 30 days… in all kinds of campgrounds and other than the tenters, we're the smallest rig…

    pop-top trailers are still very popular. Conventional trailers are also.

    the big bus rigs.. many with cars in tow are around but tend to go for the "parking lot" type campgrounds rather than the rustic ones.

    The fifth-wheel pulled by a 4-door pickup is becoming very ubiquitous…

    we're pretty much "out in the weather" unless it is truly nasty and we retreat to the van.

    we have a screen house and a tarp.. which we use when it is rainy or buggy or both.

    our electric is an extension cord.. to some power strips along the inner wall.

    we have 2 4-gal water containers and a Coleman Hot Water on Demand (a camping version of a tankless water heater).

    two coolers – a square 5-day for our food and a smaller one for ice/drinks…

    we tend to go for the electric sites so I can power the computer and she can power the microwave… but we can do without ..and do.. and have..

    right now.. we sit in Natural Tunnel State Park – way off the beaten path.. in the Western Va mountains..

  22. Larry G Avatar

    re: zip code foreclosure data

    here's what I notice – I notice where the % of foreclosures is nil… almost zero…

    and it represents a huge chunk of the US… the places where we often travel…

    there are "For Sale" signs and even an occasional "Auction" sign but absolutely nothing like we've seen back in the Fredericksburg and NoVa area.

    One reason is that in much of the rest of America.. people keep the house they bought.. for a long time…

    and so.. they are not affected by the ups and downs of them market..

    it's not that they might not be able to "trade up" if they wanted to but most of them are not in that game – as more than a few folks seem to be in the more mobile urban areas…

    what killed many folks .. was the fact that they kept buying higher and higher properties.. because they thought they were safe as long those properties appraised ok on paper.

    they never suspected that the entire housing/financing business had, in effect, become a giant ponzi scheme…

    most of the folks outside of the urban areas – were a whole lot less susceptible to this and so .. when you look at the zip code data.. you'll see entire counties that have less forceclosures than you can count on one hand.

  23. Anonymous Avatar
    Anonymous

    This morning i saw six trucks going down the road with prconstructed ouse parts.

    Something must be looking up, somewhere.

    Larry: my boat runs on the same philosophy: less is more. I keep the electonics and power requirements to a minimum, and I have a lot less stress than my friends who need a technician with them just to go sailing.

    RH

  24. Anonymous Avatar
    Anonymous

    "Relying primarily on energy efficiency, renewable energy, and natural gas will increase electricity costs by 90% in 2030. Adding clean coal and lots of nuclear power to the mix will keep cost increases to a mere 50%."

    If you think health care is expensive, hang on to your wallet. This is going to increase everything by 50%, not just your electric bill.

    RH

  25. Christian Loan Modification Avatar
    Christian Loan Modification

    Whether the map provides a "fuzzy" foreclosure picture or not, the reality is that 1.5 million homes in the first half of this year have been in foreclosure. Regardless of where they are, too many homeowners are losing their homes to foreclosure. The terrifying reality is that homeowners everywhere are frightened that they might be next. Foreclosure isn't merely a statistical problem, it is a problem that is affecting our families, our children and the stability of our communities.

  26. Anonymous Avatar
    Anonymous

    On my ride to work there are four substantial housing developments under construction. Someone has high hopes.

    RH

  27. E M Risse Avatar
    E M Risse

    THOUGHTS FOR LARRY AND CHRIS

    To clear up some issues on this string:

    Larry said”

    “So I ask this question – don't we need.. for some things…MORE than local governance at the Beta scale?”

    Larry, you must know by now this is a meaningless question. There are Beta components at every scale from Dooryard to MegaRegion. There are POTENTIALLY Alpha components at every one of those scales as well.

    What you mean to ask is: “Is there a need for a governance Agency at every level of component from the Cluster to the MegaRegion?”

    The answer is yes. Agencies will take longer to reach consensus but far more citizens will be involved with and understand their Agencies and the results will be VASTLY more intelligent. They will also be far less consumptive because knowledgeable, informed citizens will demand a fair allocation of costs and can replace Governance Practitioners far more easily if they make self-serving decisions – such as decisions that benefit political clan donors and not the citizens they represent.

    In another post Larry says:

    “here's what I notice – I notice where the % of foreclosures is nil… almost zero…

    and it represents a huge chunk of the US… the places where we often travel…”

    Larry, you are lost in scale again. What you are seeing is in the 95% of the US of A where a max of 15% of the economic activity takes place.

    You tour like my father did, just after WW II – he avoided every ‘city’ he could – “You have seen one ‘city’ you have seen them all.” Now one can use the Interstate and avoid everything. When you get off and drive around you see, just what you report.

    Your observations are correct, they are just not relevant to the future trajectory of the contemporary First World, technologically based and competition driven society. Reread Richard Florida in the March Atlantic with care.

    Christian Loan Modification (can we call you Chris?) Said:

    “Whether the map provides a "fuzzy" foreclosure picture or not, the reality is that 1.5 million homes in the first half of this year have been in foreclosure. Regardless of where they are, too many homeowners are losing their homes to foreclosure. The terrifying reality is that homeowners everywhere are frightened that they might be next. Foreclosure isn't merely a statistical problem, it is a problem that is affecting our families, our children and the stability of our communities.”

    This is all true.

    In today’s news: Deutsche Bank says half of all mortgage holders will be underwater by Jan 2011.

    Please reread Richard Florida.

    EMR

  28. Larry G Avatar

    re: " half of all mortgage holders will be underwater by Jan 2011."

    not the vast majority of of folks who bought their homes some time ago and stayed in them and now have positive equity even in the cases where a substantial value loss has taken place.

    I think we've got some folks who are looking for reasons that fit their agendas but we need to understand how this happened and why a large number of people of not affected by it – because if we understand that – we understand more than we think we do right now.

    the people who are underwater or will be got that way – HOW?

    It's not because they bought a house in a wrong place.

    It's because they paid a lot more for the house than it was worth – and many of them were essentially gambling on the transaction… never planning on keeping the house as a primary residence but rather using it as an investment vehicle.. some of them …even taking out what little equity they had in them to start with.

    this is not about wrong house, wrong place – this is about modern financial ethics and responsibility.

    When you are a person who takes out a liar-loan ARM… you are no where in the realm of wrong location but everywhere in the realm of trying to make a buck off on something ..many folks ..consider – something you don't gamble with – the residence that your family depends on.

    This is true of folks who live inside urban areas also… in fact.. in many older.. neighborhoods…

    look around at where the damage is worst.. new homes.. suburban homes, condos… townhouses, etc.

    what we must do here is to strive to understand the truth if we are to learn and benefit from this experience.

    yes a lot of folks having gotten hurt and more will also but what role did they themselves play in this?

    I was taught that a home equity loan was a SECOND Mortgage – and not a good thing – unless one had a very, very good reason that left them with few options.

    this is not what happened to most of the folks who are underwater…. essentially they did not exercise prudence… in their own financial affairs..

    sorry.. that's the brutal truth here.

  29. Anonymous Avatar
    Anonymous

    "…not the vast majority of of folks who bought their homes some time ago and stayed in them and now have positive equity even in the cases where a substantial value loss has taken place."

    "It's not because they bought a house in a wrong place.

    It's because they paid a lot more for the house than it was worth – and many of them were essentially gambling on the transaction… never planning on keeping the house as a primary residence…."

    ——————————-

    We can put some of the blame on right to work laws and the rise of termination at will. Combine that with chnges in the retirement laws and you get a lot of churn in jobs which leads to churn in houses.

    On top of that we have rules that make it hard to get your money out, and keep it, if you sell a house. It is particularly hard if you have investment property. As a result it is far easier, and more profitable, to just borrow against your equity (interest is tax deductible).

    Do this a few million times, and the total level of risk can creep up on you. There is PLENTY of blame to go around on this, from individuals, to government, to corporations, to special interest groups promoting home ownership for those that could not really manage it.

    Gambling on the transaction. I don't understand this attitude. EVERY investment carries risk. It is ALWAYS a gamble. Short term profits are a neccessary precursor to long term profits.

    Sure, you could get a modest home in a stable neighborhood and stay in it for decades, at a low rate of growth in equity. That is not necesssarily a lower risk, or a better financial outcome. You could pass up a couple of lucrative job chnages, that would ALSO let you flip a couple of homes, for a quick profit.

    Unfortunately, you can't keep that profit, unless you shelter it by rolling it over into a larger and more expensive home.

    It is a trap, fomented (partly) by government policy, and a good example of what EMR calls good (self-serving) individual decisions which lead to an overall bad public result.

    But what EMR (and Larry) never say, is what are the alternatives?
    Suppose you spend less on your home and you have more moneyleft over every month. or suppose the government doesn;t force you to roll your money over into ever larger and more expensive homes (as I imagine even EMR has done)?

    What kind of GAMBLE will you put the extra money into then? You gonna buy more life and health insurance?

    Talk about a GAMBLE?

    You could be in the stock market and GAMBLE your broker doesn' put the money in Bernies hands.

    You could put in a money fund and GAMBLE that inflation doesn't eat you alive.

    Sorry, I just don't see the argument that we are better off by avoiding risk and profit. I don't see the argument that society is any better off, either, unless we can determine which social efforts lead to a net social benefit without harming anyone in the process.

    ————————–

    I know people who are underwater, and it has nothing to do with what they did. This is like buying a car, driving it a few thousand miles and having someone else crash into it. You could be underwater on that, even after insurance, through no fault of your own. MAYBE you cuold have made a bigger down payment, and avoided being upside down—-but you are STILL out the money. Only now it is your money and not the lenders. You could have bought a lesser car, but neither of those options necessarily means the end result is any better.

    There is no point in holding up an impossible standard of personal conduct in a world where we know that chaos reigns.

    RH

  30. Anonymous Avatar
    Anonymous

    "It's not because they bought a house in a wrong place."

    The burden of obiviousness and what Dr. Risse calls Geogrphical Iliteracy.

    Look at the data, the right place dwelling have not gone down in value, even if most would agree they were over prices.

    The 50 percent under water will primarily be recent purchaces in the wrong location.

    RJM

  31. Larry G Avatar

    re: it's the Govt's fault because they forced us to gamble with our money.

    BAHAHAHAHAHAHAHHA

    the Govt does NOT OWE YOU sure-fire investment products…

    that's up to you.

    that's why they call it due diligence.

    you earn your money – and then you use the same brain that allowed you to earn that money – to NOT fritter it away on foolish things…

  32. Larry G Avatar

    " The 50 percent under water will primarily be recent purchaces in the wrong location."

    you're essentially saying that wrong home in wrong location called the collapse of housing values – when the data says otherwise.

    You might find some correlations to your theory but what about the obvious contradictions that don't support that theory at all?

    Someone that bought a house 20 years ago and has 2/3 equity in it – and plans on staying in that house – is not materially affected if that house went up 3 times it's initial price and then dropped back to 1 1/2 of the inflated value.

    It's all a paper gain and paper loss and the bottom line is that they are not underwater and will not ever be underwater unless housing drop to 1/3 or 1/4 their original values.

    Across this country both in urban and rural and in between, there are folks who bought houses 20-30 years ago and never intended to use that house as a money-making investment but rather as a permanent residence that at some point late in their life might function as a nest egg.

    The problem that we got into was that more and more folks started to believe that a house could function as an investment vehicle and they believed that in buying and selling houses – that it was essentially a risk-free way of increasing one's assets and besides everyone else was doing it and the mortgage companies were essentially giving money away anyhow….

    this is not about settlement patterns.. this is about terminal dumbness….

  33. Larry G Avatar

    you know.. they tell you.. not to make decisions about stocks and bonds and those kinds of investments unless you have the knowledge and background to be able to make prudent decisions.

    Buying and selling homes.. and for that matter property – as a way to make money – also – should be left to those who have made it a career …

    and folks.. this does not matter whether you're doing this in an urban area or a exurban area or rural or in between.

    to confuse this aspect of the ongoing problem with the issue of what kind of houses are built and where…

    really.. in my view.. muddles things substantially.

    you could have a perfect settlement pattern – but if you have folks buying and selling properties in that settlement pattern who do not understand the market and value of those homes.. they will come to the same grief that we've seen going on in the current market.

    1. – The Govt does not owe you an investment environment that will reward you no matter what you do.

    2. – Confusing your "shelter" where you and your family live with an investment vehicle is bad karma….

    3. – If you want to gamble and have fun at it while minimizing the potential loses – buy a lottery ticket but don't your home for such entertainment.

  34. Anonymous Avatar
    Anonymous

    "Look at the data, the right place dwelling have not gone down in value, even if most would agree they were over prices."

    So if the price hasn't gone down, then it is ex poat facto, in the right place, and if it has gone down, then it isn't.

    That isn't a criteria that isvery useful in planning. And it doesn;t say anything about what happens if the price goes down for no reason related to location: like a major business relocation.

    If that happens, suddenly a lot of homes are in the "wrong location".

    It is a truth that proves itself, with that kind of proof EMR can easily fulfill his goal of never being wrong, contradicted, or refuted.

    RH

  35. Anonymous Avatar
    Anonymous

    "the Govt does NOT OWE YOU sure-fire investment products…"

    No, but the governments main business is to protect your person and your property. The government DOES owe you if they take deliberate actions that undermine your investments in favor of those of others.

    RH

  36. Anonymous Avatar
    Anonymous

    "Buying and selling homes.. and for that matter property – as a way to make money – also – should be left to those who have made it a career …"

    Oh, you mean the speculators?

    RH

  37. Anonymous Avatar
    Anonymous

    "re: it's the Govt's fault because they forced us to gamble with our money.

    BAHAHAHAHAHAHAHHA"

    You buy a home and live in it for a few years, with substantila gains. Your company transfers you to another location, so you sell your house.

    You can Either:

    1) Pocket the profit and pay taxes on it, in which case you recognize that loss immediately and permanently. Then you can TRY to find a hoome in your new location at a price equal to what you originally paid, that is, not move up in housing. If prices are rising more or less everywhere, good luck with that.

    2)Shelter your profit by rolling over into a more expensive home, even if it is no larger and finer than the one you had.

    You don't see tht government rules make number 2 far more attractive and realistic?

    No, the government does not "force" you to gamble with your money: they just take it away if you don't.

    RH

  38. Anonymous Avatar
    Anonymous

    "…..Oxley Woods, already features 90 eco-friendly homes, with 55 more planned to fill its seven acres. The factory-made dwellings make good on prefab's promise of low cost and quick construction. They take as little as $118,000 and seven days to erect: five in the plant and a day and a half onsite, where crews slide and screw together the modular pieces. (Electrical, plumbing, and other finishing work takes another four weeks.) Manufacturing the major components offsite reduces waste and makes it easier to use green materials, like insulation from recycled paper and lumber harvested from sustainably managed forests."

    Wired Magazine

    Housing can be affordable and green
    , although I fail to see what is green aobut 140 dwellings on 7even acres.

    RH

  39. Larry G Avatar

    " The government DOES owe you if they take deliberate actions that undermine your investments in favor of those of others."

    Nope they do not.

    They can outlaw something and all those who depend on it are out of luck.

    that's why we have so many lobbyists and money in campaigns and elections.

    right?

  40. Larry G Avatar

    " You don't see tht government rules make number 2 far more attractive and realistic?

    No, the government does not "force" you to gamble with your money: they just take it away if you don't."

    Oh.. I see them …

    let's say you make money on something else – like your job.

    don't you have the same choices as to how to "shelter" your money?

    The government doesn't owe you an advantageous investment environment – for any money – that you might have obtained and want to protect and grow.

    The government WILL help you shelter ..what 100K per bank account?

    That's HUGE Ray…

    They'll also let you buy govt securities and that's HUGE also.

    re: speculator

    no – not necessarily.

    A developer and/or a homebuilder can develop substantial expertise and abilities to accurately judge the value of land and properties and to make a good profit from buying and selling them – but buying and selling does not mean that any and all of it are speculative at least in an extreme sense which means in most folks minds …esceptionally risky practices.

    But if you are not in the business…making a living from buying and selling properties and you want to engage in that activity as a once-in-a-while newbie.. then you've got a fool for a client …

    and no.. the Govt does owe you anything for being a fool with your money… nor does it owe you anything even if you are an expert with money.

    It is a "good" thing if the Govt strives to provide a stable, predictable business environment – say compared 3rd world countries where the economy is so volatile that folks with money won't invest there.

  41. Larry G Avatar

    "affordable housing" has a fairly precise definition – housing that consumes between 1/4 and 1/3 of your income.

    any locality is free to do a survey of the median local income and then offer exemptions and incentives to anyone who want to build that number of "affordable" apartments/homes – at a profit but a modest profit.

  42. Larry G Avatar

    the troubles with wrong home in the wrong place logic are legion.

    Take an existing urban area like the core downtown of Detroit or for that matter the hundreds/thousands of smaller towns that have lost their primary employers.

    Some of these places would surely qualify for much of the criteria that EMR advocates – except for one small problem – jobs.

    Without jobs… settlement patterns become if not irrelevant …certainly not at the fore of issues.

    and as more than a few folks in this blog have discussed – the need for "more places" – as the antidote for too many people and too many cars, too much congestion.. lower quality of life, etc…

    we all know that telling employers to leave Fairfax and go to Fredericksburg as their part of the "more places" would be .. is… a futile exercise…

    Even the Feds would not do it. Instead, they do a BRAC and move the jobs to Belvoir and Quantico – which don't have these large people-moving systems …

    this is why I have asked EMR – at what level do we coordinate transportation beyond the dooryard scale…

    Whose responsibility is it to plan and provide for the people-moving systems when the Feds choose Belvoir and Quantico ..and the contractor companies who will follow?

  43. Anonymous Avatar
    Anonymous

    "let's say you make money on something else – like your job.

    don't you have the same choices as to how to "shelter" your money?
    "

    No, you do not.

    If you make money on your job, you WILL pay income taxes on that money. After that, you can spend it as you see fit.

    If you make money on your house, then you can EITHER pay taxes on your earnings now, and then do with the remainder as you please, OR you can roll all the money over into a new home, and shelter the income from taxes.

    It is two completely different scenarios because in one case you have a choice and in the other you do not.

    And, if you must move for some reason, everyone else has probably mad a similar gain on their house, which means that all your "gain" probably buys you a similar house, if you have a similar mortgage balance. But, buying a new home, you can now get a larger, better, fancier home – with he same mortgage payment each month – by taking out a 30 year note instead of replacing your previous note with fifteen years left on it.

    On a monthly basis you are no worse off, and you have NOT TAKEN OUT MRE LOAN THAN YOU CAN AFFORD. You haven;t done anything fiscally irresponsible.

    But, you do have a situation with both more upside gain possible and more downside risk possible. You have more upside gain possible becasue you have relatively little of your own money in it, and leverage works in your favor if it goes up.

    Leverage works both ways. If the home value goes down, it can easily go down more than you have invested in it, and then you are upside down. You have a problem, but it is manageable as long as you are employed. If you become unemployed and cannot make the payments, it becomes the bank's problem, because they agreed to the terms of the loan.

    The banks, of course, can appeal to the government (us) for a bail out.

    RH

  44. Anonymous Avatar
    Anonymous

    "Nope they do not."

    Actually, they do. The government accounting office, among others, has said that the government has no reason to make any law that does not provide a net public benefit.

    The government can take whatever it likes, from whoever it dislikes: the Nazis did that. We expect our government to behave better than that, lobbyists or not. The Nazis had a strong lobbying campaign against the Jews, what they did not have is strong laws to protect the minorities.

    If the law provides a net public benefit, then there is no reason for the winners not to pay off the losers. That is how you protect the minorities, by having and enforcing strong property rights.

    The gun lobby can lobby for the right to own guns, but if they start lobbying for the right to use guns in armed robberies, then we would probably object.

    There is a difference between lobbying for what is yours, and lobbying to take what is not yours.

    RH

  45. Anonymous Avatar
    Anonymous

    "any locality is free to do a survey of the median local income and then offer exemptions and incentives "

    Yes, they are free to do that, and the insurance companies are free to offer insurance at group rates to any group that forms a co-op.

    Why hasn't it happened?

    Because there is no money in it.

    RH

  46. Anonymous Avatar
    Anonymous

    "we all know that telling employers to leave Fairfax and go to Fredericksburg as their part of the "more places" would be .. is… a futile exercise…"

    That is a gross assumption.

    WE tell people where they can build homes, why not tell them where they can build offices?

    The problem isn't that we cannot tell them what to do, or better, offer them incentives to do what we want done: the problem is that there is no authority with a vested interest in doing so.

    Fairfax has no interest in telling its businesses to move to F'burg.

    VDOT probably does.

    So the question is whther it is worth the money VDOT would save on road work to pay businesses to move someplace else? Maybe F'burg would throw some money in the pot, too.

    Of course, they would have to raise taxes to get the money, and then someone like Larry would complain about his money being used to benefit (former) commuters or anyone other than himself.

    But then, that is why we have taxes.

    RH

  47. Anonymous Avatar
    Anonymous

    "The government doesn't owe you an advantageous investment environment – for any money – that you might have obtained "

    I never said they do.

    All I said was that if they have rules that induce you to make an investment, and then change the rules to lower the value of your investment (ostensibly for the better public good) THEN they owe you the value of your investment that has been lost.

    Suppose the government offers you a bond at 5% interest and you buy 100,k worth of bonds. Then they change their mind and unilaterally lower the interest rate to 2%, without giving you the option of getting your money back.

    We would never stand for that, and yet that is EXACTLY what happens if you buy property with the government sancioned potential for three lots, and then they reduce it to one through some rule change.

    Sure, you could cynically argue that the "public" is better off if they only have to pay 2%. Except the poor slob who lost 3% is also part of the public. In this case, if the winners pay off the losers, they are clearly no better off: it is a wash. Therefore it is clear that there COULD BE NO REASON for the rule change, EXCEPT TO STEAL FROM SOMEONE, in favor of others.

    THIS, the government has NO RIGHT to do.

    They may hae the power to do this, and they may do it allthe time, but that does not make it right.

    RH

  48. Anonymous Avatar
    Anonymous

    The reason government bonds are secure is tha we expect government will honor their promises, and protect our property rights.

    We should expect and demand no less for other government promises under which we make investments. This does not mean government cannot change the rules, just that they have to pay for property taken for public use.

    RH

Leave a Reply