[lbo-talk] Bush touts tax cuts as fuel for house sales

Jordan Hayes jmhayes at j-o-r-d-a-n.com
Sun Mar 28 13:35:34 PST 2004


Doug writes:


> I don't see the bubble in the homeownership stats, but in the
> price/income ratios (or price/rental ratios), which are either
> at or near record highs.

Right, so my question is: can't this be explained by other-than-bubbiliciousness? Can't it just be explained as a one-time jump due to a significant shift in how we view the "cost" of ownership? The have-nots always weren't able to buy houses because they were "too expensive" -- meaning they a) didn't have a down payment and b) couldn't get a mortgage.

These two things have been erased _not by the market_ but rather by policy. And shouldn't the government be guaranteeing these loans anyway?


> That, plus the mad level of home equity withdrawal
> - $600-700 billion last year. Debt is increasing far faster than
> equity.

I think this also is a big change in the structure of the market, not in the bubble-headedness of the participants; the old "20% down" barrier is quickly fading. A LOT of people have figured out that if they put 20% down and then take 15% back out via a home equity loan, they have 20:1 leverage and _don't have to pay PMI_ (which can be as much as 1%/year in many places). I think homeowners have figured out that the 20% level was extremely conservative and I think they are right.

I guess it comes down to: what if what they all thought was 'prudent' in the past was just wrong?

/jordan



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