Contributor Post Created with Sketch. Nightmare on Elm Street: A Picture of The New Housing Bubble

 

No one has written as deeply and well on the financial crisis as Peter Wallison, once White House Counsel for President Reagan and now a senior fellow at the American Enterprise Institute. His core analysis: Beginning in the late 1990s, Fannie Mae and Freddie Mac — driven by the Clinton Administration and Congressional policy (read: Barney Frank and Chris Dodd) — pumped up a massive housing bubble that, when it burst, drove us into the financial crisis. In today’s New York Times, he has an op-ed, the title of which says it all: “The Bubble is Back.”

Down payments are again shrinking toward zero. Maturities are climbing toward the stars. Citing AEI’s National Mortgage Risk Index, Wallison reports that this past October, “about half those getting mortgages to buy homes — not to refinance — put 5 percent or less down.” So housing prices are again breaking away from their historic lockstep with the trend in rents and heading for the bubblesphere.

All this easy money has barely altered the level of American home ownership, which hovers around its historical place of 64% or so. Critics of tighter standards, Wallison concludes, “claim that people will not be able to buy homes. What they really mean is that they will not be able to buy expensive homes.”

Here is a chart that The Times did not include in the article, but that Wallison sent to his email list this evening. If looking at it doesn’t give you the willies, nothing will. Yes, the bubble is back:

There are 13 comments.

  1. J Climacus Member

    Clark,

    I’d like to see a debate between you and Jim Pethokoukis, who seems convinced that the problem is that there hasn’t been enough easy money, not that there is too much.

    • #1
    • January 7, 2014, at 5:36 AM PST
    • Like
  2. 4CuriousJohn Thatcher
    Clark Judge:

    All this easy money has barely altered the level of American home ownership, which hovers around its historical place of 64% or so. Critics of tighter standards, Wallison concludes, “claim that people will not be able to buy homes. What they really mean is that they will not be able to buy expensive homes.”

    If this is true? (about expensive homes), should I really care? In a family of eight kids, I would say. One of us, lives in an expense home, (in fact one home in IL) and a condo in FL. the others are in reasonable priced homes. I’m concerned my kids will be so far backed against the wall, home ownership for a young family trying to get started, is what I’m concerned about.

    • #2
    • January 7, 2014, at 6:04 AM PST
    • Like
  3. Richard Fulmer Member

    I wrote a piece in August 2012 for The Freeman pointing out that the federal government was again demanding that lenders lower standards to enable poor people to purchase homes. At the same time, the feds were suing banks for selling bad mortgages to Freddie Mac and Fannie Mae before the 2008 bust. These pre-2008 bad loans were also made at the government’s urging (more accurately – under government threat).

    • #3
    • January 7, 2014, at 6:05 AM PST
    • Like
  4. Profile Photo Member

    Don’t forget that George W Bush and Karl Rove are also major villains in the Housing crisis.

    • #4
    • January 7, 2014, at 6:57 AM PST
    • Like
  5. Mike K Inactive
    wmartin: Don’t forget that George W Bush and Karl Rove are also major villains in the Housing crisis. · 3 minutes ago

    I disagree. The villain, in addition to Carter, Clinton, Franks, Dodd, and Waters, is Greenspan. Bush should have known better with his MBA but politicians don’t know. Bush administration people testified before Democrat Congressional committees after 2006 and were abused about this issue.

    • #5
    • January 7, 2014, at 7:21 AM PST
    • Like
  6. Chris Gregerson Member

    Looks like we have 4 years until the bubble bursts. I think I’ll short that.

    • #6
    • January 7, 2014, at 8:26 AM PST
    • Like
  7. John Hanson Thatcher

    Bush did know better, and proposed legislation to help prevent what later happened (In both first and second terms), and the socialists in congress (Barney Frank & company) prevented anything from being done about it.

    • #7
    • January 7, 2014, at 8:39 AM PST
    • Like
  8. RushBabe49 Thatcher

    The value on my home, for tax purposes, is up 29% from last year. I’m not thinking of selling any time soon, and I don’t expect my taxes to rise that much, but they will be higher.

    In October of 2013, I paid off my 15-year mortgage, after 13-1/2 years. We’re happy.

    • #8
    • January 7, 2014, at 10:24 AM PST
    • Like
  9. SkipSul Moderator

    This bodes not well. Locally, lots of new property tax levies to make up for short budgets (read: imbecile local pols want to stay on the gravy train). My home has lost 20% of its “value” according to the county, but my taxes are UP 30% over 5 years.

    Lots of people are probably in the same boat. We took the last 5 years, did things right, paid down debts, but jacking property values will hit us again on taxes.

    PLUS lots more new housing to be built around here, with lots more to remain vacant and prey to vandals, meth labs (had one on my street a couple of years ago), and short-stay tennants who loot the place of all the fixtures at 3 in the morning.

    • #9
    • January 7, 2014, at 10:37 AM PST
    • Like
  10. Valiuth Member

    Hey, that housing bubble was the source of our prosperity. How can we be rich if we don’t sink our money into overpriced money pits. I need at least 4 bedrooms with 3.5 bathrooms and a minimum of 2200 sq Ft of floor space. Anything less is inhuman. 

    • #10
    • January 7, 2014, at 11:20 AM PST
    • Like
  11. Doug Kimball Member

    I brought up this topic back in early November and in a larger analysis in December. We are in a real pickle. Our banking system is not interested in the low yields mortgages represent. Placing all mortgage finance through captive GSE’s presents a huge risk if the bubble breaks. And the FED can’t provide free mortgage money forever. We need a careful strategy to privatize mortgage finance, including the break-up of Fannie and Freddy. Interest pressure looms and our huge debt leaves us vulnerable. These are the rickety stilts upon which financial meltdowns are built.

    • #11
    • January 8, 2014, at 1:19 AM PST
    • Like
  12. Ekosj Inactive

    Chriscojo”Looks like we have 4 years until the bubble bursts. I think I’ll short that.” // Unfortunately …. You probably can’t short that. And that is part of the problem with home-price escalation. Unlike most other asset classes where, if you believed them to be overvalued, you could “short” them; housing is a one-way bet. You can’t “short” my house. So if you think housing is going up up up … You buy real estate, bidding up the price. If you think housing is overvalued …. Your only option is to steer clear. There is no countervailing market pressure to the housing bulls. Unlike the last iteration of the housing bubble, this time really IS a bit different in that many of the buyers responsible for upswing in prices are CASH buyers rather then mortgaged purchasers. Last time this rodeo was in town, individuals “speculated” on their own home and used exotic mortgages to do it. Today the speculators are institutional investors paying cash … Blackstone et al. Blackstone has been a player in this market and is ( I believe ) publicly traded. You could “short” them if you chose to.

    • #12
    • January 8, 2014, at 3:18 AM PST
    • Like
  13. Little Ricky Cobden Inactive

    If home buyers had skin in the game bubbles wouldn’t be an issue.

    With the possible exception of war veterans newly mustered out of the services no one should be able to get a government backed mortgage without putting 10% down. And no government backed mortgage should be larger than the median home price in a given metropolitan area.

    • #13
    • January 13, 2014, at 5:11 AM PST
    • Like