House of Paine

the housing bubble may never burst

  i've kinda danced around thiz 
house bubble biz

cause 

unlike nasdaq type stocks

this frightful "value " bubble 
                 
      may torture its victims

               very very differently 
 NOT WITH
      ONE BIG BAD BLOW 
            BUT 
                    SLOOOOOOOOW   AND STEADY          

===================================
     


the nasdaq croaked in ' 01

lost 60% of its value 
in a matter of months 

how about yer house

could its bubble 
              blow   likewise ?


not likely
-----------------------------------------
 first off

  we need  to know
        if indeed
          house values are too high

           why ?


number one
 
Uncle's pumped in trillions 
of public credit dollars
thru
fanny mae and freddy mac

and 
recently
at interest rates
 the greenman
  has kept nice and lowly

such that

number two

  everytime 
a house sells for more
cause of greeny's
lower interest rates 
  all  existing houses
 experience 
a "notional "
or "paper" equity rise

 which creates
 a borrowing opportunity
of its own
even if the house 
never goes to market

up and up prices go

as inteerst rates fall

and then there's the over shoot
as spec madness sets in......

hence the bubble arrives

now 

    where's most of
           the bubble 
                            hiding out?

not in houses themselves

they have building costs

replacing  the existing
housing stock
would 
cost   $x per square foot

that rises 
 at the rate 
         of 
              actual building costs

so there can not be 
any
 long run 
 air balls here




then how about
 in the" development process"

yes indeed
 
" economic rent" dollars
 result from a build up of demand
when the supply is
restricted

ie
when 
the rate of 
 new building 
 "falls behind' demand 

these goodies
are shared out 
up front
between a cast of co-conspiritors

we call 

town fathers
and 
community leaders

(ie real estate moghuls and their public flunkydom)

but thats only 
on first sale 
just built houses

for the rest

the development rent

is 
part of 
the  inflated  lot values

thats right 

the lots value 
is  
totally soft

a pure demand driven
                         artifact

ultimately
tracking at about

30% of monthly income

plus the ups and downs of mortgage rates


in theory

they're 

as pop -able

 as  nasdaq stocks 

if maybe the market takes a vicious interest rate spike 


but in reality

prolly 

nope

 even though
  there's nothing
more   real 
about real estate lot values 
then dot.com stocks

  still ....
-------------------------------------------

  here's the diff

say the mortgage rate
 does spike

goes up 
by a healthy amount

say from 5% to 7%

 new buyer monthly
pay outs
will
 go  up by what 30%

given income growth as
negligable 

  
 the new house 
 purchaser's availible income
won't go sa far anymore

that might  cut 
the value of the house
 he can afford 

by hey 
 
                     25% 

generalize this up and down the scale

 and

yup 
yesterdays 
20% equity home 
is todays 
 underwater house


if the  market goes under water
 like that

  what happens  next is where the diff comes in ?



sure 

it floods over
trillions 
of mortgage dollars 

and 

imagine if nasdaq was owned 
the way most houses are owned
 by 20%'ers 

in stockworld
these might well be 
          margin players

now ifmargin players
had  been the preponderant participants 
              on nasdaq

sometime in '01

the whole deal 
woulda got called 



called back to hell

"put up the diff
homer 
     if u 
can't cover yourself
  stocks ours"

and then
ka-pooph....

in the insuing panic

the 60% off
that really happened

 might a  looked like
    a heveanly deal

for a while anyway
that is


 be4 things settled down

after the big sharks 
cleaned things up 
 

but
the  home sweet home market
runs differently


long 
as   Homer pays his monthly

don't matter

 if he's operating under water

thats a real nice off set

no margin  call option
 for the bankers
on mortgaged houses

no 
  actually 
 the mortgages act as props

keeeping the market price up

can't sell
 if you can't pay off
 the mortgage
right?

this instead 
keeps 
 the supply of houses
                    up for sale 
from balloon out

until to  clear em all 

 prices crash thru the floor

trying to get down to the buyers 
affordability range 

but 

we do get the foreclosure thing

a slower nastier brutality

plus homer stays put of course

stops climbing the house lot value ladder 

and first buyers 
well their dreams
are postponed

cause prices don't come down
to off set higher interest rates

and and and 

and a building contraction 
 slows the growth of the housing stock

till incomes rise enough
to buy the houses at above mortgage repay prices
and
well the cycle starts again


heres where ya get
   a thousand cuts
 before death

the chance to cut housing costs
like 
clothing and food cost 
have been cut over the last 150 years
as a share of household income 



well
when it comes to shelter
can't happen
nope land values eat up the diff

never happens


yes unlike stocks


there's no sudden wipe out

 ===================

pinky's zero out lot swop

ground rent tax scheme 

aka

the chief dan 
mister bill
and henry goerge 
   one tax fits all 
                 lots and plots 
                              value  wipe away

 

gee willikerswhat the fucks that?

simple

follow me here...

results first:

   lot values
could be effectively 
taxed awayto zero 
              for the public good

instead of paying 
   that extra amount
 each month in interest payments
          homer would pay 
 into a  public fund
             that built houses 

now that hurts existing home owners values
so they'd be agin this 

hence bush's ownership think



but uncle could allow 
a debt swop in 
cause uncle either owns the debt all ready
or could if he didn't

so
that cost of interest 
 covers  tax increases

for those with enough equity 
so even part of their lot value is theirs
such that 
 they got tax obligations now 
in excess of theirformer  interest payments

uncle issues each and ever one of em
a bond 
with a coupon equal
 to the tax 
on that portion 
          of the lots value  not under prior mortgage

               


hee hee hee hee 

now we start to build build build

federal stuf
over power the town fathers

national housing shortage emergency 

a federal 
land draft

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