Two Interesting Perspectives on the Housing Bubble

My comments last month about the U.S. Housting bubble generated a lot of comments, however, it came before I started this blog, so they all came back via email. This will be your chance to share your comments with a wider audience than just me.

Since last month we’ve seen a further erosion in market value of homes across the U.S. with price deflation in almost all markets. The contagion spreading from the collapse of the subprime mortgage market and their back-end collateralized debt instruments, bonds and other financial delivery platforms has reached into the conventional mortgage arena as well as financial markets around the globe.

Being that we’re in a U.S. presedential election cycle, it was inevitable that this would turn into political fodder with candidates tripping over themselves upping the ante on who they’d bail out if only they had their hands on the checkbook. President Bush, bastion of conservative free-market forces himself, has jumped on board by opening up the FHA to distressed “misled” home buyers faced with foreclosure.

I viewed all of the bailout rhetoric as fairly benign but was introduced to a new perspective by an editorial in the Sunday Oregonian which follows.

For a more light hearted and humorous look, albeit bone chillingly sobering when you look at the numbers, check out this informative blog on poster-child examples of how we ended up in this mess, the “Real Homes of Genius” list (thanks to Floyd for sending this along). And just as a reference, our expedition vehicle that we’re living in has a footprint of 182 square feet. Keep that in mind as you read the prices that people have paid for <1,000 square foot homes.

Be well,



No Sympathy for a Bailout
Sunday, September 09, 2007

President Bush announced his intention Aug. 31 to reach out a hand to the “many Americans” who “may have been misled” in the subprime mortgage market.

Two days earlier, presidential hopeful Sen. Barack Obama of Illinois called for fining “predatory lenders” to bail out “hoodwinked” families. In California, Los Angeles City Councilman Richard Alarcon wants a $5 million revolving fund to “help homeowners on the verge of foreclosure.” The news media report on families losing homes, disabled owners facing foreclosure and newlyweds being tossed into the street.


Here’s one tale of subprime woe you may not have heard. Casey Serin, a twentysomething real estate investor in Sacramento, bought eight houses in four states with little or no money down, couldn’t sell them and couldn’t pay the mortgages, and so naturally began losing them to foreclosure. He then began keeping a self-pitying online diary he called

Serin hasn’t drawn much notice from politicians or the media, but real estate bloggers have so vilified him that CNet’s granted him the title “world’s most hated blogger.” And cases like his help explain the disconnect between public opinion and bailout-happy politicians and the elite media: According to a recent Fox News poll conducted by Opinion Dynamics, there’s 70 percent opposition to a taxpayer subprime bailout.

“It is amazing all the sympathy we are seeing from politicians for people who knowingly took out loans they couldn’t afford, often lying on their applications to do so,” blogger “srl” posted at the LA Land blog I write for the Los Angeles Times. “Usually,” added “Brian,” “when the facts are examined closely, we find people who . . . took a chance that house prices would keep rising, that they could remodel the kitchen, buy the truck and the motorcycle, put it on the credit card and pile that debt into the next refinance.”

You can find thousands of similar comments on scores of “housing bubble” blogs. I asked Patrick Killelea, whose blog ( has long predicted the current housing crisis, to quantify his readers’ feelings about a bailout. “It is easy to quantify,” he replied. “100 percent against.”

How can these people oppose helping out their fellow Americans? Easy. Many or most of them saw this crisis coming years ago — not through any real estate wizardry but by observing the signs that have been in front of us through most of this decade. In large parts of the United States the housing market turned into an obsession, a mania. So when the mortgage industry nearly collapsed this summer, Americans were fully versed in 100 percent financing, “liar loans,” “teaser rates” and “flippers.” There was no mystery here, no unforeseen “perfect storm.”

And yet now, just as the market is starting to cool and possibly provide buying opportunities, many of these folks — especially those patiently waiting out the bubble — find themselves crashing a pity party for the very buyers who priced them out of the market.

They are furious that the government appears interested in supporting overextended borrowers and high prices, and they cite data to support their position. According to the California Association of Realtors, 41 percent of first-time California home buyers in 2006 put no money down. The median down payment for first-time buyers was just $10,000. No wonder another blogger “jbunniii” writes: “No bailout is needed — most of the borrowers in trouble didn’t put any money down in the first place, so they will lose nothing by walking away.”

You don’t have to accept all of these arguments. There is no doubt that some big lenders confused and, in some cases, defrauded borrowers, with the tacit approval of Congress, the Bush administration and regulators. It’s also notable that “bubble bloggers” are not disinterested parties. Many are hoping that prices will fall so they can buy.

But it’s striking how little attention the views of the anti-bailout bears have gotten.

Politicians, by rushing to the defense of recent home buyers, give the appearance of endorsing price stability at historically high levels. This makes little sense in places like Portland, Seattle and Los Angeles, which rank among the least-affordable markets in America when housing prices are matched against income levels. Why should government favor today’s owners over tomorrow’s buyers?

“I make nearly 100K and cannot afford a home in California,” “JK” wrote on LA Land. “Using my tax dollars to help irresponsible people keep homes they can’t afford, while at the same time keeping me out of the market, will be enough to send me over the edge.”

A blogger on the edge may not sound very menacing, but this point of view is widespread, well-supported and worth listening to as we deal with the remains of the housing bubble.

Freelance journalist Peter Viles writes the LA Land blog for (