Mark Sadowski’s point that real estate does not appreciate in real terms is a good one, although I think it is a bit overstated. It makes sense that Amsterdam real estate hasn’t appreciated since 1628, because Amsterdam in 1628 was the center of Europe. By contrast, I don’t think anyone would argue that real estate in Orange County has appreciated a lot in just the last 50 years. So some real estate does appreciate. But perhaps not as much as the Hubbard-Mayer proposal needs it to.

You folks seem to have missed that.

http://www.irrationalexuberance.com/

Note that the index was set to 100 for the year 1890. It had a low of 65.6 in 1921 and a high of 202.8 in 2006. It currently stands at 145.2. The average over the period from 1946 to 1997 was about 111 The average over the period from 1890 to 1997 was about 100. The average from 1921 to 1942 was about 75. All of this implies we have much more deflating in the housing bubble to go and at the current rate of decrease (about 3.3% a quarter) it will take 2 years to get to the postwar average, 3 years to get to the century average and 6 years to get to the all time low. The rate of decrease will likely decrease so where ever we are going housing prices will probably fall for years. Robert Shiller was quoted in 2007 as predicting a bursting housing bubble would probably take about ten years to correct itself.

There is also the example of Japan. Their proxy for housing prices (the urban land price index) peaked in 1990. Since then prices have fallen about 60% as of 2007 and will likely continue to fall in 2008. I can’t find the link right now to the data (web site down?) It is complied by the Japan Real Estate Institute (JREI).

And lest you’re not convinced real estate does not appreciate in real terms ocer time consider this. Piet Eicholtz did a study of dutch real estate values in Amsterdam from 1628 through 1973. A glance at his graph of real estate prices over 350 years of data shows large variations but that the overall trend is horizontal. There is even one period from the mid 1700′s to the early 1800′s where housing prices fell for about 80 years. The link for the paper is here:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=598

In short I feel the Hubbard-Mayer proposal is a huge mistake.

At least someone read my post! Thank you sir $600B-$800B stimulus package. Now we hear talk of the stimulus being more like $1T! Who knows? But more importantly, who really cares? Just be ready to adjust your portfolios. Pehaps short government bonds (symbol:TBT) and the dollar (symbol:UDB)and go long gold (symbol:GLD)and for a quick pop in the 1st quarter of 2009 go long the S&P 500 (symbol:SPY). But always remember Japan and their fiscal stimulus results. Maybe nothing can actually work to reverse what is already in motion.

To Name:

Calculated Risk is a great blog but their tone now appears to be somewhat fixed on: “Its bad, getting badder and “Oh, by the way, there is no solution but some well-modulated collapse.’” I don’t necessarily disagree with their analysis or their solution. Everyone is brighter than me. My point about this program, as opposed to the fiscal stimulus, is derived from an investor’s perspective. I immediately go long the S&P if it gets enacted. That’s all. I do so, not because I believe it will work, but because many other citizens will see direct benefits almost immediately. Its all about restoring confidence. I stay mostly hedged against the S&P if Barack opts for the fiscal stimulus until I see it take hold. I feel he may very well enact a big one because of political demands by the Congress. They all just love their New Year’s pork!

http://www.calculatedriskblog.com/2008/10/housing-bad-policy-proposal.html

Niggling point on “the pork package of $600M-$800M” – shouldnt that be $600B-$800B?

Wasn’t this the same situation which started banks down the road that caused the S&L crisis (low rate mortgages fro 60′s & early 70′s going underwater as inflation accelerated)?

I don’t have any better ideas, but it seems there is a lot of unspoken risk built around assumptions that may really be beyond our control, like how well the FED will be able to control inflation later on.

Furthermore, regional housing markets are positively correlated, not perfectly correlated. While some markets may have returned to historic equilibrium values and are in danger of over shooting, others are still well above. Most notably, the home town of the authors, New York City (Of course, due to subsidized housing as part of their compensation package at Columbia, I doubt either has direct experience with buying here). User costs in my neighborhood imply prices at about 20 times rents, well above the historic of 12 times. Subsidizing mortgage rates simply keeps the bubble alive.

Finally, does this apply to loan amounts above the current agency amount (625K for NY and other high-priced areas, 417K for most others)?

In my opinion, as someone doing research in this field, the model they are using abstracts from too much to support such broad and relatively certain conclusions.

econospeak.blogspot.com/2008/12/hubbard-mayer-proposal-to-nationalize.html

Housing: Bad Policy Proposal
October 02, 2008

http://www.calculatedriskblog.com/2008/10/housing-bad-policy-proposal.html

This is just unfair to many people who saved and put big down payment in their houses (20% or more) compared to those who went for minimal or zero down (let’s say in the same neighborhood).
Also, so bets on housing went wrong and we have a bailout, but what about bets on stock market and 401ks, where is bailout for that?
Anyway bailout means few crooks will again behave irresponsibly and profit from it. We are nothing but encouraging bad behavior.
Why not just let things get corrected by its own means.
For future, if some institution becomes too big to fail then it should be split before hand. No one company should be allowed to become too big to fail.

Wouldn’t it make more sense to allow the Fed to determine how high the mortgage interest rate should be above the 10 year Treasury yield, rather than setting it to a fixed 1.9% above Treasury yields? In other words the indexing spread between Treasuries and mortgage rates should be a variable which is adjusted based on how overheated the housing market appears to be.