tag:blogger.com,1999:blog-34234358.post2795224779561535944..comments2022-05-13T06:38:48.903-07:00Comments on Bob Vila Would Not Approve: Yet Another Way to Fund HousingBenjamin Supnikhttp://www.blogger.com/profile/04886313844644521178noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-34234358.post-38234395682167735432009-04-08T07:19:00.000-07:002009-04-08T07:19:00.000-07:00Hi Larissa,Well, there may be several inputs to ho...Hi Larissa,<BR/><BR/>Well, there may be several inputs to housing prices...cost of funding is definitely a huge one, but there may be a separate speculative component. Barring a volcano, they're not making more "Manhattan" so a speculative price based on scarcity (and increased demand) might be built into that market. <BR/><BR/>On the other hand, I think that it's not necessarily a given that people will continue to assume ever-rising prices after this crisis is over...there's nothing quite like losing 25-50% of your house's value to reset expectations. This is why I worry about moral hazard - people will learn _something_ from crisis - the lesson learned may be heavily modulated by the solution we end up with.<BR/><BR/>I think you are correct that unsophisticated buyers wouldn't utilize an optional financial product like capital gains insurance. Mortgage insurance is required by the underwriter, but my scheme is trying to get rid of them!<BR/><BR/>If the goal is to keep housing prices from becoming inflated (and not to promote ownership), perhaps a reasonable goal is to let the holders of mortgage-based securities (MBS, CDOs, etc) simply fall flat on their face...a clear message of "there is no bailout" would cause them to increase the down-payment requirement a lot.Benjamin Supnikhttps://www.blogger.com/profile/04886313844644521178noreply@blogger.comtag:blogger.com,1999:blog-34234358.post-64583396509006289502009-04-08T07:12:00.000-07:002009-04-08T07:12:00.000-07:00Since I still don't think we should be paying as m...Since I still don't think we should be paying as much as we do for houses, I've gotta say this treats a symptom rather than the problem. The symptom is that people have huge principal loss exposure on their leveraged house purchases. But the problem is that they are using borrowed money to buy their houses, which has driven the prices way up. If people were buying their houses with cash, the prices would be lower, and the volatility would be less compared to their incomes. All we have to do is make it harder for investors to loan to homeowners, and the problem will be solved, with far more transparency to the owner.<BR/><BR/>Frankly, is the kind of marginal homeowner who is getting hit worst by the volatility really going to pay money for this kind of insurance that they don't understand? People assume their houses are going to go up. Even when this correction's over, they'll continue to assume that. Who would want to pay to only get half of that?Larissahttps://www.blogger.com/profile/01747293779537358946noreply@blogger.com