Uncle Sam Gets into the McMansion Business
March 5th, 2008 by Chris KinnanThe so-called Stimulus Bill recently passed by Congress and signed into law by President Bush contains a provision to nearly double the size of implicit taxpayer guarantees given to home mortgages. The WSJ is reporting on the quick implementation:
The Federal Housing Administration raised the mortgage limits to a maximum of $729,750 for 14 high-cost counties in California, as the government began providing aid to homeowners required by the recently enacted economic-stimulus package.
The upper mortgage limits also will apply to loans purchased or guaranteed by government-sponsored mortgage companies Fannie Mae and Freddie Mac, FHA officials said.
This measure puts the economy (and eventually taxpayers) at real systemic risk in order to aid home buyers who are clearly wealthier than the average taxpayer. Sure, housing prices are too high in California and New York, but that’s not a federal problem and the government shouldn’t take actions like this to keep prices propped up. (Indeed, the government is also running affordable housing programs because prices are so high.)
Jumbo loans are riskier by definition, the underlying property is harder to appraise, and there is more room for fraud. If the GSEs, which are losing billions on their existing portfolios, ever collapse in a multi-trillion dollar meltdown, this bill will be one of the key turning points in the downward spiral. Its also a sorry example of the way, over time, that Congress twists government “development” programs into aid programs for the wealthy and sticks the next generation with the bill.
March 6th, 2008 at 1:44 pm
Boy, you really don’t know a damned thing about California real estate and economy, do you? Things aren’t like they were when you were out in Sunnyvale trying to capitalize on the dot-com boom (relax, it’s in your bio and I was in tech when Angel Eng. was getting off the ground).
These aren’t McMansions, either. A two-bedroom house in the Bay Area will cost you 1/2 a million bucks. Want to live in Berkeley or Oakland? Try $750,000. Or pay $600,000 and live in a gang-infested area. Condos in Emeryville start in the $400,000 range for the small ones.
You’re being misleading about “wealthy,” too. The cost of living is far higher in the SF Bay Area than in other parts of the U.S. My mortgage payment is 40% of me and my wife’s collective income. So while we “on paper” look “wealthier” than most of America, in reality we’re staunchly middle-class. My own home has already lost equity as a result of the mortgage crisis, which right now has far less to do with the individuals taking out the mortgages than with the way the debt was packaged, insured, and sold.
What kills me, Chris, is that you know this. You were in Sunnyvale during the dot-com boom (don’t freak out, it’s in your bio and I was tech at the time, so I remember your start-up). You know how expensive it is. You know that $750,000 doesn’t buy “McMansions” in the counties they’re talking about. Yet you’re being dishonest about it anyway.
March 6th, 2008 at 2:12 pm
Sickle, I wisely RENTED in when I was in California because I couldn’t afford to buy a home there…
Now, Congress is forcing taxpayers nationwide to underwrite home purchases that far exceed median home values. It’s crazy and its regressive and its wrong. Also, a quick search of realtor.com reveals this home in Martinez, CA, one of the qualifying counties, which meets my definition of McMansion and is for sale for $775,000. I’m sure there are many others….
258 EXPLORER WAY
MARTINEZ, CA 94553
March 6th, 2008 at 5:47 pm
Housing prices being too high *is* a problem for govt….who else is going to get those prices under control? That house above doesn’t look like a McMansion to me…it looks like a nice house in the SF Bay area. The cost of living is outrageous out there. We I used to tool around CO, the starting homes out there were in the 300s and 400s (that’s thousands of dollars BTW), and, here in VT, if you find something for less than a quarter of a million dollars you’re either really lucky or living in a dump.
March 6th, 2008 at 6:06 pm
Yeah, Martinez is in Contra Costa County, where I live as well, only I’m in Richmond. Richmond, El Cerrito, San Pablo, etc. have a VERY DIFFERENT real estate market than suburban Martinez, and it is these communities that are the most effective. Here’s a $639k house, 2 beds, only 1600-sq.-ft., in El Cerrito, just blocks from where I live:
http://www.zillow.com/HomeDetails.htm?zprop=18525034
That’s the asking price NOW. According to the SF Chronicle, home prices in that zip code have dropped an astonishing 34% in the past year. You’ll note that most of the homes out there are in the $450-$650 range, with the cheapest at only about 1000 square feet. Those same homes were going for $550-$950 only a year ago. Which means that house was close to $700 grand before, if not more. Move down South to Alameda County, and that same square footage will cost you almost a million dollars.
Way to cherry-pick there, Chris. Like I said, you don’t know the market out here, as you yourself admit (you “RENTED,” as you say).
March 6th, 2008 at 6:07 pm
sorry, replace “most effective” in the first paragraph above with “most affected”
March 6th, 2008 at 9:31 pm
I’m not cherry-picking, the mortgage on this home would in fact be eligible for the new government plan. Contra Costa County is one of the wealthiest areas in the nation and they shouldn’t need housing loan welfare.
March 6th, 2008 at 10:05 pm
Oh come on, Chris. Contra Costa County is indeed found on lists of the “100 wealthiest counties” according to the U.S. Census, but as the census itself points out, those figures are NOT adjusted for local-cost-of-living or other factors (including IRS data on adjusted income). So that’s not particularly meaningful. That $30,000 average doesn’t go nearly as far as it does elsewhere. I find it hard to believe that you don’t already know that. Once again, I think you’re being misleading. You were cherry-picking houses in the wealthiest areas of CoCoCo, and (again) not even bothering to respond to the evidence I showed you about other areas, where most of the population of the county resides.
Next time you’re in California, come up here and I’ll take you to Richmond, San Pablo, and Oakland. You can see Stone City, the Iron Triangle, the Fruitvale, all of it. I’ll show you exactly how “wealthy” these communities are. I’ll take you to the homes of some of my former clients (those that aren’t in jail, anyway.) Richmond is the 9th most dangerous city in America. That’s right. More dangerous than Baltimore, more dangerous than Compton, more dangerous than Newark. Oakland is fourth.
Chris, my problem with you has nothing to do with whether or not the government plan is a good idea. My problem is with the misleading way you present your arguments. You say the government plan is “propping up” housing costs without citing any evidence that that’s the case. (Housing prices are, in fact, in free fall right now. This bill isn’t going to do very much about that.) You characterize wealth in terms of gross income when you know that wealth is a calculation involving cost-of-living, geography, etc. And you must’ve ignored the newspaper the whole time you were in Sunnyvale playing the dot-com lottery, because the affordability of housing was then, and still is now, one of the top issues in the Bay Area (which, due to it’s unique geography, doesn’t exactly have a lot of room to just build cheap housing in the “suburbs”).
March 8th, 2008 at 11:19 pm
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/03/08/BU0KV9PQ9.DTL