Thursday, October 20, 2011

Someone Has To Take Care of the 1%

National Review Online reports that two members of Congress are trying to make sure that we don't forget those who most need the government's help:

Sens. Robert Menendez (D., N.J.) and Johnny Isakson (R., Ga.), have introduced an amendment to raise the “conforming loan limit” for mortgages that Fannie and Freddie can buy, and the Federal Housing Administration can insure, to $729,750. Their measure could be voted on as early as tonight.
This loan limit expired at the end of September and reverted to $625,000. But it was only a few years ago that the limit was less than $500,000.
Because we all know that without the government's guarantee, people who can afford mortgages approaching three-quarters of a million dollars will be reduced to living in cardboard boxes.

But they are not alone.  The October 20, 2011 FoxNews reports on another effort to help us by helping the very rich:

The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S. 
The provision is part of a larger package of immigration measures, co-authored by Sens. Charles Schumer, D-N.Y., and Mike Lee, R-Utah, designed to spur more foreign investment in the U.S. 

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  1. I'm going to guess this crazy high housing loan limit is a ploy to get more money into the FHA. If the higher dollar loans are made, that increases the amount of money the FHA brings in. This only works though if the higher dollar loans are also more stable, allowing the FHA to be active in a less risky part of the market.

    This is only a guess though but could be backed up by some numbers if available.

  2. Clayton, I'm not sure where you live, but in e.g. the Bay Area, $500,000 is a very low price for a starter house in reasonable condition in a safe neighborhood.

    I think you could get a condo for less than that - maybe even a two-bedroom condo - but a house at that price will be a "needs lots of TLC" case or on a block with nightly gunfire or both, if you can find one at all. The low conforming-loan limit means you can't buy a house in these areas *unless* you're in the 1% (and therefore have several hundred thousand cash you can put into a house).

    Being able to buy an ordinary 3BR/2BA ranch house in a middle-class neighborhood doesn't make you "the very rich". Even in the current economic situation.

  3. Getting rich foreigners to move here and spend money sounds fine to me.

    Giving them residence visas costs nothing (well, close enough to nothing as to not matter), and property tax alone will be helpful to wherever they move.

    I suspect the Feds will get something from them at some point (say, luxury taxes on a new car).

    So I give them a pass on that one.

  4. Jaed:

    A friend of my daughter from high school came out to visit from San Francisco, and she kept expressing disbelief when we explained that you can buy houses in my daughter's neighborhood (which is a pretty nice one) for $69,000.

    I used to live in the Bay Area (sold a VERY nice house there for $429,000 in 2002), but I assumed that housing had dropped a bit in value out there.

  5. Jaed:

    If housing is so absurdly priced there, why does anyone live there? It sounds like you could sell a nice house there for enough equity to own a house free and clear in the United States, and have a few hundred thousand left over to produce an income stream.

  6. I don't live there myself any more, but I do have family there. As far as I can tell. prices have gone down some since 2008...but they went way up between 2002 and 2008. (The parental units bought a condo about 2002 for $440,000 which is now worth maybe $625,000, just to give you an idea. At the peak, similar units in their building were going for well over $700,000.)

    As for why anyone lives there... it *is* Silicon Valley, so if you want to work for certain companies, there you are. The weather's nice. People who have lived there all their lives are reluctant to make a change (certainly the case with my parents, who could have walked away with a very nice chunk o' cash if they'd been willing to buy elsewhere when they sold their house - I know, I talked to them about it). With some people there's a certain insularity, an expectation that any plausible location with lower housing costs and better prospects must be less cultured, have less-educated people, etc. etc. It's a variety of things. And anyone who already owns property there *can* afford to stay there, so it's the path of least resistance.

    I do think the state government's financial situation will change that. But perceptions lag events - I expect that even years from now, many Californians will take it for granted that if their services have collapsed and their taxes have skyrocketed, other states must be even worse.