Skip to comments.The Schiff Report 2nd episode(Says to stop the home building )
Posted on 02/24/2009 7:47:00 PM PST by sickoflibs
The conventional is the falling house prices are a bad thing and that the government needs to do something to slow it down or turn it around. But the reality is that real estate prices have to fall to a point where there actually affordable. Prices need to fall where the average American has enough money to put up a 20% down payment, and afford a 30 years loan that fully amortizes and is repaid,where the average American can convince a private lender to loan him money based solely on the collateral that he puts up and his own ability to pay the loan,and not with government guarantee or a guarantee from a government agency like Fannie Mae or Freddy Mac. If that were to happen then real estate prices would fall substantially. Look at stock prices. Stock prices are down where they were 13 years ago. Why should real estate prices be so much higher? The average American is in worse financial shape than he was a decade ago. He has a lot more debt and his assets have gone down, a lot more of are unemployed. Why should real estate be so much more valuable than it was a decade ago?
The longer we have these artificially high home prices, the false signals we send to the market. Look at all the new homes still being built. New constructions are falling but many home builders are still building more homes. Why are they building them even when theyre not selling? Because the prices are so high its sending false signals to the real estate builders to build more homes. Real estate Prices have to fall to the point where new home construction is completely discouraged. We are wasting our resources building homes we dont need. We built too many homes. We need to use those resources, the labor, the capital to other areas.
That is exactly what the government does when it comes into the market and props up companies and subsidizes companies that are going out of business and keeps them in business they are keeping the free market from better allocating that are now being inefficiently allocated by these companies. The land, the labor, the capital that is being propped up should be allowed to be redistributed to other Entrepreneurs and other businesses that can better utilize it. The fact that there is some transitionary unemployment doesnt mean that the government needs to preserve these companies.
Full video at:
The Schiff Report 2nd episode Feb 24 2009
You can read past posts by clicking on : schifflist , I try to tag all relevant threads with the keyword : schifflist.
Ping list pinged by sickoflibs.
To join the ping list: FReepmail sickoflibs with the subject line add Schifflist.
(Stop getting pings by sending the subject line drop Schifflist.)
WHY PETER? Peter Schiff is what we need now as the articulate and witty Prophet of Free Markets and the nay-sayer of government intervention/socialism that warns us there is no Santa Claus or shortcuts.;
We dont need more dribble about how we need endless bailouts and endless stimulus packages and endless debt because the alternative is too terrible to speak of. We have the media and the party in power inciting public panic to gain support of their massive takeover of our property and our freedom.
Your Schiff fix. You all see our Saviour give his plans?
Whups. How did someone with a brain get to be heard?
Heard, but ignored.
Of course ignored. Makes sense.
House cost more to build these days.
There are more government requirements than ever. Where I live houses have to be built to withstand a moderately large earthquake of 7+. I had to have fire sprinklers. There are new energy efficiency requirements that have to be met (light fixtures, insulation, heating and air, air penetration) that are all more expensive. Materials are more expensive. Permits are much more expensive. A water meter where I live is more than $32k to meet the flow requirements for the fire sprinklers. Land is not a renewable resource. You can't make more. Property in desirable locations is still going to command a higher price as time goes on.
So unless that all magically goes away, houses are still going to be more expensive than they use to be.
I see your point and it is true. I think what he is trying to say is that home builders are still building too many houses. Even if new houses are more expensive to build, if demand drops that should drop prices of existing houses which he was talking about. Then new home building should slow down to what it was in mid 1990s.
It's funny that government will put in all those construction mandates (some are good) and then have taxpayer paid funding to buy what they call affordable housing for those that cant afford it here in Maryland .
[So unless that all magically goes away, houses are still going to be more expensive than they use to be. ]
No, what that means is that a new home will cost more than an older home. What Schiff is saying is that if people want to sell their homes, they are going to take a haircut. You can’t on average sell homes at above what the average homebuyer wage will support. But you can build any home you want at whatever price.
Permits in my town are $250k and up. Just permits, after you own the land.
I used to budget $70,000 in fees per house in the developments I worked on.
The actual cost to build a house today after inflation and extortion are factored out is less per sq. ft. than it was back in the 1950's.
I had to pay the Fish & Game $1250 for reducing the grass area on my property where the house now is...
I had to have a public hearing because the peak of my roof was 34’, 4’ higher than the maximum allowed by the city. This is on a 5 acre lot that is in the steep hills where housing is low density.
I had to hire a geologist to analyze my soil because the city said there was asbestos in the dirt and that my grading plan for my driveway was going to be a health hazard for the neighbors. The geologist wrote a report stating they couldn't detect any asbestos in the soil...
I had to put in a full fledged city fire hydrant at the street because the fire chief wanted one. It didn't matter that I met the written rules for the distance to the nearest preexisting fire hydrant - he wanted another one and he has to sign off on the house for it to be occupied.
The list is long, painful and expensive...
“The actual cost to build a house today after inflation and extortion are factored out is less per sq. ft. than it was back in the 1950’s.”
I have a very hard time believing that. A moderate house where I live cost over $150 a sqft in 2005 (my parents house). My house cost over $350 a sqft. Both of those are costs, not resale. We built both houses with a general contractor and our own plans.
And that excludes the cost of the land on both.
Basic economics: Home builders will keep building homes as long as selling them cover their fixed costs, even at the expense of losing money on the variable costs. If a two story home costs $200,000 to build and sells for $300,000, and if the variable costs are $50,000 of the cost to build, then builders will keep building until house prices drop to $150,000.00 even if they are taking a $50,000 hit on each house. Once the fixed costs are greater than the home price, the builder will close the business rather than continue to build houses that do not create enough revenue to cover the fixed costs.
Those gov’t bureaucrats got to have SOMETHING to do!
Ditto, Ditto, DITTO!
The BS that a house is a get rich financial investment is, and always has been, a bunch of BS. It should never have been considered as an investment.
Interesting. You know here in Maryland because of federal gov spending/jobs house prices have sky-rocketed and so has home construction, houses every spot of land. But the roads and schools required have been funding by raising our taxes(we pay close to 10K in state taxes in my area and we are middle class). A republican ran for our county lost that was promoting my idea, a tax for new land development for home builders to build house developments to pay for all the new services they require. Understand we are talking about >10,000 new houses per year in state, and our taxes were going up during the boom to support them. So ironically I was a anti-development.
Wrong business model - most builders build an house, on spec, and if they don’t make cost, fold up the business.
There are exceptions, of course - huge companies.
But you don’t wan’t to buy the crap they build.
During the 1950's my clients used to build two or three small houses each year for $7,500 each including profit and the cost of land.
Today my former clients (I am retired) build up to 20,000 houses each year for slightly less on a Sq. Ft. basis. As I stated in my last post to you, the increase in the price of the house is due to the fact that local and state governments extort fees from the developer and the fact that your money is no good.
I can still build you the same house I build in the 50's for the same price, but you will have to pay for it in the same money.
The house I grew up in was built in the 1870s. Originally, it didn't have a bathroom. Somehow in the 1920s, those old folks figured out how to put an addition on with a bathroom almost as good as the 'new' houses being built then.
Standards change, but the big problem is property taxes and communities via crazy development fees and 'zoning requirements' killing the new starter house market. That is why the MacMansion market developed. By the time a developer jumps through all the government hoops, he has to put big expensive houses on small lots just to break even.
That's all cool for grandma and grandpap who watch their values on their old house rise, but it sure sucks for the grandkids just trying to get started.
I wouldn't expect that builders have much in the way if fixed costs.
They can have tremendous sunk costs if they buy a parcle of land and jump through all the hoops to get permits which makes time a critical issue, but I don't think many have large fixed costs like a manufacturing business where they can sell down the margin just to stay alive.
yes, he advocated more debt, and lots of it.
Feb. 25 (Bloomberg) — Sales of U.S. previously owned homes probably rose in January as record foreclosures brought bargain hunters into the market, economists said before a private groups report today. . .Purchases increased 1.1 percent to a 4.79 million annual rate, according to the median of 70 forecasts in a Bloomberg News survey. The rate reached a record-low 4.45 million in November.
Bay Area home prices fall, sales rise
Bay Area year-over-year home sales rose for the fifth month in a row during the month of January while the median price fell to $300,000, almost half of where prices stood a year ago. . .sales were once again spurred by foreclosures, which accounted for 54 percent of resale transactions. Most foreclosure sales, which involve homes that had been foreclosed upon during the last year, are taking place in parts of Contra Costa County and other inland areas.
Local and state governments do. They derive a significant portion of their revenue from the property tax. Their bonding authority is tied to a reliable revenue stream from property taxes year in, and year out. If housing prices have to come back to reality, then property tax revenues evaporate. Local school funding dries up, and government has to raise taxes elsewhere.
Are you kidding? If you want higher state and local taxes just tell your local elected to raise them. Government Propping up house prices artificially nationally (using printed money yet) hurts home buyers and is a bad way for you to keep your local tax rates high.
If the total assessed value goes down, due to depreciation formulas, knockdowns, or loss of comparative sales value in a declining economy, then the millage rate could go up to keep the same revenue.
Also, foreclosures should have absolutely no effect on property tax revenues, since the bank that owns the property would be responsible for making sure the taxes are paid, so that the property does not get sold in a tax sale to someone else (who would then pay back taxes plus interest, and then be responsible for property taxes thereafter.)
I’m not lobbying for high house prices or higher local taxes. I’m just telling you why housing prices won’t drop to where they were 13 years ago as stocks have. If the bond rating agencies found that states could not rely on a continuing stream of high property taxes, the muni bond ratings would sink and borrowing costs for states would skyrocket. We would get higher other taxes then, and the politicians would be in jeopardy.
You are saying federal officials are propping up house prices with massive debt to keep local property taxes high? .
Capital gains taxes on stocks plummeted, they didnt push stock prices higher with borrowed money to keep tax revenues coming in. Except GM.
Well I have news for you - Kalifornia is coming to you.