The Bush Hangover

It is not possible to provide aid that will stop home prices from falling to the equilibrium levels that they need to reach. It is also completely ignorant to believe that any aid package can stop the cascading decline in home values except for the briefest of moments. The stimulus bill provided by Obama is a weak kneed and ineffective approach to decreasing foreclosures.

It is very clear, if you are not still under the influence of the "kool aid", that home prices need to drop by large percentages in order to get back to realistic ratios between the local income of an area and the price of a home. In the most affluent sections of our country, namely the coastal areas and those areas nearest major waterways (claiming the vast majority of this nations wealth, top colleges, intellectual property and invention), this decline in home values has only just begun.

In the mid section of the country the stimulus package will help those wanting to purchase homes for the first time - and since the homes in that area of the country have in many cases already fallen to pricing levels in line with historic "income to home price" ratios, people purchasing those homes will generally not see their new homes continue to depreciate much and the ground lost should be quickly recovered in 3 to 5 years.

In what I call the crust areas of the US, (those areas near the coasts - within 100 miles - and those areas near major water ways - within 100 miles, the decline in home values has only just begun. During the Bush administration when fiscal oversight was blinded by the ridiculous mantra of "self regulation" the liar loan became the loan of choice in these areas. Home prices soared way beyond the historic ratios because loans were based on fantasy incomes and in many cases a 50% adjustment is not enough to correct the situation. Taunting first time home buyers in with a reassurance that "Now is the time to buy" may seem correct at a 30% decline in price, but in reality the new home owner will be significantly under water within 6 to 12 months - and this is not an opinion - water will seek its level and the level will be somewhere near the historic ratios - which most of these areas are still a considerable distance from reaching.

My personal advice to the average person underwater or moving into that position is the following:
1. Do not use up your savings trying to save your home.
2. Do not go into credit card debt trying to save your home.
3. Do not chase the "equity" you once had, but rather as you would in a poker game - you have to ask yourself the real question "should I be in this game anymore?" If their is not enough money on the table to make it worthwhile or if you no longer have the energy or funds necessary to play - then leave. And don't leave penniless - don't leave divorced - don't leave after one of you commits suicide.

If you hand them back the keys to your house and leave with all of your credit card balances still low or at zero, and with your 401K still untouched and all the savings you had still intact - your credit will be in fine shape within just a couple of years and you can typically move into a rental for less than half the taxes and payments you were making with your underwater house. If you bought a house that was 900,000 in 2007 and when you leave in 2009 it is worth 650,000 - just know that if it was 380,000 in 1999, it will reach somewhere near that level or lower again in a fairly short time.

Why will houses continue the fall?
Incomes have not risen for over 10 years - with the exception of the meteoric rise in incomes for those in the upper 1%. Qualifying for a mortgage is now like it used to be - you have to actually be employed and prove you have the savings and equities that you say you have in order to qualify for a loan. You also have to show that you will have a stake in the loan - namely - a real down payment.
This means that in an area with an average income of 80,000 the average price of a home will not tolerate 800,000 but it will tolerate the historic ratios of between $240,000 and 400,000. (3 to 5 times the average income). Some areas historically have ratios as high as 8 to 1, but if most of your neighbors do not own Bentleys and Helicopters, you are not in one of those very rarefied areas.

Democrats need to realize that homes need to fall to the historic ratios - propping them up will only delay the organic processes needed to level the field. Real solutions will be allowing the investors to take the losses that they are entitled to for allowing themselves to become drunk so quickly after the last infallible god - the god of the DotCom bubble. Investing in businesses that often did not even have a business plan was absurd then and investing in home loans as high as 23 times average income were just as absurd during the Bush Jr. kool-aid party.

We are having the Bush Hangover - are you enjoying it?
We need to recoup and get our heads on straight again - fix our bridges, build our schools, reinvest in our intelligence again - seek out leaders that really are the best and the brightest and build a real future.
We need to clean out the scum that has been strategically embedded within the government by the Rove's and Cheney's - put them in prison - actively go after the criminals of the past 8 years. Restore our military leadership, our world leadership by taking our foot prints off the faces of our allies. The foot prints left there by the Bush Jr. regime.

We need to embrace real change - Whole Earth change - completely new thinking - We need to shake off the weakness that has become so ingrained in the Democrats - We are certainly as weak as the Republicans have been feckless and greedy. We need to shake off this hangover and clean up the drunken mess of the last 8 years. Put the criminals behind bars and let the investors take their hits like the fools they were.

No more bail outs - Real ideas - Real leadership.