Dear President Obama,
HI!, yoo-hoo, over here, we are 100,000,000 men, women and children who rent and we seem to be invisible to you and the media (including NPR, New York Times and the Wall Street Journal) but clearly our numbers make us important. We are wondering why you are helping 9 million people at the expense of me and my 99,999,999 friends, neighbors and fellow countrymen. Not to mention the additional millions of former homeowners who will soon join us because they rationally decided to live within their means and rent.
But how is your plan hurting 100,000,000 renters? It is hurting them in three major ways:
- By putting a floor (and debatable how stable or realistic that floor is) under housing prices above what they were before the bubble began you are continuing to price renters out of the market.
- By raising the deficit you are going to be putting some of the tax burden on renters (yes some will go to homeowners as well).
- Because many former owner-occupied properties have turned into rentals rental prices are actually falling. By keeping people in houses they can’t afford you will, in effect, raise rents again.
The net result is that you are charging renters, through the eventual taxes needed to pay for this, for the privilege of NOT being able to afford a house while also raising their current rents. This reminds me of the former Soviet practice of making soon-to-be-victims of execution pay for their own bullets and then charging their families for their burials.
Point #1: This plan is further eliminating renters ability to buy a home by reducing their income (through higher taxes and raising rents) and through maintaining artificially high prices (through so-called “stabilization”).
To make matter worse renters comprise those who either can’t or have decided not to overextend themselves to have the “American Dream” (which was originally “life, liberty and the pursuit of happiness” until it got co-opted by marketing experts in the real-estate industry in the last century). Renters are STILL disproportionately Hispanic and African-American and lower income. Homeowners are disproportionately white and have higher incomes.
Home Ownership by Race - (US Census Bureau)
Point #2: Helping homeowners at the expense of renters is yet another transfer of wealth from the lower class to the upper class. How Bush-league.
Oh and why would the the vast majority of homeowners (who do, truthfully, outnumber renters) care to help us ? Very simply because the survival of any market (or pyramid scheme which the housing market has proven to be) depends on a continous stream of first-time buyers to fuel growth from the bottom. By attacking renters you are attacking the first-time buyer base and, while you may temporarily save the market, you are draining the pool in the medium to long term.
Point #3: Homeowners need to watch out for renters if they want to truly protect their home values.
How can you help? Well if you can’t bring yourself to let the market work out the right price then at least provide renters with some rental income tax deductions so they don’t wind up paying (two to three times) for the mistakes of homeowners. Additionally this will help incent those on the edge of home-ownership not to over-stretch to buy a house so they can get the equivalent mortgage income tax deduction. Its the least you can do.
Finally, of those 9 million you are helping, at the expense of 100,000,000, how many got themselves into their situations by cashing out their equity cushion for home-improvements, new cars or family vacations? I guess its comforting to know that the money we saved by renting will go to buy some nice stuff…even if it isn’t ours.
DO YOU HAVE A STORY OF HOMEOWNERSHIP GONE BAD? If so share it on reallyfuckedhomeowner.com.
ADDENDUM: In honor of Rick Santelli’s Tea Party I have posted his poll here so you can voice your opinion to the Obama adminstration.
Rick Santelli of CNBC (as do I) want to know the following:
To see what the Rick Santelli Housing Bailout Tea Party is all about see this video
it would be a mistake to make rent payments, tax deductible. It sounds great, but in reality, it would cause the same problem that the tax break on interest payments cause, that is people are willing to pay much more when it is tax deductible. So if you make rent payments tax deductible, you will find that people will pay much more for a house. This would be really bad. People do not understand that paying $4,000 a month in interest, is only a savings of $1,000 a month for the average person. They are putting out $4,0000 to save $1,000. It is crazy. This is one of the many reasons that most people do not have an estate worth over 1 million $. They spend to much and do not save enough.
Bob,
Fair point. Its true that tax incentives only drive up the nominal price (I often assume Prop 13 in California is partially responsible for out-of-whack prices there). I was just looking for some “grease” to encourage people to rent. Truth-be-told the actual right thing the to do is to GET RID OF the mortgage income tax deduction.
All your points about the government’s INTENTIONS with the bailout are 100% valid. Renters have been sold down the river and somehow remain off the radar screen altogether, this despite the fact that many urban middle class renters are amongst the only demographics that have actually behaved with some degree of fiscal responsibility over the past decade. So Obama is just as fixated as was Bush on rewarding the home owners at the expense of the renters.
The GOOD news is that the bailout is guaranteed to fail. It is an economic certainty that housing prices will continue to fall until they reach a natural bottom. The reason is that the government doesn’t have enough money to prop up a 10-15 trillion dollar bubble. A mere 70 million will do nothing (aside from waste more taxpayer money).
Furthermore, the bubble pricing itself was maintained only through the promise of continued price increases. Without the hope of double digit annual increases, who in their right mind would shell out 2-3 times the cost of a rental to purchase an equivalent home? Furthermore, the very plunge in housing prices will scare off buyers until prices are actually below historic trend levels. After all, who will want to invest 10 or 20% down until they are assured that prices have at least leveled off and rentals are no longer a cheaper option?
So despite the perplexing focus on propping up fiscally irresponsible homeowners at renters’ expense, prices will continue their free fall.
As I say I have said it on my blog for the last year, the government is proposing to use my tax dollars against me.
Bravo! This is exactly correct.
This piece by EDMUND L. ANDREWS at the New York Times is typical:
“…The plan…is expected to include government subsidies for reducing a borrower’s interest rate…”
“But Mr. Obama will be running the risk of angering vast numbers of homeowners, both those at risk of losing their homes and the tens of millions more who are current on their payments and bitterly resent the government bailing out those who borrowed more than they could afford.”
HOMEOWNERS???? Clearly to Mr. Andrews, who it supposed to be reporting objectively, renters simply don’t exist, or their opinions don’t matter.
I wrote this Mr. Andrews to give him a piece of my mind. I strongly recommend everybody start doing so.
I’m a renter myself and I too cannot understand why we are invisible to the government. Why should I effin pay tax on someone else effin mortgage. I try to respond to so many articles on this housing bailout, but fail due to my anger and frustration that I just fumble in words. Even with this comment, I’m barely able to get past my trembles to type. OBAMA stop, just stop.
Srla is right, housing prices will correct anyway.
The best approach is to start an education campaign to teach home buyers how to price a home. We have to kill the myth of comps.
Home buyers need to start demanding a capitalization rate (cap rate) of 10%. That means that the yearly rent that an apartment can generate, after property taxes and maintenance/asessments, should be 10% of the value of the apartment. So if a house or condo can generate $12,000 a year after expenses, then its value is $120,000.
Unfortunately, most buyers are not sophisticated about real estate and they believe the realtor when he tells them that the most important thing is what the guy down the street payed for his house.
http://chicagoteaparty.com/
Thank you god somebody has finally commented on this!! I live in the metro NY/NJ area, and the rents here are out of control!! Its almost impossible to find an apartment in a decent area under 1500 a month. There are places here that are 600 square feet renting for well over 2000!!
I make 65,000 a year (before taxes), and pay 15,600 a year in rent(and Im rather lucky its just that because I live in a pretty decent neighbor hood and my landlord has not raised the rent in 5 years. However, to say my place needs some serious upgrading and repair work is a understatment). Thats JUST the rent, not any other house hold bills. I cant buy anything in my area because the avergae price for a STUDIO condo in a decent area is between 230,000 to 250,000. Old one family houses start around 299,000. It was stated today in the local paper that new york has more luxury condos for sale or rent then affordable housing!
The dream of being able to afford a home is for the foreseable future just that.. A dream. My only option is to move away to the midwest or the south, where things are more affordable, however, the likely hood of finding a job in my field at my pay (and keep in mind that to land this job I took pay 20 grand less then the national average) is slim to none. I am forced to work near a major city with a mass transit system. Why, when I have a job that in almost any other place in the country would be considered well paying, I feel like instead I have a job where I make at least a third less?
Where is the help for me? I dont own a home, I pay my taxes, and I rent! Why am I working like a slave and getting nowhere?
Where is MY help?
In reality, Obama is not really even helping the 9 million (only 75 billion goes to homeowners). Obama is really helping the bankers (750 billion and more), just like the last occupant of the White House. Obama better ‘change’ something soon. So far, he’s stolen another trillion from the taxpayers to give to bankers, walked into a window in the White House (thinking it was the door), flubbed his very first act as President (to competently recite the Oath), killed 15 civilians in Pakistan (adding another theatre to our wars), and pulled no troops out of anywhere. On top of that, he wants more troops in Afghanistan. Did Bush really leave or is he in black-face now?
George Wallace said it best, “there’s not a dime’s worth of difference between” Republicans and Democrats. The Democrats willingly went along with the War in Iraq, suspension of Habeas Corpus, Patriot Act, banning books like “America Deceived’ from Amazon, Wikipedia and Facebook, warrant-less wiretapping and opening private mail. They are both guilty of treason.
Clean them all out (except Ron Paul) and save this great nation.
Last link (before Google Books bends to gov’t Will and drops the title):
http://www.iuniverse.com/Bookstore/BookDetail.aspx?BookId=SKU-000083883
What makes you think the government EVER cared about landless peasants – I mean renters? Homeowners get to be fleeced with property taxes, zoning laws and community associations, all of which involve lucrative kickback schemes to enrich regulators and their banking collaborators. There is a limit to how much blood can be drained from renters because theirs is an indirect revenue stream for the state. If there was a way to tax renters so it could support even more 6-figure income government bureaucrats then you’d seen them counted by the politicians and their compliant media organs instead of ignored.
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As a former renter myself, it’s important to note that none of the past administrations have done anything for renters. I’m not sure a tax-specific incentive for them is even a good idea, considering that other options are available that would benefit everybody.
I agree with some of your points, with the exception of the following:
Point #1 – what higher taxes are you talking about? Much of the stimulus plan involves tax cuts, from which a huge percentage will benefit. Can you mention specific tax increases that will affect renters more so than homeowners and others? Also, why are you turning this into a racial issue? While there may be a disproportionate number of white homeowners above other minorities, it has nothing to do with this argument.
Point #2: not all renters are smart money managers. As a landlord, I can tell you that just because someone is a renter and not part of the housing mess, that doesn’t mean they don’t have their own set of financial issues also affecting the economy. The problem is credit in all forms, and how easily it’s been extended, not to mention the fact that most people don’t learn money management except through trial and error, if they learn it at all. In the process, all of us end up paying for their mistakes.
Point #3: A lot of us homeowners resisted the temptation to cash out equity on stuff we didn’t need. We bought smart and didn’t extend our credit for unnecessary purchases. And like you, we don’t want to see these irresponsible buyers (along with the banks and lenders) getting a bailout because they couldn’t resist their own greed.
Like I said, I agree with the spirit of your blog, but I don’t think you make a successful case for renters.
Fair points. Please allow me to clarify
Point #1 – Actually about a third of the stimulus involves tax cuts and the rest is spending. Regardless both have the same effect of taking money from one thing and putting it to another thing. That being said either programs will need to be cut or paid with by raising additional funds which will come from taxpayers. Net-net taxes will probably wind up going up to pay for these extra expenditures and that will come from all taxpayers (homeowners and renters alike). I’m not saying taxes will be disproportionately applied. I’m just saying that taxpayers will pay something to solve a problem they didn’t create and will be doubly taxed by watching prices (At least in the short term) of homes, along with their rentals shoot back up. For homeowners they will pay a tax to have their housing price go back up (at least in the short term). So for renters its a double or triple negative but for homeowners its a wash to a slight positive. Regarding this being a race issue I didn’t turn it into one. It already was one. The justification for much of the ease in lending standards was to help minorities out. So now I can just see people justifying all sorts of bailouts of homeowners who truly can’t aford their homes because “we want to keep minorities in their homes.” I wanted to say that, in effect, by keeping minorities (or non-minorities for that matter) in homes they can’t afford you are actually hurting more minorities than you help.
Point #2 – True not many people are smart money manager but that is what this blog is mostly about. I am very interested in financial education and what really upsets me is that none of the solutions to any of this mess talk about improving financial literacy. If we don’t (it should be mandatory in high-school) then we will be back in this mess (maybe not as severe) within 10 years. In fact ever 10 years we get into this mess (internet stocks in the 90s, financial stocks/junk bonds in the 80s, etc…) exactly because people are not financially literate.
Point #3 – I congratulate you and THANK you and I agree with you. This article wasn’t meant to castigate responsible homeowners but meant to remind people that there many renters out there as well. Even in the Santelli video you can see there being a massive amount of support for responsible homeowners like yourself. I just want renters to also get there say as there are enough of them. In the end responsible homeowners and renters are in the same boat.
Thanks again for taking the time to respond with such detailed insight.
The 9 million homeowner in this country are going to lose there home because if it going to help them pay there mortgages then they would raise the price of there mortgages so they can get there 75 billion back so no one is safe. The only one that are safe is the 1% of the nation elite the other 99% are fuck
Bottom line: There is only so much VALUE in the world, and only so much money to represent it. The only thing the government can do is move it around, from one person’s pocket to another person’s pocket.
No human being or group of human beings calling themselves “The Government” can create value. They can print money, but real VALUE remains the same. All printing more money does is produce inflation.
So, anytime you hear that the government is “helping” some group or another, they do so at the expense of someone else. Again, all government can do is “move the pile around.”
It’s kind of like “Three Card Monte.”
YOU lose.
Amen! I have been a renter for my entire adult life, why? Because I wanted to save-up enough to buy responsibly. Now I have enough saved-up, but am waiting to buy because I think prices are still too high.
I SO resent bailing out people who did not bother to read their mortgage agreements and/or over extended themselves.
I have dear friends who made more than $250,000 a year, but who took an interest only loan. They were so fiscally irresponsible that they are declaring bankruptcy — not for medical bills, which I could understand. No, for $7000 spring break vacations, $1000 dresses, you get the picture…
Why should I, who have scrimped and saved for decades (my car is 18 years old) have to bail them out?
Why should my friends who still rent, many of them making over $100,000 a year, have to bail out people who didn’t read the fine print or took out loans on their homes to pay for things like pleasure crafts?
My ex-brother-in-law springs immediately to mind. My sister basically handed him the house in order to get rid of him. He’d never worked while they were married, but had to after they split. Rather than understanding that he’d received probably the best present ever, he borrowed against “his” home to buy new cars yearly, etc.
Now he’s facing foreclosure. Well, boo damn hoo. I actually just had to get him a dryer. I don’t have a home, he does, and I have to make sure he has a basic necessity, because I feel sorry for his new kids, who I don’t share any biological ties with?
My mother’s caregivers are another example. Two of them are absolutely lovely ladies, but are completely fiscally irresponsible. One drives an expensive new car despite being a single mother with four kids, with an out-of-wedlock grandkid who she’ll have to support on the way.
The other doesn’t have a car that works, but took out an interest only loan to buy a house, and bought a plasma TV for her daughter for Christmas.
Our TVs are 10 years old. Our furniture is ALL second or third hand. Yet we will pay more in taxes this year than the average family of four MAKES in a year.
For what? For being foolish enough to work hard and to be prudent with our money.
I’ve had it with the nanny/ war state. Universal health care and quality education for all YES!!!! I’ll pay for that because I think a solid middle class is necessary for a stable country.
But bailing out people who think that credit cards are cash, and obscenely irresponsible corporations, or paying taxes for endless or any war, NO!!!
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Please read the details of the plan…Don’t listen to everything FOX news says.
Pdf file from the US Dept of Treasuray entitled “Making Home Affordable, Summary of Guidelines”
The Home Affordable Refinance program will be available to 4 to 5 (ed: that’s 2% of Americans!) million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%. Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.
GSE lenders and servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary. This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home Affordable Refinance program ends in June 2010.
The Home Affordable Modification program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Working with the banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department today announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with an expanded and improved Hope for Homeowners program.
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1) I’m willing to blame irresponsible homeowners, but let’s face it, there will always be irresponsible people that gamble, don’t plan ahead, etc. It’s just that they were rewarded in the past, and now they are being forced into bankruptcy. I don’t agree that they are getting out scott-free, though. They are facing a ruined credit score – no more credit cards and no more home or auto loans in their future. Just wait a year and they will be belly-aching about how difficult their lives are, because they never learned to work hard or save to begin with. Even now, I doubt many are trying to refinance or adjust their mortgages with reputable lenders or sell their assets. They are most likely dumping their properties and not thinking about the consequences (that’s how those people are!!). Those of us with good credit ratings WILL be better off. We’ll be the ones that banks and credit agencies will be wooing because they still have to make money and mortgages and other loans are still nice steady incomes for them.
2) Now, I am all for loathing the bankers and other financiers that created this problem through their get-rich-quick schemes and got bailout money that they – frankly – just sat on. But I actually think the recent government actions are HELPING millions of responsible homeowners and renters. At least in our area in California, home prices and rental prices have plummeted due to foreclosures, which means it is MORE affordable now to rent or buy a home than it was a few years back. However, the problem is that even so, even responsible people couldn’t get good mortgages bc the banks were being greedy with their bailout money.
So, the govt bought mortgage-backed securities and forced rates to go down to historically low levels. Read http://mortgage-x.com/trends.htm.
And they implemented programs that now reward people who CAN AFFORD to stay in their homes, through refinancing and loan modifications. Read http://www.financialstability.gov/docs/borrower_qa.pdf
I should know because we are about to finish refinancing our home loan in the next couple of days. We’re going from a 6.6% fixed rate to a 5% fixed rate. We have a good credit score and have always paid on time (even put 25% down on our home when we got it). Still, with the lowered home values, the ONLY way we could refinance was because of the MHA program because our home was so devalued that our equity went from 27% to 10% in a year. Our refinance isn’t hurting taxpayers a single bit – it only affects our old/new lenders and us. And it makes up for the fact that my husband’s work – for the first time in decades – gave paycuts to its employees.
As I have recently moved back to the U.S. after living in Europe for the past 5 years it is interesting to compare the housing bubbles here as well as in the E.U..
Many folks here in the U.S. do not realize that a majority of the E.U. nations went through a similar housing bubble, albeit nothing close to how inflated prices became here in the states. (the majority of this E.U. Housing bubble was relegated to the Northern parts of Europe but you can also see the devastating effects it has had on countries such as Spain and Portugal!).
The point I am trying to emphasize here is that many of the western central banks were responsible for the “latest and greatest” asset bubble of the century and that it was not solely concentrated here in the good ole U.S. of A!
However I will state that the U.S. had the fastest growing asset prices (more specifically an asset bubble!) with regards to housing and there were many economists screaming about this for years but nobody would listen (see Peter Schiff, Financial Sense Online, etc.).
In fact many of the contrarian economists/investors, were discussing this as far back as 2001 but they were ridiculed time and time again in both the mainstream and business press.
As an Austrian Economists I would say that we have a way to go before housing bottoms out. Added to this we have governments that are adding billions if not trillions of additional money to the current deficit which will take many life times to repay in my opinion.
Additionally I think the U.S. dollar is toasts! Our economy here in the states has been primarily based upon consumer spending (70% GDP), this will NEVER happen again in the U.S.. Those that still have a job will start saving. Those that cannot find gainful employment will end up destitute and the U.S. will ultimately roll-over into a third world country. We are well on our way to fulfilling this venture. I foresee the U.S. in the next 20 years looking very similar to Brazil or other “emerging countries” where healthcare, human rights, etc. take a back seat to more pressing issues. It will be very interesting to see how the McMansions and various gated communities throughout the U.S. fare as the country goes into collapse.
Many people do not realize that the current Obama plan to “stimulate the economy” is based upon borrowing huge amounts of money from countries that are either our trading partners or emerging economies. My questions are:
Where are we going to finance the 75% energy bill we currently pay to the Middle East, Central/South America for the Oil/Gas imports we currently receive now?
How are we going to finance our debt to China, Middle East in the future? Obama is now implementing a plan where we will create over 3 Trillion dollars of debt, and I am not sure China or the Middle East for that matter are on board to pay for this type of profligacy in the future.
Another question is how are we going to pay for the new “cap and trade” policy that goes into effect? As I have worked within the alternative energy markets for the past 15 years I can tell you that there is simply NO WAY that we are going to easily replace the 20.5 million barrels of oil each day the U.S. uses with current solar or Wind technology! It sounds great but it is a pipe dream for sure.
I lived in Denmark for six years and they have the most advanced windmill technology in the world. Although it is a small country of 5 million (the equivalent of a city like Philadelphia PA), they have made rapid advances in Wind technology over the years. However I will say they recognize the simple fact that both Wind and Solar are intermittent, in that they do not produce electricity on either windy or cloudy days, etc. Their base-load capacity has ALWAYS depended upon Oil/Natural Gas.
This is profound as many folks here in the U.S. simply think we will easily transition off Coal/Oil/Nat. Gas to so-called alternatives. This is simply a joke! If you look at the current alternative energy make-up of the U.S. currently you will see that it now only produces a small fraction of the energy delivered to markets currently, say around 3% if you exclude hydropower (i.e., dams). Moreover, in order to build huge wind farms, solar farms you need an oil-based economy to manufacture and supply the various structures to deliver these alternative energy derivatives! For instance, I have yet to see a mining operation that obtains its power from alternative sources? Not to say that this cannot happen, it just is not reality today.
Well that is enough of my rambling. Have a great day and think about these things beyond what you hear on mainstream TV! It will do you some good!
I too have been renting for years and am very frustrated – real-estate in Wash DC is simply outrageous. Odd, I h ave worked extremely hard to increase my revenue over the last decade so I could finally afford a house, even now, making more than 85% of americans according to wiki – I am absolutely astounded at the price levels in washington dc, it is simply not practical for me to pay 700k for a house that was only 200k in 2000. I have always tried to reach a point where I could afford a home (say 3.5 times my annual salary), but they just keep increasing faster than I can increase my revenue. Sad, I am highly trained on tax dollars, I might have to leave the area (or country) to find the quality of life i had hopped to achieve in washington dc.