I have to point to two very odd MSM pieces — one on the front page of the NYT today, the other in the OpEd page of the WSJ in March 2009. Each shows a misunderstanding of Housing that I think is significant.

Lets start with today’s NYT. Front page, top left corner, second paragraph:

“Mr. Cuomo was housing secretary at a critical moment for the nation, just as its subprime mortgage fever was beginning to spike. It was during his tenure that the banking industry began to embrace predatory loans, and these creations led to a housing bubble that badly damaged America’s banks and nearly toppled its financial system.” (emphasis added)

That is a big WTF moment for a front page article of a major paper. And it is, of course, wildly incorrect. Cuomo was at HUD until Clinton left office (1997-January 2001);   His tenure at HUD ended before the rate cutting at the Fed began in 2001.  The sub-prime fever did not begin until years later, and did not peak  until years after that. (Note that I don’t care at all about Cuomo — it is the housing timeline I want to see portrayed accurately).

The St. Louis fed noted in a research piece (The Evolution of the Subprime Mortgage Market) that the big spike in Sub-Prime loan origination began from 2002 to 2003, when “LoanPerformance data show a 62 percent increase and the Inside Mortgage Finance data show a 56 percent increase in originations.”

As the chart below shows, subprime blew up in 2004-06; the Times got the time-line completely wrong in a front page story.


Source: Joint Center for Housing Studies of Harvard University STATE OF THE NATION’S HOUSING 2008


The Times partly acquits itself with following paragraph:

“The record shows that the mortgages bought by Fannie and Freddie during Mr. Cuomo’s tenure had low default rates. More broadly, if Mr. Cuomo was less prescient and gutsy than he now claims, no one seriously argues he deserves some outsize share of the blame for the subsequent collapse. Far more powerful actors, including the finance industry, its various regulators, two presidents and Congress, helped create the environment and wrote the policies that caused it.” (emphasis added)


Next up: My Caribbean cruising buddy Gary Shilling, in the WSJ OpEd pages last year. (hat tip).

I am in agreement with Gary about an Immigration solution to Housing — (I have mentioned this in the past) But I have to take issue with his statement “the 1996-2005 housing bubble.”

I have been arguing since 2005 that we had a credit bubble, not a housing bubble. But even if you ignore the credit argument, and think of it as a pure Housing bubble, how does one get 1996? Home prices This exploded in 2003-04, and peaked in 2006-07.

See the Ned Davis Charts:


As HUD Chief, Cuomo Earns a Mixed Score
NYT, August 23, 2010

Immigrants Can Help Fix the Housing Bubble
WSJ, MARCH 17, 2009

Category: Credit, Financial Press, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “Housing: Still Widely Misunderstood”

  1. harrierpark says:

    The 2004 spike in sub-prime occurs coincidentally with “Remarks by Chairman Alan Greenspan Understanding household debt obligations At the Credit Union National Association 2004 Governmental Affairs Conference, Washington, D.C. February 23, 2004″. He said:

    American consumers might benefit if lenders provided GREATER MORTGAGE PRODUCT ALTERNATIVES to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home. [EMPHASIS ADDED] http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/

    The sad part of the story is that the Federal Reserve began raising interest rates a few short months later. See http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html. He effectively shifted the risk of rising interest rates from banks to consumers 4 months before raising rates.

  2. jpm says:

    But even if you ignore the credit argument, and think of it as a pure Housing bubble, how does one get 1996?

    From the Shiller chart. Note that the chart on your pages starts its “boom” shading at 96-97



    BR: That chart does not show things becoming remotely out of whack — getting tot he peak of the 1970s and 1980s booms — until way after 2001.

  3. tt says:

    i remember the day Chairman Greenspan jawboned the country into taking out adjustable rate loans.

    he truly crowned the usa as a completely corporatist militaristic fascist country. we used to have leaders that only took a little skim off the top of the treasury. since raygunomics we are left with a banana republic style leadership.

  4. dimm says:

    There is another argument made by Johh R. Tallbott in his books. In short he is saying that the when you buy a house you buy the land, the house and the tax deductions. If there is greater tax benefit the price of housing will go up and vise-versa. According to him the tax benefits to started to disappear around that time, therefore the housing became more expensive even with the same price tag. Therefore the housing boom began around that time (1997). Makes a lot of sense to me.


    BR: That is a tortured explanation, one that utterly ignores what a bubble is.

    Here is a basic definition: A bubble occurs when any asset class is trading at 1) unusually high volumes; 2) At prices that are considerably above intrinsic value; and 3) With rationalizations for this disconnect.

    But use any credible definition that works — its impossible to define housing from 1995-2001 as a bubble

  5. Anecdotal: There’s some truth to the idea that subprime really got rolling around the late 90′s. It was when I first got into the real estate closing business that the penultimate subprime player, Ameriquest, arrived in my hometown and start buying up all the slums, circa 1997. Okay, lending money against them, but it is effectively the same thing.

    Subprime then truly was subprime. It catered almost exclusively to the underclass, and operated as an alternative to “finance company” loans. The American General offices were not happy when Ameriquest showed up.

    Later subprime was far broader, and reflected not so much doling out money in the slums as it did doling out money to poor credit risks with even poorer documentation of their income and assets. This type subprime is the type Fannie and Freddie started buying, much too late to the game. The only real hope that many of these loans would not lose money was if the property securing them held their value. Of course, we know how that song ended.

    But in my personal experience, subprime slumlording got started in earnest at about when the NYT claims, and then got rolled out for everyone else a few years later.


    BR: Subprime went through distinct periods — it popped around 1995, faded dramatically from 1998-2000, then exploded after 2002

  6. call me ahab says:

    housing mania started in earnest after the dot com collapse w/ a little blip downward after 9/11- CNBC was on board- making sure everyone knew this was the next “no brainer” to make money (after dot com’s of course)-

    I know this first hand having worked for a large national builder- and BR is correct- 1996 was just another year after the smaller RE smack down in the early 90′s- which I remember well- needing 12 years or so to finally recoup the value lost on a rental property bought in 1990-

    never made that mistake again

  7. [...] Money on CNBC at 5:30pm discussing the Housing market, as you may have noticed the past two days here, here and here [...]

  8. Petey Wheatstraw says:

    The Times does not misunderstand he events or the timeline, it misattributes them. All part of the false “everybody is equally at fault” political meme.

  9. call me ahab says:


    regarding the availability of subprime- those products (along w/ alt A)- came on strong after 9/11 (not implying any correlation- just how I remember it) – the Bear Sterns, WAMU, Greenpoints-

    I had folks w/ no money and sub 500 ficos thinking they were going to get financing- surreal- but plenty 0f folks 580 or so w/ no money got loans-

    and folks were saying- regarding the DC area- RE was a lock and could never go down- and I would just say “oh- ok then”- and push on to another topic-

    knowing that as soon as the last chump was on the purchase side of a transaction- it would all collapse- because there was no other chump to sell to

  10. MikeNYC says:

    I knew the SECOND the housing crash was evident that it would just be a matter of time before the open border freaks used it as an excuse to let even more immigrants in. It’s taken a lot longer than I thought for the meme to take root, though I have seen it pop up here and there before this.

    Yeah, let them come help prop up our overvalued house prices and introduce even more competition and reduced wages for the few jobs we have left. Great!

    Let’s see – banks and Wall Street make out by having less foreclosures and short sales as house prices rise or sink more slowly, and individual job holders/seekers take it up the ass in even further reduced wages and increased competition.

    Is there a solution or idea for dealing with this mess that DOESN’T involve the average worker getting fucked harder? Thanks, Barry.


    BR: Shilling wants to undo the dumb post 9/11 act of closing the border to highly qualified engineers and scientists.

    If you bring capital, start a business CREATING JOBS, and buy a house within 3 years, you get to come here.

  11. TakBak04 says:

    Shilling and Lefrack …. Are they Kicking the Can Down Road? ….or “Other?”

    S&L’Fs proposal requires 5 years of VISA Monitoring which would be difficult. Their proposal could also have the potential of displacing young Americans who were convinced they needed to go into huge debt to get Graduate Degrees to get Good Jobs and now find they are Debtors who can’t find jobs to support themselves or replay their loans.

    Shilling and LeFrak’s article SNIPS:
    Immigrants Can Help Fix the Housing Bubble

    The Obama administration should seriously consider granting resident status to foreigners who buy surplus houses in this country. This makes more sense than the president’s $275 billion housing bailout plan, which Americans greeted with a Bronx cheer.

    The federal bailout forces taxpayers to subsidize overextended homeowners who bet on ever-rising house prices and used their abodes as ATMs, and it doesn’t get to the basic problem — the huge inventory of excess houses. We estimate that 2.4 million houses over and above normal working inventories are left over from the 1996-2005 housing bubble. That’s a lot, considering the long-term average annual construction of 1.5 million single- and multi-family units.

    Excess inventory is the mortal enemy of house prices, which have already fallen 27% since the peak in early 2006. We predict another 14% drop through the end of 2010 if nothing is done to eliminate the surplus.
    Chad Crowe

    Doing nothing to eliminate the excess inventory might well push the recession through 2010 and into a depression. Declining home values, for example, are eliminating the home equity that has funded oversized consumer spending for years.


    There is a high correlation between education and incomes, and in today’s uncertain economic climate, many wealthy foreigners desire U.S. resident status just as a number in Hong Kong secured residences in Singapore and Canada before the British handover to China in 1997. They rapidly became over a quarter of Vancouver’s population, and brought in billions of dollars to buy houses and make other investments.

    We could benefit from such an influx. Merrill Lynch estimates that in 2007 there were 10.1 million individuals in the world, 7.1 million outside the U.S., with at least $1 million in financial assets that totaled $29 trillion. If new immigrants bought the 2.4 million excess houses at today’s $184,000 median price with funds from abroad, they would bring untold billions. The immigrants would also buy consumer goods, pay taxes, and start many new businesses.

    America’s relatively open immigration policy makes this country better off than many other developed lands whose governments also must fund the pensions and health care for growing numbers of retirees. Yet there’s still a huge need for more productive and skilled people, both current residents and immigrants, who will produce enough goods and services to provide for their own needs and for those in retirement. Otherwise, entitlement spending eventually will touch off intergenerational warfare.

    More of Shilling and LeFrack’s Article at:



    What my initial reaction and even further thought about Shilling & Lefrak’s proposal to “Fix the Housing Crises” is goes back to this article by Michael Lind…about…”Do the RICH NEED the REST OF AMERICA and the points brought up by WSJ that refer to Lind’s excellent original article.


    Do the Rich Need the Rest of America?
    * August 2, 2010, 11:10 AM ET

    Late last year, the U.S. economy experienced a surprising decoupling.

    As stocks boomed, the wealthy bounced back. And while the Main Street economy was wracked by high unemployment and the real-estate crash, the wealthy–whose financial fates were more tied to capital markets than jobs and houses– picked themselves up, brushed themselves off and started buying luxury goods again.Associated Press

    Who knows what the next few months and years will bring. But one thing seems clear: the economic fate of Richistan seems increasingly separate from the fate of the U.S.

    Some argue that the decoupling has gone even further. Michael Lind, a policy director for the Economic Growth Program at the New American Foundation, argues in Salon that the American rich no longer need the rest of America.

    He says the wealthy increasingly earn their fortunes with overseas labor, selling to overseas consumers and managing financial transactions that have little to do with the rest of the U.S. “A member of the elite can make money from factories in China that sell to consumers in India, while relying entirely or almost entirely on immigrant servants at one of several homes around the country.”

    He adds:

    “If the American rich increasingly do not depend for their wealth on American workers and American consumers or for their safety on American soldiers or police officers, then it is hardly surprising that so many of them should be so hostile to paying taxes to support the infrastructure and the social programs that help the majority of the American people. The rich don’t need the rest anymore.”

    More of an interesting background read at:


    In conclusion I wonder if bringing in Indian, Iranian, Chinese, South African, Uzbekistan and other nations “highly educated” will REALLY solve our Real Estate Problem….or will it create more dislocation for our population down the road.

    Opening doors for the “Highly Educated” from other countries might have the “unintended consequences” of displacing our own “highly educated American Work Force” who need JOBS to pay off what they spent at prestigious institutions which promised them a PIECE of the American PIE.

    Influxes of “Highly Educated Immigrants” flooding into American Cities might also cause much resentment in communities already hard hit by loss of jobs and have an effect on the Existing American Population already suffering with wondering how they are going to get their own kids to see a future in America…to look forward to urging their kids to study hard and look for a brighter future.

    Shilling and Lefrak’s proposal might be a “Quick Fix” ….but could have unintended consequences down the road with Americans already struggling.

    And, what about those “highly educated” immigrants who are used to Health Care and Perks in their own Countries coming to America where such amenities don’t exist and efforts to make us closer to the European Countries have come under strong attack . The latest “Health Care Reform” bill did not bring us closer to the “so-called Socialist Countries” level of Health Care for All, which makes me wonder which countries we should expect these “Highly Educated Immigrants” to come from who will SAVE our Housing Crisis. Will they come from countries who have NO SOCIAL Programs? They will just “bring their money” with them?

    Lots of problems with Shilling and Lefrak’s proposal. Sounds good on surface…but digging deeper there are probably more problems that could be with it than on “first blush” would seem.

  12. Carse says:

    The housing bubble began in 1994, according to the chart. The facts should be shown that many home owners kept moving upward as home prices continued upward, until, KABOOM.


    BR: Your chart reading skills need improvement . . .

    And, merely going higher on a chart does not a bubble make.

  13. Darkness says:

    MikeNYC, since the average worker now works in a service industry job, the demand for employees scales up with the increase in population. (Not that I support the idea. If I landed on any side, it’d be the one that preserves more open spaces and builds livable cities. Rewarding the builders responsible for the massive overhang with customers for their stupid product doesn’t play to that very well. Besides the builders are idiots, they will just keep building more overhang, no matter how many people immigrate in to buy them. And they will get more tax breaks for doing it too, because Capitalism! or something.)

  14. VennData says:

    Wait a sec… are you saying there’s something not completely, 100% accurate on the Wall Street Journal Opinion page? How can that be? …well, what about this?

    Wind Power Won’t Cool Down the Planet

    “…Often enough it leads to higher carbon emissions…”


    … Are you saying, that more wind power does NOT mean more carbon emissions? …that can’t be right.

    Are you telling me that the WSJ’s owner, NewsCorp whose second larger shareholder is Saudi Prince Alwaleed Bin Waleed would say that? ….whose first largest [sic] shareholder is the Fox News guy who also wasn’t born in the US? Is that what you’re implying here?

  15. Equityval says:

    Clearly the big spike in subprime was in 05, but important seeds for the bubble were planted in the Clinton and Bush II administrations. This story, also from the Times in 2004, describes behavior by borrowers, builders and lenders in the Poconos is an almost carbon copy of what was to unfold in California. Replace Poconos with Temecula, drop in a few palm trees and it would be hard to tell them apart. It even features Chase doing a bunch of very dubious lending. It is well worth reading. We may not have been in a bubble then, but many of the behaviors that drove the bubble were beginning to be tolerated, particularly on the lending side. Not only were these behaviors tolerated, the government ecouraged them in some cases. As the head of HUD during this time, Cuomo does not walk away with clean hands.


    “Bill Clinton saw housing as a potentially winning issue early in his 1992 presidential campaign. Soon after the New Hampshire primary, he announced that he would jump-start the national homeownership rate, which had languished during the previous 12 years of Republican administrations.

    It was a promise that Mr. Clinton found easy to keep. A surging economy bumped up the ownership rate with little help from Washington. Then in 1995, he rolled out a 100-point plan for homeownership. The program sought to increase the supply of new homes by streamlining local building codes. It encouraged lenders to ease borrowing by reducing the traditional down payment of 20 percent to a few percentage points or in some cases nothing at all. With help from Congress, the tax law was changed to let first-time buyers use their retirement funds without penalty.


    cont here

  16. EquityVal

    You need to understand the context of what happened, and to also understand that correlation does not equal causation.

    If the Clinton tax changes caused the US boom and bust, what pray tell caused the simultaneous global housing boom and bust? The Clinton tax cuts? Thats a big fat Fail.

    See this for the real story, and stay away from the false and unsupported narratives

  17. Did I understand you to say that you want to increase immigration to fix the housing problem??
    WTF BR, isn’t the employment situation bad enough? Where will they all work? Or if they are smarter than the locals, where will the locals work? Maybe I misunderstood.

  18. [...] Housing: Still Widely Misunderstood (August 24, [...]

  19. TakBak04 says:

    @Rational Adjustment Says:
    August 25th, 2010 at 7:02 am

    Did I understand you to say that you want to increase immigration to fix the housing problem??
    WTF BR, isn’t the employment situation bad enough? Where will they all work? Or if they are smarter than the locals, where will the locals work? Maybe I misunderstood.


    Yes..BR did that…….

    I posted about it above you here. I hope BR will think more about this and the consequences. BR always says he like contrarian views. I did a rant about my “contrarian” to him about this….. Unfortunately the damned thing was too long ….so probably no one read it. I wish BR would find a way to get an “EDIT” button so I could have shortened my rant after posting.

  20. bmili says:

    Can someone help me out here? Why is everyone looking at Community Reinvestment Act in 1996 and the events of 2001-2007 as mutually exclusive causes for the housing crisis. As someone with a background in operations, you don’t see production problems until another variable in the production process changes (ie- volume). Think of 1996 as putting down faulty/shoddy framework that would hold up for the time being and not be too highly noticed. 2001-2007 was the variable that blew the structure to pieces.

  21. Except that the CRA legislation was passed in 1977.

    Do you have any other clueless wingnuttery you need fisked? Surely, there must be some other talking points that can be mindlessly parroted and dissected.

  22. bmili says:

    Forgive me if I naively thought the CRA revision in 1995 helped contribute to where we are now. I am here to learn and discuss, my point is that there were structural problems in the existing lending framework for residential mortgages that got expsoed by the excess liquidity of the 2000s. Personal attack in 3, 2, 1….

  23. I have utterly run out of patience for bullshit.

    1. This was about a thoroughly discredited wingnut talking point asked about 2 days after the post went up. (That smells like troll; Changing the date in the 2nd comment is too)

    2. This was Intellectually lazy. It would have taken you 1 second to fact check this vs the 1000s of hours of research and writing this site is made of. (and changing the date

    3. If you cannot be bothered to come within 20 fucking years of a correct date, why should anything else you write be taken seriously?

    I am following the advice I gave Scott Adams: Triage.

    “Sorry, son, your wounds are too serious, your not gonna make it. There are some wounded I can save. Here’s some morphine, God be with you.”

  24. [...] Money on CNBC at 5:30pm discussing the Housing market, as you may have noticed the past two days here, here and here [...]