Barack Obama's Econ Adviser: Austan Goolsbee

I find it quite interesting that Barack Obama is blaming so many people in the Bush Administration for what is happening in the credit and housing markets. He's blaming McCain, too. But, his own economics adviser, Austan Goolsbee, wrote in 2005 (over three years ago): "If you want to make money off the housing bubble, you'll have to do it the old-fashioned way: Buy a place with a no-money-down mortgage and then flip it." Isn't that a responsible statement?! (See Full Story).

For years, like a lot of Democrats, Austan Goolsbee has been promoting low-income, no-money-down borrowing for home loans. A primary reason for the mess that we are now in. I think America should take a good, hard look at Obama and his economic ideas. Ideas and tax programs which are driven by a guy, Austan Goolsbee, who, apparently, thought it was fine to keep feeding the housing bubble until it burst. Now, we are all paying for that kind of philosophy. I just think Austan Goolsbee and Barack Obama aren't ready to lead this country. Unless, of course, total economic collapse is the goal!

One last point. It was obvious that Obama's economics adviser knew that a bubble was in progress in 2005. Did Barack Obama ever take the reigns of leadership to address this obviously explosive situation while being advised by Austan and while he was an active U.S. Senator? Not hardly! Maybe it was because Obama was too busy taking campaign money from the likes of housing giants like Freddie Mac and Fannie Mae! At least John McCain, the guy who according to Barack doesn't know anything about economics, had the sense to introduce a bill in the Senate to reign in both Freddie Mac and Fannie Mae. He did that in 2006 and, if passed in the Democratically-controlled Senate, it might have changed the course of history, today!

Where Have All The House Flippers Gone?

Like the old Peter, Paul, and Mary song, house flippers have... "Gone to graveyards, everyone." From the mid-1990's to 2007, the housing boom made many people rich. They could get no money down loans (sometimes for more than 100% of the value of the house) and watch as those properties rose as much as 1 or 2 percent or more per month. Quick buys and sells (flips) were the name of the game.

I live in Las Vegas. Many who live here moved from California and were able to sell their half million dollar homes and buy a near-similar sized or even larger Vegas home for under two hundred thousand dollars. They would take their one-time capital gains exclusion on their California home sale and bank two or three hundred thousand dollars and use that as seed money to flip houses. That's one of the reasons why this town, like places in Florida, have seen a fall in housing prices of nearly 30 percent in the last year. Simply speaking, there are more houses in Las Vegas than people to occupy them.

The days where there are cheap loans and fast appreciating properties are over. The days when the casual and uniformed house flippers can make huge profits are also over. As a result of the sub-prime home loan debacle, all credit is tight. Even for home equity loans and car loans. If you want a loan for real estate, you are going to have to come up with 10 or 20 percent down. Most lenders will go back to the 25% rule. That rule said that your housing expense can't be greater than 25% of you total income. Further, the applicants hare going to have to prove a stable job with years of service. Of course, with housing prices continuing to fall, no one is really going to make a single dollar on a real estate property by carrying a loan.

In the future, the real estate market will effectively be a "dead" money market; except in some yet-unknown hot markets to come. The people who are able to make money in this market will be those who absolutely know the real estate business and who have the capital available to buy and sell without begging for cash from a bank or other lender. Home prices (if they rise at all) will probably rise at a rate that is equal to or below inflation. No more 20% gains per year. It will probably take as many as 10 years or more for your existing home to get to equal the value that it had previously been at the end of 2006. Additional foreclosures, this year and next, will continue to drive inventories up and homes prices down. Don't expect those "House Flipping" shows on cable TV and satellite TV to survive much longer; either.

The consequence of excess is always a diet. Just like someone who overeats, American real estate is on a diet!

Image by TheTruthAboutMortgage.com 's photostream on Flickr with Creative Commons Licensing remix/adapt/modify permission (Click to View Other Works). Specifically modified by Cranky George for this blog entry.