November 25, 2007

“housing is the linchpin of our economy” – in NY

Have we seen worse of mortgage crisis? – Yahoo! News
Sen. Charles Schumer, D-N.Y., a key member of Senate finance and banking committees, said borrowers are the ones who need relief. The playbook to bail out the economy would not be applied to the banks and mortgage originators, but money could be funneled through non-profit organizations to homeowners that need help, he said in an interview with The Associated Press.

“There is a worst-case scenario because housing is the linchpin of our economy, and more foreclosures make prices go down, that creates more foreclosures, and creates a vicious cycle,” Schumer said.

Fortunately, in the Bay Area, we’re more diversified than New York.

I’d probably say that it’s

  1. Web 2.0
  2. Software
  3. Hardware
  4. Biotech
  5. Clean tech
  6. Luxury car sales
  7. Financial stuff
  8. Tourism
  9. Garlic/Mushroom farming
  10. Housing

What do you think? Is housing the linchpin of our economy as well?

Actually, do you think Schumer was referring to the country as a whole?

Comments (18) -- Posted by: burbed @ 5:19 am

18 Responses to ““housing is the linchpin of our economy” – in NY”

  1. brian t Says:

    If the “linch” in “linchpin” is related to “lynch”, as in “being strung from a tree by your neck”, then sure, housing is the “lynch-pin” of any economy today.

    I live in Ireland, and follow your Bay Area posts for consolation that Ireland, especially Dublin, is not the only property-insane region in the world today. South Dublin will soon be a town of millionaires – in Euros, not Dollars – based solely on your ability to afford to live here.

  2. ex-sunnyvale-renter Says:

    Housing is what’s kept our economy afloat since 9-11.

    The housing and credit bubble was created to put off until later what’s happening now. They managed to put it off 5-6 years and to make the downfall less steep, but it’s still inevitable.

  3. Timmah Says:

    @ex-sunnyvale-renter: “They managed to put it off 5-6 years and to make the downfall less steep”

    Did you mean “more steep?”

    The last 5-6 years of our economy’s growth was a smokescreen. It was made possible by debt. The dollar was sacrificed to ridiculously low levels to achieve this “growth.” Now our buying power is the worst it has been since the 1970s, maybe the 1930s.

    It seems like the Fed’s plan starting in 2001 was to try to delay a panic until after US businesses could both outsource all of the work and somehow find a ton of growth abroad to make up for the stateside decline. There’s no other explanation for why they kept interest rates so low even after housing became hot — interest rates kept dropping well after housing went insane. So anyway, the first part happened… we outsourced tons of jobs… but the overseas sales didn’t improve for most businesses. Plus, the outsourcing funded growth in other economies to help make sure US sales abroad didn’t increase! As a side effect, banks used the low interest rates to make bad loans that kept driving housing prices to ludicrous levels. Alan Greenspan, GW Bush and John Snow could all be in jail for this, the most irresponsible abuse of our currency and Treasury since we got off the gold standard.

    When this thing peaks, the US will have no manufacturing jobs and no one who wants to buy our services. The US has already been on sale for well over three years and nobody’s been buying.

    So if you live in the US, you should pray that the technology geniuses in the Bay Area can come up with teleportation, fusion or something else that’s innovative, patentable and insanely profitable. Another website that makes money through advertising isn’t going to save this country.

  4. sg Says:

    This guy is called “subprime Chuck”.

    http://seekingalpha.com/article/46036-subprime-chuck-plays-the-fool

  5. Renter Says:

    The Terminator is coming to save subprime borrowers.

    http://www.msnbc.msn.com/id/21964048/

  6. Renter Says:

    He is going to save his wall street buddies. Here is CHARLES E. SCHUMER’s top contributors:

    http://www.opensecrets.org/politicians/contrib.asp?cycle=2004&CID=N00001093

  7. BubblyRE Says:

    I find the humor in this blog usually pretty funny but here is a thing I just don’t understand:
    If prices go up by 100% or 200% or 300% in a few years we’re all supposed to be better off happy happy happy other than priced-out suckas. But if the 200% bloated err I mean, revalued, homes drop 30%, its DRAMA DRAMA DRAMA, and savers and taxpayers are expected to come to the rescue. Say a property that was 300k once upon a time, i.e 2001, was valued at 900k in the peak but is now selling for 600k. So? I think it would still be overpriced, but in any case, where’s the drama and why should the “owners” (loan-owners???) be bailed out by responsible people?????

  8. DensityDuck Says:

    Well, let me put it a different way. How are all us “responsible people” served if millions of dollars in loans go in the shitter? Is it really better to kick people out of houses and then leave the property vacant for the next ten years? Hell, I’d likely just crack a window and squat for a while, then claim adverse-possession and get the place back for free!

    This whole discussion is clouded by people who want others to be punished. They’ve got this desire for vengeance, for retribution against those who had the temerity to buy a house. It’s easy to see where it comes from, though; you were being good little Puritans, thrift and saving and waiting patiently for your turn, and now all those people who cut in line ahead of you are going to get away with it. How DARE THEY! They shouldn’t be allowed to have happy lives! They cheated!

  9. sonarrat Says:

    A lot of this is people who DID cheat, because they took out loans they had no intention of repaying and no means to repay just to keep the bubble going. Now we’re going to have layoffs coming from the same financial sector that fed the few real buyers in places like San Mateo and San Francisco, and it’s going to hurt.

  10. RealEstater Says:

    Alan Greenspan’s goal on the economy was pretty much the same as George Bush’s goal on Iraq — keep it going for as long as he is in office, and let the next guy worry about it. The problem is not solveable, but postponable!

  11. RealEstater Says:

    As humorous as it seems, the examples shown in this website are very real. All over the “real” Bay Area, 50+ year old shacks on 5000 sq. ft. lots are still asking for $800K – $1mil even though housing markets outside of the magic zone are falling off the cliff. There’s still a sense of invincibility toward these markets due to what transpired in the past few years. Better be careful…there was a time not so long ago when you couldn’t move these houses at half the price.

  12. rick Says:

    To DensityDuck,

    If the house is priced right, you don’t have to worry about it sitting empty for 10 years. So no, that is not gonna happen.

    As to wanting others to suffer, why do you think the BA renters who are making better than average money are such bad people? How about those could have afforded but have refused to join in the housing bandwagon and have been sufferring? Oh no sympathy for us, we are those bad people without a home and can’t wait to pile on the poor house snobs.

    So yeah, sorry we have no sympathy for thee.

  13. Tommy Says:

    I agree with rick. DensityDuck, ownership of a home is not a right, it’s a privilege for those who have saved enough for a down payment and have the money to pay a decent sized mortgage. I make wall above the national average salary (but basically average for a Silicon Valley software engineer) and laughed when some dumb sales lady at Rivermark said I could afford a $650K mortgage with no money down. Luckily I didn’t take the bait and went home to ponder the mystery of how someone not making $250K per year can afford a $650K home and still put 15K in their 401K and 4K in their Roth IRA, and maintain their 6 month rainy day fund. The numbers didn’t add up then (2004) and they still don’t add up now. If the median income in the Silicon Valley is about 70K or so, then the median home price should be at most 4x that so figure 280K, I’ll give you 300K if that’ll make you feel better. We really have a long way to fall. Anyway, I’m saving my pennies like a good little Puritan and will buy someone’s foreclosure in cash in a couple of years. Screw this mortgage business.

    As for the original topic: does the national housing market tanking affect the Bay Area. I think emphatically yes. Who buys all of those iPods and iPhones being pumped out of Cupertino? Certainly not just Silicon Valley-nites. Who pours truck loads of money into Google’s money-making-ad-machine? Certainly not just Silicon Valley companies. I think those of us here in the Valley want to believe that we exist in a vacuum that is isolated from the riff raff of the common working class joe that is the bulk of America, but in the end, we only exist because these working class joes and janes buy the stuff we engineers dream up each and every day.

  14. burbed Says:

    If the median income in the Silicon Valley is about 70K or so, then the median home price should be at most 4x that so figure 280K

    To be fair though, the median income is skewed here because it includes all the Pre Prop 13′ers – you know, people who make $40k a year but have $1 million dollar houses because they bought them before 1978 and thus pay $200 a year in property tax.

    When you’re looking to buy a place, you’re not competing against those people. The median income of the people you’re competing against is easily $100k+.

  15. burbed Says:

    Also:

    still put 15K in their 401K and 4K in their Roth IRA, and maintain their 6 month rainy day fund.

    Haven’t you heard? Houses are retirement funds and rainy day funds!

  16. Tommy Says:

    burbed…hmmm what you say does make a lot of sense. I’ll need to keep that in mind when I go house hunting next in a few years. Hopefully facebook doesn’t IPO for $100 billion by then ;)

    As for housing being considered retirement/rainy day funds: My folks felt that way and have refi-ed their way into $150K of debt. The funny thing is that their house originally cost something ridiculous like $25K in the 70s. I’m not looking to get into that kind of trouble and hope to have my house paid in full asap along with my cash hordes :)

  17. rick Says:

    burbed, I keep hearing that talk about prop 13. I don’t disagree that it is ridiculous, but I disagree that it skews the medium income of buyers that much.

    CA is not the top spot in home price gains in the past few years, or at least that far pacing the rest of the states with big gains. So if the prop 13 crowd does not fall into the figure because they’ve already owned one or two houses, same for other states (I would imagine they at least own one?). So that does not make any difference in determining the medium buyers’ income.

  18. Tommy’s parents avoided being foolish [Burbed.com] Says:

    [...] other day, Burbed reader Tommy posted this comment: “housing is the linchpin of our economy” – in NY [Burbed.com] As for housing being considered retirement/rainy day funds: My folks felt that way and have refi-ed [...]


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