Interesting. I'd love to hear your take on what's going on in the Edmonton and Calgary markets--or just Alberta in general--in light of this.

idealisticpragmatist.blogspot.com

Famed bond fund manager Bill Gross said the White House should bail out the millions of American homeowners who face the dreaded prospect of foreclosure this year.

"If we can bail out Chrysler, why can't we support the American homeowner?" Gross wrote in his monthly investment outlook on PIMCO's Web site.

With nearly 2 million homeowners at risk of losing their homes this year and with housing prices rapidly receding, Gross said President Bush, not the Federal Reserve, is the best hope for "almost homeless homeowners."

"This rescue, which admittedly might bail out speculators who deserve much worse, would support millions of hard-working Americans whose recent hours have become ones of frantic desperation," said Gross, a founder of the fixed-income investment firm PIMCO and a columnist for Fortune.

"Write some checks, bail 'em out, prevent a destructive housing deflation that (Fed Chairman) Ben Bernanke is unable to do. After all 'W', you're 'the Decider,' aren't you?" Gross wrote.

Many have called on the Federal Reserve for help with the worsening state of the housing market, including cutting short-term interest rates. While the central bank has been reluctant to do so, Gross warned that such a move would not necessarily guarantee that adjustable-rate mortgages would not keep climbing or that mortgage lenders would relax their lending standards.

More and more troubling news has emerged from the already battered housing market recently as foreclosures nearly doubled during the month of July from last year, RealtyTrac reported earlier this week.

Home prices have also been hard hit recently, falling 1.5 percent during the second quarter, according to the National Association of Realtors. While falling home prices "might be healthy", the decline could represent an asset depreciation not seen since the Great Depression, warned Gross.

The bond manager noted a homeowner bailout wouldn't be the first time the U.S. government has come to the rescue when the economy has faced a crisis.

In the 1990s, the government rescued the savings and loan industry by absorbing its bad debt and late in that decade the Federal Reserve stepped in to restore calm after the collapse of a hedge fund, Long Term Capital Management.

Gross made a handful of policy recommendations for the White House, including creating an agency to coordinate bailouts or aid for homeowners and making adjustments in the government's Federal Housing Authority program.

http://biz.yahoo.com/cnnm/070823/082307_gross_homeowners.html?.v=1

http://mauberly.blogspot.com/

Before these stupid homeowners are bailed out, the government should bail out all the people who are hit with huge and unexpected medical expenses they cannot pay. The homeowners DECIDED to buy a home, nobody made them. Why should the taxes of somebody who may have not bought a home because they realized they could not afford it subsidize the purchase by somebody who instead went ahead and bought a house they could not afford. Profoundly injust.

Really, because the blasted things have passed through so many hands, no one has a clear right to renegotiate loan terms. A bit of legislation might fix that.

Loans can be restructured a number of ways--the term can be extended; payment schedules can be escalated at a future date, etc.

No need for a handout, just the light of cool reason.

The Interest Rates in the prior decades have all tended to be at or above 9% on home mortgages, with the current mortgages still hovering in the realm of 6%. That is a 33% savings on interest expense with the near term principal at a relatively negligable level.

That means that a person, even with similar median wage, can afford 33% more house. Not quite beause insurance and property taxes are higher. So a long term median $150,000 can go to about $200,000 (33% higher). Now that is still below the bubble number that looks like it is hitting $230,000, so the bubble should fall something like 10% to 15% from current average levels.

This does not consider the added tax advantage that was put onto homes in the late 1990's (allowing two homes for interest deductions, and higher non capital gain sales, etc.) But the 10% to 15% correction should hold. In California housing bubbles have corrected as much as 20%. So some markets would be more, though they also get skewed by international markets more.

Bill Gross is being compassionate, which is the right thing to do. But then, so is universal health care and a bunch of other things. Where's the money for this, and why this over other pressing needs. How to determine who is losing their home and who is a flipper getting burned. Sometimes they are the same people. I know of many people in CA who bought homes to live in but didn't expect to keep them more than a couple years, till the reset was to kick in. The idea was to sell the place and take the cash to get something affordable. Bad bet for thsoe who got in too late to get out in time.

Moreover, his idea that a bailout will be able to prevent deflation in housing prices is flat wrong...unless the Fed unleashes inflation, which it may well do. Housing prices are way too high to be affordable for most people in the absence of way low rates and miniscule downpayments, not too many questions on the loan app, and little checking of the numbers. If the prices are propped up with a bailout, most people will still not be able to afford a home without a corresponding increase in take home, which is highly unlikely. In fact, odds of a severe recession are increasing daily.

Moreover, the boomers are set to retire or pass on, and there will be surplus of homes on the market in the coming years as this economically influential generation enters the final rite of passage.