First 100 days: A fix for the housing crisis

February 26, 2009

Elena Panaritis — Elena Panaritis is an institutional economist. She spearheaded property rights reform while working at the World Bank, and lectures at Insead, The Wharton School and Johns Hopkins University-SAIS. A social entrepreneur, she now heads the investment advisory firm Panel Group. Her recent book is “Prosperity Unbound: Building Property Markets with Trust”. The views expressed are her own. —

In his speech to Congress, President Obama spoke of how the proper response to the economic crisis is not just a matter of immediate fixes, but also an opportunity to make investments that will serve the nation’s long-term interests. The same idea should govern the housing recovery plan. Otherwise, we get nothing more than a crutch when we need a cure.homesales

As much as short-term help is needed to keep more people from foreclosure, there is a big opportunity to get to the end of the crisis by starting at the beginning of the problem. The conventional wisdom is that subprime mortgages represent the beginning. In fact, the beginning goes back much further. The current crisis stems from the absence of a system that provides stability to the value of properties in the United States.

Instead, real estate “value” in the United States continues to be set through speculation, and that undermines the security – that is, the underlying asset – when mortgages are traded as part of complex financial instruments. We cannot ignore a simple truth of economics: if we are going to treat mortgages as securities, then they must be secured by the tangible asset: namely, land and buildings. To do otherwise has proven to be a recipe for disaster.

The opportunity before the U.S. government with a housing recovery plan is to set up a new system that will keep us from ever getting to this crisis point again. How? The devil is in the details.

It’s no accident that other countries, even those that trade mortgages as financial instruments (such as Australia and Canada) have avoided the levels of off-the-cuff valuation of property we’ve seen in the United States. The reason is that other countries have standardized the information needed to determine the genuine value of real estate and hence mortgage valuation.

This information – actual boundaries, property transfers, claims, liens, and so on – is made available to everyone. The system is sound and transparent. And where do they keep this information? In national property registries, which maintain all the data, in a standardized format, that buyers and sellers need to undertake transactions related to real property.

The United States has a broken registry system, and instead of ever fixing it allowed a title insurance industry to arise as a substitute. Title insurance is non-transparent and (at best) inconsistently regulated, yet it is the main system through which information about property valuation flows. Plus, you have to pay for the information. This leads to all sorts of problems, and fuels speculation.

The Obama Administration’s housing recovery plan ought to look forward. Help people facing foreclosure today, yes, but also establish a national, standardized property registry responsible for the collection of all titles and all information about characteristics of property. Even statewide registries would be a tremendous improvement.

The first step is to mandate an agency to gather whatever exists in state and local registries and title insurance companies around the country, no matter how inadequate, and centralize and standardize that information. Then, establish a mechanism for making this information available to all. Further, figure out how to fill in the missing information. Finally, create a system for the registry to provide remediation in the case of errors.

It is critical that we correct how the value of real estate is established. By finally securing the asset, we can guarantee long-term price stability and rid the system of the speculation that has put us in this crisis. Let’s look at the current housing crisis as an opportunity to make this long-term fix.

This isn’t about setting property prices now and letting them remain static. Rather, it’s about letting a dynamic property market flourish in a way that protects Americans from having to bail out banks or themselves in the future.


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Standard title insurance–the kind required by banks and localities–does not insure “actual boundaries”. When my neighbor and I found out that our lots both included the same overlapping three acres, both title companies easily avoided responsibility. I would not shed a tear at their demise, but I have no confidence in some monolithic governmental replacement.

The author suggests that said monolith will avoid “off-the-cuff valuation” . I’m not sure what that means, but the implied linkage between that and speculative bubbles is not valid. To see this, we need look no further back than Japan in the 90’s.

Though title insurance is nearly useless for most of us, we should look for a culprit instead at the appraisal industry. What a lazy bunch! Comps–that’s about all they know. Fundamentals are too much work. Local consistency of price is the best they can do. Speculative bubbles are above all else consistent!

Furthermore, even if appraisals were tied to fundamentals, we would find these fundamentals subject to speculation. So I think the author’s entire line of reasoning fails. There are plenty of other reasons to stick it to the title insurance industry. Pick one.

Posted by Tom Burton | Report as abusive

interesting article, perhaps i don’t fully understand “Title Insurance” but Title has to register everything with their local county anyways so what’s missing? what is getting recorded at one and not another?

In regards to your value comment i’d have to agree. However real estate, while tangible and physical, is so tough to put a value on. I think we are about to hit dire times come May 1st when Fannie & Freddi require all appraisers be in house. Now the banks who are lending the money get to decide what your house is worth and based on that give you an interest rate. The current system allows the bank to REVIEW an appraisal and make a judgment not force a value upon a borrower for their own interest. Dire times lay ahead.

Posted by Anthony | Report as abusive

The principal cause of this crisis was allowing people to borrow more than they could ever earn, not the admittedly patchy and inconsistent system of recording the boundaries, property transfers, claims, and liens associated with different properties. If people are given more money to spend, prices will go up. When this money is borrowed based on future expected income which never materializes, they will default.

These kinds of abstruse arguments distract attention from the basic fallacy which continues to be perpetuated in discussions of the housing crisis. This is that house prices rose to an unsustainable level because their values greatly exceeded the amount of money that was actually being earned by potential buyers and the US population as a whole. Because the government, press, and homeowners are still in denial about this basic cause, there is the illusion that it will be possible or beneficial to prevent a correction to levels set by the ever-dwindling wealth of potential home buyers. Don’t forget, house prices in Japan had to fall 90% before their bubble was deflated. And by stringing it out for a decade they suffered much more than if the bubble had been popped all at once.

Posted by David | Report as abusive

I agree with the author about the title system at least in Australia. Our property records are transparent and accurate and any potential purchaser can see what defects or rights in rem belong to the current owner. Also you can see what anyone paid for their home over an historical period.

Although I am Australian, I live in a developing country and they have a highly speculative property market and a low mortgage industry because people prefer cash. This keeps people homeless and living in substandard accommodation. Unfortunately the Americans came to town with their title insurance which I could not see the benefit of simply because most of the housing is illegal in one way or another. Globally governments need to sort this out and make property valuation a transparent online accessible system. Appraisers still have their role but they have to be far more prudent (and honest) just like any professional.

Posted by Liesl | Report as abusive

Title information has nothing at all to do with home values. Values are determined by land value and the value of improvement.

While the title information may carry information about the lot size, that information is readily available in the tax rolls.

The title information carries absolutely nothing concerning the value or condition of any improvements.

Having a central registry of title information does nothing to control or check housing speculation.

Speculation in housing prices will continue as long as the two principal parties in the real estate transaction, lenders and real estate agents receive compensation based on the value of the transaction rather than the value delivered by their efforts.

Commissions are a significant incentive to push for inflated appraisals and to convince their clients that the inflated pricing is reasonable.

Fix the commission system and you cut out most of the speculation in the residential housing market.

Posted by Dave Wirsching | Report as abusive

I’m not very familiar with the American property registry system but I can provide some insight into the Australian system.

Land based taxes is one the the greatest streams of revenue for the state and federal government. All property transactions are registered at a central data base, and made available but not for free. Professional valuers are engaged by the government to assess the “market value” of all properties in their jurisdiction to determine the appropriate amount of tax charged to property owners. The assessed property value are based on market transaction as sales evidence, for the majority of properties that were not sold on open market their market value is determined through statistical analysis with respect the value of sales evidence of near by properties. Basically the market is the basis of most government valuations.

But what happens when there is excess credit that provides incentive for gearing in the market which dramatically boosts the willingness to pay for the properties traded in the market place? The median residential housing price in Australia have increased 4 folds in the last 10 years!

The government doesn’t really mind that there is this kind of property inflation going because high market value actually helps to boost the government’s tax income as well.

One of the main reasons why we haven’t seen spectacular collapse in residential property value in Australia is because to bring new supply of housing onto the market it is extremely difficult. The multitude of hurdles include obtaining planning permits, and winning the favor of powerful construction industry union to deliver the projects efficiently. And it is only the lower end of the market that haven’t seen dramatic decreases.

Certainly, more transparency would help, but it’s no silver bullet. Sound valuation practices would help as well, but what is sound valueation practice? If all information is based on market transactions, yet there is external factors that is distorting the market on the global scale how could anyone have prevented the current situation? We might need some really clever game strategists to figure this one out.

Posted by Ding | Report as abusive

I’ve been a real estate appraiser since 1984, when we come out of this down turn this will be my second complete up and down cycle that I’ve been through.
I was a commercial/residential appraiser but was forced out by the mortgage broker’s need to make the deal. I told the truth = no business.
I would like to state that there is a small kernel of truth to this column – very small indeed; about the size of BB in a box car! Appraisers in different countries use the same methods as US appraisers.
I am astounded by the lack of basic knowledge about the real estate industry by common folks let alone by this economist.

Title companies identify ownership of real estate some real property interests and lot boundaries – nothing more – No values “flow through” tile companies.
Recorded deeds at the County Recorders office are the reflection of the local real estate market. Current transactions “set the market.” Go read the deeds and talk to the buyers/sellers. See what the deeds contain – not just dollars but include personal property and some services !!
Stop the confusion — Valuation is work – focused

The cure is: Make the mortgage brokers or banks hold on to new mortgages for 3 years to “season.” The loans they make advertise and promote will be totally different and maybe us old “seasoned” appraisers will be listened to again.
Bankers and the mortgage security idustry have lost their way in valuing mortgage risk – The mortgage market investors do not believe in the banks
vetting of property owner ability to repay their mortgages.

Posted by Ed J Hennessy | Report as abusive

what ignorance on the part of the author. And Reuters is allowing this to be published.

What makes the author think that sale prices of houses is not publicly available in the US. Check out the following links which shows property sale prices. Its all public information.

again this is just a small sample of the websites from where you can get this information. And for sales prices all over the united states check out

Posted by spaul | Report as abusive

We really need to look at our materialistic, greedy culture to find that there is a stench of corruption in most professions and institutions. Bankers, real estate agents, appraisers, financial advisers, accountants, investors, mortgage brokers……wherever a buck can be made by exaggeration, spin, misrepresentation, turning a blind eye or ear, let’s face it, our society has done this to itself although many of the biggest victims are innocent bystanders who have “played by the rules”. And what happens to whistle-blowers? They are discredited, prosecuted, ostracized and ruined. Guess what folks, we have seen the enemy and he is us!

Posted by Jonathan Cole | Report as abusive

Registry standardization and centralization of the sort proposed would be a useful improvement. It has, however, I agree with the critics, very very little to do with the construction of over-leveraged speculation and bubbles.

Posted by AtomikWeasel | Report as abusive

Elena Panaritis writes: “The current crisis stems from the absence of a system that provides stability to the value of properties in the United States.”

I say bravo! You are exactly right Elena!! Honest property valuation is so important, and it can be done in many different ways. I would do it in tripartite fashion as follows:
1. Replace local and state property taxes with a stiff national property tax.
2. Heavily tax profits made on the sale of residential real estate with no exceptions.
3. Require a 20 per cent down payment on the purchase of a property, and require that a mortgage payment not exceed 35 per cent of a purchaser’s verifiable income.

California started this whole inflated property valuation mess in 1978 with its notorious Proposition 13. If you shield homeowners from the adverse consequences of rising property values by limiting property taxes, then homeowners will abuse that protection by using their majority status to run-up property values to enrich themselves at the expense of the community at large. The same goes for allowing exceptions to a heavy tax on the sale of residential property. The current crisis was caused by an orgy of greed by a generation of American homeowners, and now everyone world-wide must pay for their folly.

Posted by Darth Baghead | Report as abusive

Congress failed to require real, true, viable loan modification in the Housing & Economic Recovery Act as well as EESA and again in the ARRA. “We the People” have now spent or committed to spent some $2 Trillion, with trillions more to come, all without ever having addressed the root cause of this crisis…. the real estate defaults and foreclosures. In addition, proper loan modification WILL eliminate the vast majority of loan defaults that have brought about the massive increase in bankruptcy filings. Should our bankruptcy judges have the authority to modify real estate loans… most probably the answer is yes, however this is and ought to be a separate issue apart from the current economic crisis.

It has been stated that some 58% of loans that have been modified to date are back in default and foreclosure. A review of these loans will reveal that the cause for these failures has been the method of modification… the rate and terms applied in these instances have been a prescription for failure. Therefore, I suggest that congress require that any lender, brokerage, insurance company, or and any other firm that has received TARP or other federal funds, either directly or indirectly; and holds a beneficial interest in an any loan secured by 1-4 unit real estate, either directly or indirectly, be required to offer to modify all real estate loans with less than 3 years remaining to the next rate adjustment along the following lines:

WITHOUT the time consuming, meaningless process of (effectively) re-qualifying for a new loan, the existing loan balance is to be modified into a 50 year amortized loan, with a 5 year reset and an initial rate of 4%. The maximum rate change each 5 years would be +/- 2%; with a 9% lifetime cap. Loans already in default would carry a forbearance agreement added as part of the process.

This method of modification will reduce the loan payment by some 55%; while at the same time preserving the amount due to the lender. The aggregated annual savings of in excess of $150 Billion realized would, most likely, go into savings, pay down revolving debt or be spent fueling the economy through the purchase of goods and services (cars?). All of these options are positive and necessary for a cure to this crisis.

In most instances, this process would eliminate the urge to simply walk away from a property in which the homeowner has no equity. They require a home for their family; and what is better than the one that they already have. This proposal will stabilize not only the real estate and financial markets… but also the lives of these millions of Americans… while at the same time providing the knowledge and hope that, given time, they will regain the lost equity in their homes… the hope and positive attitude that my proposal brings to the table cannot be overlooked.

It is quite easy to verify that the number of families currently effected by this crisis is not, as reported 13 million, but more likely over 25 million real estate loans are in jeopardy… we cannot continue to ignore these people… as to stay on the present course, impacts every American family negatively.

Every time a homes sells as an REO or “Short Sale” the real estate tax base is reduced… the states and local governments are all reeling from these loses. This plan will put an end to this hemorrhage in tax revenue too.

Posted by Stan Brody | Report as abusive

I understand the idea of a more unified approach to property evaluation. For example, in Pennsylvania where I practice my trade, survey’s are not required when transferring a property, unlike in neighboring states. It seems strange that one would purchase a property, normally their largest purchase in their lifetime, without actually knowing what they own! However, title insurance protects Pennsylvanians in the event of any discreancy. To suggest that a nation system would be more efficient, I would refer you to any number of government run organizations. Could you imagine proceeding to settlement on a property in a 2 week time period? Imagine the beaurocratic red tap coordinating these transactions through a national system. Our existing system isn’t perfect, but it works. It is a free market system that allows the ebb and flow of property valuations. I’ll take that over dealing with some government agency any day.

Posted by jeff pendergast | Report as abusive

As any improvement of any registry system would be beneficiary, I don’t really think it is connected somehow with prices. Aren’t stock markets a good example that even when values are transparent they still tend to go the way from boom to bust every few years? If home prices behave that way it is not because of transparency issues but because of the idea that those four walls are sound investment. Sometimes in fact they are (I am a proud owner of bricks and mortar) but if we would like to prevent the damage housing busts do to the wider economy and the banking system we should stop encouraging home ownership. Developers will not loose their jobs because people always will need places to live. Why do you think there’s been no property bubble in Germany? Yes, it’s economy has been sluggish over the last years but just 43 per cent of the people own their homes. On the other hand, if consumers put less money in illiquid assets they should have more to spend, wouldn’t they? And maybe banks will then put the emphasis on what their clients earn, not what they are worth. Their business is about lending not investing. Isn’t that the reason why in the US you used to have investment and universal banking models?

Posted by Deyan | Report as abusive

As stated we need to get back to the basics. Basically we need to know the underlying value of real property, that means a solid appraisal. Banks tended to drift towards Broker Price Opinions (BPO’s) and AVM’s Automated Value Models to reduce cost for a appraisal of property.

When this happened especially with AVM’s the greed and fraud got worst. A computer can not tell the condition of a property period. A human being needs to inspect the property and determine value. To stabilize property values this must also must occur.

The securitized pools of loans must go back to proper valuation, proper underwriting and risk management period.

Geithner’s Mo Mod plan what I have seen addresses this very root of the issue you talk about. Mo Mod requires proper appraisal which in turn allows the financial arm to get it feet under them.

Senator Grassley from Iowa questioned Geithner last week on the Mo Mod plan for fraud detection, I would be curious on how that componet works.

I look forward on how this all works out, I hope that we do go back to the basics, and believe the Mo Mod platform is a good first step to recovery!

Posted by Frank Kellog | Report as abusive

Great post about the Mo Mod. What I have seen about it, allows un-biased appraisal valuations to occur. Since taxpayer dollars are involved, don’t we need to know what the true “underlying value” is before any correction?

Knowing that portion, will help the government determine the stress test of alot of banks. I wish Elana would look further into the Mo Mod platform for us readers. I also saw Grassley’s letter to Geithner concerning the Mo Mod, I would love to see Geithner’s response. I don’t know how much longer this country can hang on with policy in limbo?

Posted by Roger | Report as abusive

You won’t solve the valuation problem until you make appraisers completely independent. It would require a multi-step process:

1. Require full disclosure of sales prices of all property, in all states.
2. Establish an Internet-based property registry system that is accessible to everyone, by which access is gained to sales prices and critical property information.
3. Require that appraisers be competent to appraise the specific type of property they are appraising, not just have a general license.
4. Award appraisal assignments through a blind national system, that is not controlled or influenced by a borrower, lending institution,or loan officer.

Until the system is transparent, and without influence, we are going to see the current crisis repeated over and over. It is time for a change. After 35 years as a professional appraiser of commercial property, I’m tired of seeing us repeat the past. Give appraisers accurate information, and let them do their jobs honestly.

Posted by John B | Report as abusive

The real root cause of this mess is the trade deficit, which is financed by a sell-off of American assets, including mortgages. Every dollar of the trade deficit must return to the U.S. and get invested somewhere. When the stock market bubble burst in 2000, and with interest rates on treasurys so low, the hundreds of billions of trade deficit dollars turned to the housing market. With the market for prime borrowers already saturated, lenders turned to sub-prime mortgages, offering ridiculous loan terms to people whose incomes had been in decline for decades due to – what else? – the trade deficit and the loss of manufacturing jobs.

Housing won’t stabilize until the median home price falls to a level that’s affordable by people earning the median income, which is steadily declining. Want to stabilize the housing market? Stabilize incomes. That means eliminating the trade deficit and bringing six million manufacturing jobs back home.

Pete Murphy
Author, “Five Short Blasts”

Posted by Pete Murphy | Report as abusive

This is a good idea. In Louisiana, everything is public, but the records can be so complicated you have to pay for a title search because the records are so complicated and, even then, there can be uncertainty. I say this as a lawyer who knows a lot of property law. Title insurance mostly protects banks.

In Houston, it seemed clearer, but I believe that sale prices are not made available because then people might have to pay property taxes on the real value of a property based on how much they were willing to pay for t instead of whatever lesser value they could convince the government to assign. This system also makes it much harder to value nearby properties.

Posted by Mike Guidry | Report as abusive

From looking at the Case Shiller home price index, it appears that home prices are decreasing at a rate of about 2% per month. The rate of decrease is accelerating. It used to be that home prices were decreasing by 1 or 1.5%, then 2%, soon it will be decreasing by 3% per month. The index maxed out at about $190,000 in the summer of 2006, and it has since decreased to $140,000. From the looks of it, I think that the price of homes will decrease to about $100,000 or so. That means that we are almost half way done the slide in prices.

Peak to trough, we should expect about a 40 to 50% decrease in home prices. Looking back, it was definitely a housing bubble. The banks used tricks such as the 40 year amortization period, adjustable rate mortgages and interest only mortgages to con people into thinking they could afford these expensive homes.

The worst is yet to come. People might as well sell their house now, and wait a year for the house prices to decline another 20 or 30%, and buy back at a lower price.

The government can’t stop the slide in home prices. The only remedy would be for people to get higher paying jobs so that they can afford more expensive homes, and that won’t happen any time soon.

Dow 5000, and case shiller $100,000, here we come!

Posted by Dave J | Report as abusive

I agree with the post above, if the appraisal system is independent and un-biased this Mo Mod platform from Geithner will work. The banks can not have any fingers in the pie at all, because they will want the value as high as possible to “cash” in on any loss sharing portion if granted by the government when it comes to liquidation of asset.

If the Mo Mod platform addresses those issues, Geithner needs to get this rolling a.s.a.p.

What I have read about Smithfield’s Mo Mod, it is independent and un-biased true real estate appraisal.

Let’s get back to the basics, Treasury Secretary Geithner

Posted by Bob Morano | Report as abusive

Requiring due diligence and transparency for any business proposition is common sense. Unfortunately common sense is all to uncommon. To expect such conduct from current players in any industry is naive. I am doubtful any comprehensive government regulation will effect near term mortgage origination practices. The real problem is much larger. Too many professionals in all of our industries eschew ethical conduct and practices for “Making the big Bucks!”.

I believe that this economic crisis we endure is a result of a “Crisis of Character” demonstrated by American leadership in government and business for decades. When all of the current players and their proteges are gone and a new breed assumes their place, we will then see real change. Hopefully the lessons of history (recent and distant) will guide the new generation. As for ethical behavior, that is a function of child rearing.

Posted by Anubis | Report as abusive

The article, although it has the right sound bites, bears no relation to what is happening. Land registries are record systems and have nothing to do with traded prices.

Undeniably, registered properties, trade at higher valuation than properties the provenace of which is uncertain. But to extrapolate from this well accepted fact – which is a one time event, and happens when a property registry system gets in place, however perfect or imperfect – and make this a determinant of going relative prices and, thus an origin of this crisis, is a logic that relies on a series of unconnected dots.

It is completely and utterly unrelated to the current crisis which, as other readers have pointed out, has come from excess leverage conditions – including the extension of creditto people that did not deserve it – who pushed house prices to the stratosphere. And like any other bumble, when the music stopped, there was no chair left and only one way for the house prices (and for that matter most asset prices) to go. Only down.

So, let’s put away all these fancy explanations, seemingly correlated but actual completely uncorrelated facts and faulty logic and focus on the real issues. Leverage! How we got there (learn from our mistakes), how we will get out of this, and hopefully learn something so that we do not do it again!

Posted by oapoki | Report as abusive

Thank-you, Elena, for your thoughts. However, I am not convinced that your proposed solution would yield any meaningful results with regard to this housing/mortgage crisis. This housing/mortgage crisis is the result of mortgage underwriting standards that have been, at best, pathetic. Lenders have been financially incentivized to sell mortgages–prompting them to write and sell as many as possible without concern for the quality of the loan. The solution is to establish a high minimum standard that each mortgage loan must satisfy or, perhaps far better, to require each mortgage lender to guaranty all or a portion of its mortgage loans for a period of time. If the lender has a vested interest in the quality of the loan, the quality of the loan underwriting standards will undoubtedly improve: lenders will, in such an environment, go to greater lengths to assure themselves of the true property values as well as of the likelihood that the borrower will pay the loan.

Posted by Mark Absher | Report as abusive

Sounds like you are promoting the creation of another credit-bureau-like agency…

…And all we consumers know how accurate their records are…and how uncooperative and anti-consumer they are when it comes to correcting errors.

I wouldn’t bet a dollar on this concept working. The idea of 30% of the land records in the country being messed up (as 30% of consumer credit reports are messed up) is simply too staggering to consider seriously.

Posted by Methusselah | Report as abusive

I have to agree with one of the posts here that says compensation in the mortgage industry should not be based on the sales price of a home. This leads to inflated prices such as California and other ‘prime’ locations have seen.

I mean who wouldn’t want to sell a home for one million dollars as opposed to one quarter of that when you may paid ten percent comission or more based upon the sales price.

Posted by Lee | Report as abusive

One thought that occurs to me regarding appraisals: when property prices were going up 5% per month appraisers were unable to justify the higher prices using the typical comps (sales within the last six months). To make the transaction possible “new” metrics of value were being made up to accommodate the pressure lenders were exacting to consummate the deals. What would have slowed speculation down would have been to demand that buyers make up the difference in cash between the appraisal made using tried and true comparables and the contract price thus forcing buyers to increase their equity in the deal and keeping lenders from exceeding reasonable LTV loans. Unfortunately when the lender was the one pushing to make the bad loans everyone along the line rolled over and took the money. I know of appraisers being told they would be fired or not paid for their work if they didn’t make the loan “work” i.e. agree with the contract price. You can’t stop a buyer from overpaying for a property but you don’t have to loan them the money to do so.

Posted by Carlos Estape | Report as abusive

She has right facts — real estate records are not uniformly kept and available, but her conclusion is way off —
Real estate values,, like other asset values, are determined by buyers and sellers, supply and demand, and availability of financing, but unlike other finacial assets, real estate is unique, no two properties are the same, and location, location, location is key in valuation.
Like all other assets, speculation and greed play a role, and always will, no matter how accurate records are — it happened with internet bubble and other asset bubbles– had nothing to do with available data. Had all to do with froth and dreams of scoring big.

Posted by doublea | Report as abusive

The housing bubble in the U.S. isn’t the result of non-transparent property values. Rather, it is the result of expansionist monetary policy designed to keep the business cycle in the expansion phase combined with tax law changes that turned residential real estate into a speculative investment combined with federal regulations that forced lenders to make bad loans combined with federally backed mortgage agencies required to buy and package trillions in MBS securities to sell to investors (large and small) who were desperate to obtain yields to satisfy their over-expectant clients.

Forcing some type of national property registration system will not help solve this problem. Rather, this would just be another expensive, bureaucratic federal government intrusion into the private affairs of Americans. No surprise, however, that someone with this economist’s background would come up with a socialistic idea like this one!

Posted by SocietyIsBroken | Report as abusive

Is hard not to seperate the housing price bubble from the bonuses Bank Executives get. It seems behind closed doors financial institutions in the Western world came up with a clever trick a few years ago which was destinted to destroy the economy, but gave them in the “boy’s club” big bonuses. The process goeing something like this:

1. Increasing the borrowing power of a person such that they could end up in poverty line trying to make the payments, and when that trick runs out of steam have people falsify their income to get loans they can’t afford.
2. The average person then takes the maximum amount they can borrow to buy a property, offering a higher price than they otherwise could.
3. The price of property starts to climb, purely because the money being lent out is higher. Banks are encouraged to follow suit in a feeding frenzy.
4. If the person can’t afford the repayments, the increase in property price ensures the bank won’t loose money on the sale.
5. It sounds like it could go one forever, but then someone said “The Emporer has no Clothes”, and the house of cards crashed.

As the bad debts started rolling in, the CEOs and others “in the know” sneak of the stage with fat wallets, the shareholders and average person suffers from a lack of confidence in the financial system – they loose their job.

Sounds like Government needs to step in to protect Mr Average from his own nature, and “the boy’s club” from their greed.

Posted by web_monkey | Report as abusive

We do NOT need some sort of “national” registry of real estate; it would duplicate what is already done in every courthouse in the county.

There is already a system in place to value property: the marketplace. I am a lawyer who has handled dozens of real estate closings in the last 25 years. Many times I saw a contract to buy a property at an inflated price and many of these deals fell or the price deflated when no bank would lend. If the bank is going to be the judge of the value, however, we are going to have to let the loose & easy banks fall over, along with banning some of their loan officers from further misconduct. From the porch of my house I can see five houses which have been foreclosed as the result of poor lending practices: overvaluing the house, so the deal would happen; lending to a marginal or uncreditworthy borrower; passing out second mortgages and home equity lines like candy – all so a bank officer could make a quota and the world keep on spinning for the secondary markets, which apparently didn’t really exist or at least don’t any more.

Most equity lines (seconds) are held by local banks, and when the first mortgage is foreclosed, the equity line is evaporated (the security is taken by the first lien holder.) More aggressive foreclosures of first mortgages would bring down lots of “community banks” holding these puffed up equity lines – let’em fall – the house will still be there and the first mortgagee will either take the house and sell it for what it was really worth, or work something out with the owner.

Posted by Philip | Report as abusive

When will housing prices stop falling, hmmm. When prices are on parity to the local income levels. Heres the simplest way to figure it. Average income level is 45k per year. 45k times 3 is 135k. Thats the house prices you should have, why. Well, debt ratio to income is 35%-40% of your monthly income. That 35% represents house payment to include taxes, and insurance and the 35% includes your credit card payments. Any higher than that and you cant live on your monthly income and something is going to break. As for bailing out financial instiutions, screw them they’re they ones who broke these basic rules. Also, they shelter their income in offshore accounts to the tune of 100 billion in taxes a year.

Posted by rich | Report as abusive

Rent a home until this crisis corrects.

Posted by phoenix1 | Report as abusive

Sounds to me like it would be far simpler if a scheme were implemented where the employees of the bank (executives, bank manager and the less senior people issuing the loan) had financial incentives to ensure that they gave sound mortgages.

Perhaps a significant part of their bonus / salary could be a percentage of the mortgage payments for the house as they come in after the mortgage has been going for say 5 years. That way, if they give lots of sound mortgages, they’ll gain financial incentives for a very long time (which would carry on for many years after they had left the employment of the financial institution, but I don’t think this would matter. Money is money to these people).

If the mortgage falls through, then of course the relevant employees would gain no bonus for issuing that mortgage, and could possibly be subject to penalties in the bonuses they are paid. It’s hard to see why any responsible financial firm would object to this.

It’s amazing how financially responsible people become when it’s at least partially their own money.

Posted by geoffrey | Report as abusive

in my opinion, the only stabilisation of housing market, is when buyer could take a long term loan at fed rates +1%, it is a pure mathematical logic.., buyer are only interested in the upside potential, and as we are at historical low fed rates, my logic tell me , if i can take a long term loan at a historic low level to buy a house, i would sell an historic low yield US Tr and take a lot of debt…to buy long term assets, like houses…

Posted by pillx | Report as abusive

I would not mind a national clearinghouse that standardized the collection of basic property information about the size of the property, the utilities that are in place, the size in square feet of the buildings and the time that the structure was constructed and dates for major improvements. A registry of ownership with transaction dates and transaction amounts is also appropriate.

I do disagree, however, about the origins of the current financial mess. The subprime loans were the major cause, and they are a direct result of federal policy that forced banks to make these loans. These derivatives were a means for the banks to sell these otherwise unsellable loans. Derivatives should not have been allowed, and the federal government should get rid of the laws that still- today – force banks to write these bad loans.

Posted by Guy Thompto | Report as abusive

Availability of financing increased demand for real estate which increased prices/values. Mortgage backed securities marketed to investors increased availability of financing. Rising r.e. sale prices decreased risk of holding m.b.s’s and made them more marketable to investors and therefore increased availability of financing further. One key ingredient to this procyclicality was computerized modeling of m.b.s values which allowed the large-scale feedback loop to thrive.

Philosophically speaking, ‘market value’ of a property is not a fact. It is just an educated guess as to what a property would sell for at a given moment. Ask any local government’s property tax assessments office about their appeals process before you try to create a national database that ‘stabilizes’ people’s home values.

A national database of property values would do the opposite of stabilization. It would accelerate any feedback loops that naturally exist in the market. Especially the one whereby financing affects value and value affects financing.

Posted by LM | Report as abusive

Just like many commodies real estate values are subject to supply and demand and are determined by many factors. A determined real estate value in todays market will not be a guarantee that the value will remain for any length of time. Thus is why real estate lenders must have a reasonable amount of equity margin when the loan originates. The old school of conservative lending required a cash down payment of at least 20% of not the cost but of the lenders appraised market value. This was combined with all of the various credit underwriting requirements of the lender to determine if the borrower qualified for the loan to finance the purchase of the real estate.
All FDIC commercial banks have for years been required by the state and federal agencies to have approved appraisal polices and appraisers that meet governmental requirements. It is sad that many of our mortage lending institutions have been allowed and encouraged to make substandard loans by the Federal government.
This has severely impacted the credit character of the thousands of FDIC commercial banks through out the country that continue to support conservative lending practices.

Posted by Henry | Report as abusive

While a transparent registry will help it is not the root sources of the problem. There are two, and only two root sources:

1) America has a very weak home ownership culture. Nobody wants to fully own their house or apartment. Instead they play mortgage games, they play market games to extract money out of their debts. Continue to play this game and millions of people will wind up with nothing.

Solution: Provide incentives for people to pay off their mortgages, and hold the equity.

2) Commercial banks also want to play games. They sell mortgages to investment banks for a quick buck, who in turn securitize them for huge profits derived out of thin air.

Solution: Ban mortgage securitization.

Posted by Tom U | Report as abusive

Agree that long term solution is required, however do not follow the logic that improved title records would lead to improved appraisals, and in turn to improved stability of the property market. Residential property values have risen due to lax credit standards and risky mortgage loan structures, which have stimulated demand for both owner-occupied and investment property. Reasonable equity and repayment requirements would be a start to a short term pain/long term gain solution.

Posted by David Moore | Report as abusive

The comments about Australia where I live were spot on. Having said that, the market goes through various cycles like everywhere else. However, there has not been the crash here (yet) that other areas have experienced.. and even now, the market is actually picking up, particularly for first home buyers..

Posted by Peter Fries | Report as abusive


Your description of the property market in Canada is flattering but not entirely correct. With a large country like Canada you must look at the regional differences.

I live on the West coast of Canada.

The property market here looks exactly like the property markets in Florida, Arizona, Nevada and California. Merrill Lynch Canada has said that our property market looks a lot like the USA with a 2 year time lag. We have a newly created index and futures market created by Teranet and the National Bank of Canada which is trying to replicate the US Case-Shiller Index for the Canadian market. Check it out. Tell us there was no property market bubble here in the Western provinces!

Indeed Mr. Shiller was very recently quoted in Canada’s largest weekly magazine.

And because the Canadian government guarantees a huge amount of the mortgages in Canada guess who is on the hook here in Canada for said mortgage failures. Sound familiar?

Take a look at the property markets in the three most Western provinces (British Columbia, Alberta and Saskatchewan) and then tell us if you think that the property markets are fairly valued or valued according to rampant speculation.

If you look closely you will see that Canada is not so different from the UK and the USA when it comes to the real estate bubble. Only the timing is different.

You have to look and not just accept the official word from the usual sources. The “official talk” coming from all the same type of Canadian sources as the USA (governments, banks and real estate professionals) sounds and looks eerily similar to what has already been said in the USA and the UK as they “talked” all the way to where they are now.

Posted by Jim | Report as abusive

an easy solution to housing is to fix the broken legal immigration system. I am a highly skilled immigrant who has been in the USA for 9 years and I am waiting to get permanent residence since the last 7 years. most likely, I would buy a house within 4 months after I get my GC till then NO GC – NO permanent investment in the US.

Posted by albertpinto | Report as abusive

an easy solution to the housing problem (no tax payer money involved) is to fix the broken legal immigration system. Every year, the USCIS (dept of immigration) wastes thousands of immigrant visas by following inefficient policies. I am a highly skilled immigrant who has been in the USA for the last 9 years and I am waiting to get my Permanent Residence card since the last 7 years. Most likely, I would buy a house within 4 months after I get my Green Card. Till then my Motto is, NO GREEN CARD = NO Permanent Investments in the USA.

Posted by albertpinto | Report as abusive

Interesting perspective, but the solution doesn’t fix anything. Accurate information required to make rational decisions has always been available. This is a free market economy, where the value of real estate is exactly what someone is willing to pay for it, and there will always be people who are willing to speculate on real estate. We got into trouble when the mortgage lenders became willing to lend more than the speculators could afford… unless property values kept rising (the banks then became the speculators). How does setting up another government agency to ‘correct how the value of real estate is established’ assure that the information is used wisely by either individuals or lenders in the future?

Posted by Fred | Report as abusive

I forgot to add ..There are hundreds and thousands like me i.e. Skilled Immigrants with good credit scores, ready downpayment etc who have been legal in the USA each and every day by paying thousands in Lawyer and USCIS fees.
Most of us have US born kids. All of us are potential home buyers who are renting because of (deliberate) wastage of visas. for most of us, Green Card = Investments in USA, which means to buy a house first.

Posted by albertpinto | Report as abusive

Although I haven’t comprehended how to connect all of the dots the author connects, I think eliminating the need for title insurance is a worthy goal in itself. That industry is a parasite on society.

Posted by LM | Report as abusive

albertpinto, The U.S. cannot give green cards to every person who wanted one on the “promise” that they would buy the house of the now foreclosed U.S. citizens whose jobs they came to replace. Did you even think about that before you posted?

The H-1B/L-1 program needs to be scrapped and the foreign workers need to return to their native land where they can uplift their own country. Everyone would benefit from this. The jobs left behind would then be able to be snapped up by the highly skilled yet overlooked U.S. citizens who are now unemployed because they had to train their own H-1B/L-1 replacements.

With the jobs returned to the U.S. citizens, they would then be able to pay their mortgages and the housing crisis would be over.

What you are suggesting is an insult to the citizens of your host country, the great U.S.A.

Posted by UScitizen | Report as abusive

If there are hunderds of thousands of guest workers, that means that there are hundreds of thousands of jobs that U.S. citizens could have and be able to pay their mortgages.

You may have enlightened me to something here. I will contact my congressman about this, since the main reason why people don’t pay their mortgage is because they have been laid off from good jobs.

Posted by Gina | Report as abusive

I moved to Vegas at the height of the housing bubble. I watched the house my Aunt and Uncle bought go from $180k, the week they looked at it, to $280k the next week, when they grabbed it, and then to $380 the week after that. The price was *pure* speculation, and while it may not be possible–or even practical–to fix the value of homes (because of intangibles such as location and neighborhood statistics), I agree with the idea of a greater deal of standardization, or at least the idea of prices based on actual value, rather than just the opinion of an appraiser.

Posted by Stan Johnson | Report as abusive

Her assessment of the title insurance industry and oversimplification of land registry makes about as much sense as writing a book called “How to Live Like a Millionaire” and then having the first line of the book read “First, get a million dollars…”. The absolutely staggering cost of retroactively obtaining all the information that she references is prohibitive. Who would pay for this? Currently, many local county governments are evolving and are incorporating new technology to make real property information available to anyone with a computer and an internet connection. Unfortunately, it takes a great deal of time and money to obtain the necessary software and to digitize public records, and many smaller counties simply cannot foot the bill. Providing smaller counties with grants to implement these systems would help to pave the way for this information to be freely available. The author further fails to inform the reader that property information, tax information, and property appraisal information is already available to anyone with the expertise to obtain it. Title insurance companies provide a service: they have the expertise to amass all of the necessary information about a particular property from an array of different sources, and then they compile that information into a format that is more easily understandable for the average lay person. The free market decides how much a property is worth: does the author propose governmental controls on the valuation of property? Is that her “magic bullet” to fix the housing mess? Governmental programs that purport to make housing “affordable” to all are at the root of this mess. Loans made to people who didn’t have the ability to repay further exacerbated the problem. Allowing unrestricted leveraging of assets by financial institutions added fuel to the fire. Tying compensation for mortgage company employees to the dollar volume of loans further ignited the greed in these institutions, driving loan officers and their managers to push for the highest loans they could, regardless of the need of the borrower. They encouraged borrower’s to “stretch”, that is, to take on loans that they might not be able to afford today, but hey, in a couple of years you plan on making more money, right? The higher the loan, the higher the commission. Stack other incentives on top of this, like a “tiered” commission structure, whereby loan officers and their managers garnered a higher commission after clearing certain dollar levels, and you’ve created and environment which invites people to employ virtually any methodology they can think of in order to maximize their commissions, including but not limited to: falsification of records, high pressure sales tactics, pressuring property appraisers to “adjust” the value of properties or face the threat of lost future appraisal business–the list goes on and on. The root of the problem is not property valuations–these are only symptoms of the underlying problems. Property valuations, more particularly artificially inflated property valuations, greed, fraud, mismanagement–these are some of the root issues for the current crisis. Allowing Wall Street to basically “short sell” mortgage backed securities and CDFs–taking the profit upfront seemed like a good idea–as long as we could rely on property values increasing. When the trend reversed, we ended up in this mess. Ask anyone who sells commodities to define a “margin call”: what we are facing right now is a “margin call”, but we’ve allowed the perpetrators to get off scott free–they’ve already absconded with the money, leaving the American taxpayer holding the bag. (Isn’t this exactly what sank New Century, arguably to first domino to fall? They package their loans, then sold them off. When the investors determined they hadn’t gotten what they paid for, they invoked a buy back of the loans, and New Century could afford the “margin call”). The beauty of the scam? How do you hold the individuals responsible for this mess personally accountable, when so many of them are no longer even in the real estate industry. They got in, originated a bunch of loans, pocketed the commissions, and then got out. The knee jerk reaction would be to go after those who are currently managing these institutions, but they too, in many instances, have been left holding the bag. I don’t have the answers, but I do believe I have a vastly greater understanding of the underlying problems than the author of this “piece”. Her indictment of the title insurance industry is an indication of her abject ignorance on the subject.

Posted by Sonny Livesay | Report as abusive

Gina, UScitizen,
naive protectionism is not the cure for the problems plaguing the job market and economy. If you don’t believe this then maybe you should listen to the words of Dallas Federal Reserve President – “Let me just be blunt. Protectionism is the crack cocaine of economics. It may provide a high. It’s addictive and it leads to economic death” ( onomy/fisher_protectionism.reut/ m)

Companies should always have the opportunity to fill any role with the best and brightest available and I’m sorry if it offends you if sometimes this is not a US citizen. Perhaps you would prefer the US to stifle innovation and live like a hermit in the middle of the world, blocking all immigration. Also, what about all the foreign students attending US universities and spending much more than any citizen does. I suppose we should just boot them back from where they came from? Do you really think they would come and spend their money if this was what was waiting for them – an ass kicking and no job? Get real.

Posted by Dave | Report as abusive

Its worth considering the psychology of the average home owner verses the property investor. The average home owner is an emotional buyer, and usually spends as much money as they can get their hands on to, to buy their ‘dream home’. When banks offer more money to them (like no-deposit loans in US, UK, Australia), they compete with each other and offer more money to buy a given property, pushing the price up. If the amount all personal use buyers could borrow was limited, the price the properties would be sold for to this group would be reduced, and the loan more affordable to repay.

The property investor, on the other hand, looks cold and hard at:
a) Rent returns; will they get a good return on the money they’ve invested.
b) Increase in property prices.

Not being an emotional buyer, they walk away from sales were emotional buyers are pushing prices beyond what give them a return on ivestment.

As property prices are falling, the investor will be looking for rental returns, so a good gauge of a properties true worth at the moment is to look at its probable rent return, less running costs. As the property prices in UK, US & Australia had increased by 300%-500% from 2000-2007, I’d suspect that the investor looking for rental returns to justify their investment is yet to re-enter the market.

Posted by web_monkey | Report as abusive