Are Fundamentals "Sound"?

Dean Baker fears that they are not:

The inventory of unsold new homes is more than 50 percent higher than its previous record (1990). The number of vacant ownership units is almost 100 percent higher than its prior record (also 1990).... [T]he number of new homebuyers is about 7 percent higher. This... looks to me like... house prices are likely to plunge. In such an environment, it does not surprise me that rational investors do not want to hold mortgage backed securities. Nor does it surprise me that the Wall Street crew desperately want the Fed and Congress to find some way to take this dreck off their hands...

I guess the big difference is that I don't think that home prices are likely to plunge. Why not? Because Ben Bernanke is more aware than any other possible Fed Chair that large-scale housing asset price deflation threatens to have the same bad consequences as large-scale commodity price deflation, and I don't see a future in which he allows housing prices to fall without first taking major steps to prevent it.

Comments

[Charles]

But Brad: the logical way to take those steps is through fiscal and/or regulatory action. But the Congress and the regulatory bodies are out of ammunition.

I don't see what the Fed can do short of lowering the price of moral hazard and setting off either currency devaluation or inflation.

If you have a monetary-side solution, I'd be delighted to hear it.

[T.R. Elliott]

I guess I'd ask for better quantification to a term like "plunge." Housing prices in San Diego dropped maybe 30% in here in the early 90s. Seems likely we'll see that again. I'm thinking the inland empire will start dragging down LA as well.

Also, what are his options if prices start dropping? Inflation? Here in San Diego, it seems to me that housing is overbuilt. Downtown is full of condos sitting empty, others half built.

Aren't we out of bubble candidates. Stocks, then housing. Tulips?

I think prices are going to drop and Bernanke can only attempt to limit the damage, not prevent it.

[Alex Tolley]

A "Bernanke put" on house prices? Here we go again...

[wcw]

I think the problem is purely denotational.

*Can* housing prices plunge? If you leave aside the Depression -- and that was almost a century ago at this point -- you either say "no," or you admit they plunged in the early '90s.

Real house prices in the early '90s were very weak.

So weak they may have dropped a percent or two a quarter at their worst.

What Dean Baker likely is saying is that the Fed is going to inflate away real residential real estate, just as it did in the early '90s.

That's not very controversial.

Hey, if you disagree, we have plenty of nice million-dollar condos in which you can invest here in the city.

[Stuart Staniford]

In his 2000 paper with Mark Gertler, "MONETARY POLICY AND ASSET PRICE VOLATILITY" (NBER Working Paper 7559) Bernanke expressed the view that "We show that it is desirable for central banks to focus on underlying inflationary pressures. Asset prices become relevant only to the extent they may signal potential inflationary or deflationary forces. Rules that directly target asset prices appear to have undesirable side effects. "

That suggests he might not worry too much about house prices one way or the other, unless it became clear they were starting to affect the prices of goods and services. Is there some reason to suppose he will have changed his views since then?

[dete]

I hate to simply echo Charles, but I can't share your faith, Brad. The only way housing prices can stabilze is if there is someone able to pay them. The banks just spent the last 10 years giving a mortgage to anyone with a pulse, so who's left except those with even worse credit than the folks defaulting now?

[Ottnott]

Brad wrote:
"I don't see a future in which he allows housing prices to fall without first taking major steps to prevent it."

I disagree. By failing to act earlier, Bernanke has allowed a certain amount of housing price decline to become locked in. At this point, there is no rational Fed word or deed that will prevent that decline.

If he failed to act earlier, at a time when the problem and some of its more blatant causes were quite evident, it is dangerous to assume that he will now act to prevent any decline that isn't already locked in.

At this point, I think that a housing price decline is the best way to clear out the mess. It wold allocate most of the pain on the players who caused most of the problem. Seeking to prevent a price decline merely relocates the problem while leaving behind some undesirable lessons about risk-taking.

I think the goal now is a "graceful" collapse in prices, meaning that the Fed gets the notion across that it will defend the relatively responsible lenders and borrowers while letting the irresponsible take fatal financial hits.

The BofA investment tonight in Countrywide Financial is potential evidence of such a scenario.

[Dave]

I'm no expert: Is there a way the Fed can influence housing prices separately from other parts of the economy? I.e., if Baker is correct and there's a massive supply, could Bernake still push up housing prices without creating massive inflation elesewhere?

My naive guess is there there probably isn't. If there is, my guess would be that the Fed could buy all these MBSs, CDOs, CMOs, etc on good terms.

Brad? Or someone who knows?

Thanks

[chris]

Woah, is Ben magic? Does he really have that much power?

[ogtob]

Is it possible that Brad can't be objective on this issue since he is a California homeowner with a large unrealized gain in equity?

[esb]

Oh my dear dear Brad.

You have just written out a prescription for an inflationary depression.

And, my good fellow, you are in good company.

Since John Templeton (with his "K" and all) has predicted that when the next one commeth, it will be of the inflationary variety.

The ruling elites will have to be dragged kicking and screaming to a "shutdown and cold restart."

Should be lots of fun.

Whee.

[glenn]

Housing value declines for the (vast?) majority of (sane) homeowners is almost a non-event. It's not a cash-flow issue. Most midwesterners I know, weren't tapping equity every year, or buying and flipping homes, or getting weird and wacky mortgages. These activities certainly weren't confined to the coasts, but alot of America never experienced that much house-price inflation, so the downside should be prevalent to those areas where the above activities were commonplace.

Sure, this is pretty unprecedented. I'm in agreement that in many areas housing prices will fall ALOT and that ALOT of families will have to foreclose, but I'm not at all convinced that the resulting pain will be so severe and so widespread the FED will need to or want to react to it.

[glenn]

And it seems that only with a recession and the attendant job losses will housing prices have to plummet. For the nation as a whole, it seems just as likely for them to flatline, more or less, for a long period of time.

[ilsm]

The fed holds T Bills, somewhere around $700b worth.

May as well hold ABCP's, MBS. CDO's etc that no one else will.

The buyer of last resort?

Who gets to play in this great scam?

Who pays?

[ilsm]

"so who's left except those with even worse credit than the folks defaulting now?"

Or,

A bunch of folks like me demanding severe repricing, downward.

[Ian Whitchurch]

Brad,

I recently spent several hours in an IHOP in Wichita Falls planning Pirate Loans with a nice young man, who together with his wife plans to be the slum lord of Wichita Falls and Dallas-Fort Worth. (*).

Whats a Pirate Loan ? Well, you know a Ninja loan, right - No Income, No Job, no Assets. A Pirate Loan is one that walks into the bank and goes 'Yo, me hearties, you're underwater with those Ninjas, I'll take them off your hands with me cutlass takin 25% off the top with nothing down"

Thats a Pirate Loan. And I think you'll see a lot of them.

"Plunge" is a relative term. Is 10% over each of four years a plunge ?

Finally, I am right now in a spectacular little town called Mammoth Lakes, California. It's a ski resort that aims at the top of the market. Next door is a house thats completely failing to sell for 1.2 ... if they cut it to a flat one, is that a housing plunge ?

Ian Whitchurch

(*) And if anyone is looking to pick up and apartment for between 25 and 30, you should talk to him.

[Chuchundra]

Housing prices aren't sustainable at their current levels. If prices don't go up, they'll have to come down. When housing prices are this far out of whack with respect to rents, the only possible economic reason to buy a house is for the appreciation. And there's not much room for price appreciation in the housing market no matter how cheap the money is.

Of course, this is all academic. There are a half trillion dollars worth of sub-prime ARMs that are due to reset for the first time between now and mid-spring. Defaults are going to drop a lot of those houses back on a market that's already overstuffed with inventory.

No matter how smart Bernanke is, he can't repeal the law of supply and demand.

[denniS]

"...so who's left..."

The next generation? Or, maybe we have another reason to embrace the 12 million hard-working illegals. Two birds with one stone?

[Kelly]

Another view from a Nobel laureate;
------------------------------------------------
A Day of Reckoning for Americans Who Lived Beyond Their Means
By Joseph Stiglitz
The Taipei Times
Sunday 12 August 2007
The pessimists who have long forecast that the US economy was in for trouble finally seem to be coming into their own. Of course, there is no glee in seeing stock prices tumble as a result of soaring mortgage defaults. But it was largely predictable, as are the likely consequences for both the millions of Americans who will be facing financial distress and the global economy.
The story goes back to the recession of 2001. With the support of former Federal Reserve chairman Alan Greenspan, US President George W. Bush pushed through a tax cut designed to benefit the richest Americans. It did not lift the economy out of the recession that followed the collapse of the Internet bubble.
Given that mistake, the Fed had little choice if it was to fulfill its mandate to maintain growth and employment. It had to lower interest rates, which it did in an unprecedented way - all the way down to 1 percent.
It worked, but in a way fundamentally different from how monetary policy normally works. Usually, low interest rates lead firms to borrow more to invest more, and greater indebtedness is matched by more productive assets.
But given that overinvestment in the 1990s was part of the problem underpinning the recession, lower interest rates did not stimulate much investment. The economy grew, but mainly because American families were persuaded to take on more debt, refinancing their mortgages and spending some of the proceeds. And, as long as housing prices rose as a result of lower interest rates, Americans could ignore their growing indebtedness.
Even this did not stimulate the economy enough. To get more people to borrow more money, credit standards were lowered, fueling growth in so-called "sub-prime" mortgages. Moreover, new products were invented, which lowered upfront payments, making it easier for individuals to take bigger mortgages.
Some mortgages even had negative amortization: payments did not cover the interest due, so every month the debt grew more. Fixed mortgages, with interest rates at 6 percent, were replaced with variable-rate mortgages, whose interest payments were tied to the lower short-term T-bill rates.
What were called "teaser rates" allowed even lower payments for the first few years. They were teasers because they played off the fact that many borrowers were not financially sophisticated and didn't really understand what they were getting into.
And Greenspan egged them to pile on the risk by encouraging these variable-rate mortgages. On Feb. 23, 2004, he pointed out that "many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade."
But did Greenspan really expect interest rates to remain permanently at 1 percent - a negative real interest rate? Did he not think about what would happen to poor Americans with variable-rate mortgages if interest rates rose, as they almost surely would?
Of course, Greenspan's behavior meant that, under his watch, the economy performed better than it otherwise would have done. But it was only a matter of time before that performance became unsustainable.
Fortunately, most Americans did not follow Greenspan's advice to switch to variable-rate mortgages. But even as short-term interest rates began to rise, the day of reckoning was postponed, as new borrowers could obtain fixed-rate mortgages at interest rates that were not increasing.
Remarkably, as short-term interest rates rose, medium and long-term interest rates did not, something that was referred to as a "conundrum."
One hypothesis is that foreign central banks that were accumulating trillions of dollars finally figured out that they were likely to be holding these reserves for years to come, and could afford to put at least some of the money into medium-term US treasury notes yielding - initially - far higher returns than T-bills.
The housing price bubble eventually broke, and, with prices declining, some have discovered that their mortgages are larger than the value of their house. Others found that as interest rates rose, they simply could not make their payments.
Too many Americans built no cushion into their budgets, and mortgage companies, focusing on the fees generated by new mortgages, did not encourage them to do so.
Just as the collapse of the real estate bubble was predictable, so are its consequences: housing starts and sales of existing homes are down and housing inventories are up. By some reckonings, more than two-thirds of the increase in output and employment over the past six years has been real estate-related, reflecting both new housing and households borrowing against their homes to support a consumption binge.
The housing bubble induced Americans to live beyond their means - net savings have been negative for the past couple of years. With this engine of growth turned off, it is hard to see how the US economy would not suffer from a slowdown. A return to fiscal sanity will be good in the long run, but it will reduce aggregate demand in the short run.
There is an old adage about how people's mistakes continue to live long after they are gone. That is certainly true of Greenspan. In Bush's case, we are beginning to bear the consequences even before he has departed.
---------
Joseph Stiglitz, a Nobel laureate in economics, is professor of economics at Columbia University and was chairman of the Council of Economic Advisers under US President Bill Clinton and a chief economist and senior vice president at the World Bank.

[me]

so the Fed inflates housing. Who in the hell can afford to buy it? In the paper today we read in Atlanta that the few jobs to be created the rest of this year and next are low paying, under $45,000.

Now the old rule of thumb for borrowing on a house was 2 1/2 times your income. Even if both spouses earn $45,000 that is $90,000 time 2.5 equals $225,000 for a mortgage. This presupposed that a) both spouses can make that kind of money and b) they have something to put down.

In Georgia, foreclosures are up 93% in the last year, with 1 in 299 hosues in forclosure, Couple that with half of the private sector jobs created under Bush were real estate related, I think Brad is overly optimistic thinking Ben can push on a string successfully.

So The fed can inflate away but there will be no one left to afford it. With high priced houses comes high priced taxes and insurance.

Housing prices have only one way to go. George Bush's claim that his ownership society has (had) a higher percentage of home ownership is about as credible as Iraqis will open us with open arms.

[josh bivens]

Brad, your last paragraph really puzzles me. Back in 2001 you could have subsituted 'the NASDAQ' or 'the S&P 500' for 'housing', and, it would have been clear why this was a hope rather than an expectation. i'm wondering what you think is different this time?

[John Emerson]

It's already happened.

Buy a home for $7000 ($35 / month):

http://homes.realtor.com/search/searchresults.aspx?source=a15696&ctid=78790&ml=3&mxp=6&typ=7

[bigTom]

When will people start buying houses? In the East Bay company where I work (with mostly top 5-10 percentile incomes) anyone who moved here during roughly the past four years is renting. Most could "afford" to buy at todays prices, but the anticipation of further price declines means they are going to wait for a market bottom. Not only must housing be affordable, but the future price expectations must be favorable as well.

[JonF]

Re: Even if both spouses earn $45,000 that is $90,000 time 2.5 equals $225,000 for a mortgage. This presupposed that a) both spouses can make that kind of money and b) they have something to put down.

An HFA-backed loan (remember those?) can still be had with just %3 down. These are available to most people who are not current homeowners (and hence cannot sell an existing house to make the downpayment). Your hypothetical Atlanta couple, if not already homeowners, could probably purchase a modest house somwhere out in the suburbs (or maybe in a gentrifying neighbor in the city).

Re: Housing prices have only one way to go.

True, but why is this a problem? It means that people currently priced out of the market will be able to buy houses. How is that bad for the economy? If tomorrrow energy prices fell back to 2001 levels we would celebrating, not fretting over the fate of the economy. Why should housing be such a sacred cow?

[PQuincy]

Hmmm....as an economic naif, I wonder about the differential consequences of two different ways of bringing residential property prices back into line: (1) increased general inflation, while housing prices remain static, or (2) low general inflation, with real declines in housing prices.

Eventually, more buyers can afford houses, either way (in response to 'me''s comment). General inflation would resolve both the mortgage overhang problem _and_ the housing price problem simultaneously, as long as real estate prices don't participate in the increase: the burden of mortgage payments would decline steadily as the currency inflated. But of course, it would punish the bondholing class by deflating their assets and income.

In contrast, a decrease in dollar-denominated real estate prices, without inflation, leaves a huge slug of unpayable mortgages for the financial system to digest -- but holders of other forms of bonds would preserve the value of their investments and returns.

Is the question, then: in what form would the financial system like to take its medicine? I'm starting to see why some people talk about tight-ropes. I'm also starting to wonder whether this is as much a political as a economic problem: which group of stakeholders will influence federal and Fed policy to their benefit?

The 'tight-rope' metaphor is thus useful. As long as the outcome is somewhere on the spectrum between 'screw the bondholders' and 'screw the mortgage holders and payers' that doesn't result in a massive run on some bank or other (including internationally), things might calmly recover. Of course, there's also a risk that all the political pushing and shoving will result in policies that DO trigger a massive run on the entire financial system, in which case all bets are off (Was this Krugman's point about what sorts of people are acting as 'banks' nowadays, earlier this week? If a 'run' develops, the 'real-world' correction could turn into a meat-grinder.)

[Andrés]

I wouldn't be so sure. The Fed's response so far has been late and clumsy. Why? Well, my guess is that they just weren't prepared for the magnitude of the mess.

Read this speech by Fed board member Frederic Mishkin.

http://www.federalreserve.gov/boarddocs/speeches/2007/20070117/default.htm

The man clearly had little or no idea of what was actually going on in the mortgage market. It's a real eye opener

[me]

"Your hypothetical Atlanta couple, if not already homeowners, could probably purchase a modest house somwhere out in the suburbs (or maybe in a gentrifying neighbor in the city)."

Atlanta is probably one of the most affordable areas and for $200,000 you don't get anything unless you are 50 miles or more from downtown. I also recall the FHA loans carried higher interest rates and exorbitant mortgage insurance costs.

"How is that bad for the economy? If tomorrrow energy prices fell back to 2001 levels we would celebrating, not fretting over the fate of the economy."

I own a house, not oil. By your theory falling wages are a great thing also.

[howard]

me, it goes a step further: when energy prices go up, it reduces available household cash flow for other things. when they go down, it frees up additional cash flow.

what we've seen over the past few years (as no less than greenspan argues) is that rising house prices have served an "ATM" function through MEW. we're already seeing some indications of MEW falling (and revolvign debt ratcheting up), and it's quite likely to be as negative for the macroeconomy as an energy price rise, perhaps even worse.

[burritoboy]

Ian,

You are aware that the really bad loans were put into synthetic structures, right? You don't go into a bank in Wichita Falls, you need to go to the creditor's meeting in New York or Delaware and negotiate with a bunch of European banks and American money managers.

And, you'll need some serious workout capacity, because to untangle the underlying loans you'll need staff working on loans across the country.

[Fred Heutte]

Dean Baker's argument is a bit deeper and quite a bit more distressing than is apparent here. The full paper, "Midsummer Meltdown: Prospects for the Stock and Housing Markets," is at

http://www.cepr.net/index.php?option=com_content&task=view&id=1266&Itemid=8

In a nutshell, his argument is that "what goes up must come down" and that a housing-led recession has already started. He makes a good case that there is a fundamental supply/demand imbalance in the housing market, and until the supply overhang is worked down, prices must come down. But the overall weakness of the "jobless recovery" since 2001 (jobs have gone up but well under the rates of previous cycles) and the "global labor arbitrage" that Steve Roach always talks about have pulled the rug from under the market. With the vaporization of gimmick mortgages, demand seizes up and the supply overhang can't be worked down. Baker doesn't say it, but if his analysis is right (and he puts the numbers right out there), it will be years before the housing sector recovers.

The danger is that this will now spread into the economy as a whole. He estimates that the decremental effect of three related factors -- reduction in housing construction, and reduced household consumption from the decrease in both the home and stock wealth effects -- will combine for a net hit between $415 and $950 billion per year, pretty much guaranteeing a recession and perhaps a bad one.

With the decay of the auto industry in the Midwest and the pressure against business expansion and even contracting in cycle-sensitive sectors like commercial construction from the current liquidity crunch, it just doesn't look like there's any way out of the mortgage trap. And that's even barring another LTCM-style collapse due to contagion and risk concentration in the financial markets. The Fed can lower interest rates, but that will only help the system stay afloat and do little for the real liquidity problem, which is the household balance sheet.

One final factor Baker doesn't include is that the rise of the credit default swap (CDS) market means that if bankruptcies and restructuring bleed out of the housing finance sector, that is going to put severe pressure on corporate finance from the other side of the market.

The total of the CDS market, which is designed to hedge financial institution risk from corporate "credit events" (bankruptcy, default or restructuring) is somewhere around $40 trillion -- nobody really knows, the market is worldwide and has grown at stupendously fast rates for the last five years. If a couple major bricks-and-mortar companies like the US auto makers go down, all bets are off and we are looking at the prospects of a global mess.

I'm not as pessimistic as Dean Baker about the prospects, but he lays out a pretty compelling case of why we are on a recessionary path even if the markets avoid the kind of blowout that early August only hinted at.

[bigTom]

me:
For certain sorts of things in the economy, real-estate and wages are the examples I'm thinking about, a downward price movement can have disastrous consequences. That's easy to see in the case of houses with little equity. It is hard for an employer to cut the wage of an indidual worker in dollar terms. Given some degree of inflation, then prices/wage rises lower than the inflation rate don't have as bad an effect. Its really an effect of having contracts that makes the two scenarios so different. This is (I think) the reason why inflation targets are around 2%, and not 0%.

[quartz]

With real estate prices rising so much above the norm over the last 100 lus years it is hard to see how to prevent a reversion to the mean. This of course will be more painful in the places where house prices rose the most rather than evenly spread. Further, 30- year fixed-rate mortages are not especially expensive today by historical standards. Finally homeowenership percentage was also pushed up well above histroical norms, without seeing the percentage of households above the poverty line increase. Taken together it is indeed difficult to see how the Fed really could do anything to maintain real estate prices, and even if they could, it is not clear that they should.

[Dean Baker]

Here's my post from yesterday mistakenly placed on the economics only section:

hmmm, ,massive oversupply of housing due to bubble inflated prices, but Chairman Bernanke will not allow house prices to fall. So, will Chairman Bernanke impose price floors and a government house buying program (the equivalent of farm subsidies, except about 40 times larger)?

[me]

" It is hard for an employer to cut the wage of an indidual worker in dollar terms."

Obviously you have never worked for IBM or do not know anyone that works there. That means you probably never heard of rebanding, comparing wages across countries.

[JonF]

Re: I own a house, not oil. By your theory falling wages are a great thing also.

Your house is not a source of income unless you are renting it out-- and then the rent will be determined by supply and demand in the rental market not by its sale value (a sign of the problem: rents and house payments have become decoupled). Otherwise, as long as you are using your house for its intended purpose, a place to live, and not as a credit card with plumbing and a furnace, whether its value goes up or down does not affect your finances except insofar as it may change your taxes and insurance.

Re: Atlanta is probably one of the most affordable areas and for $200,000 you don't get anything unless you are 50 miles or more from downtown.

I am ignorant, I admit, about Atlanta housing prices, but if the above is true I doubt Atlanta is one of the more affordable areas. It sounds like it's only slighly more affordable than S. Florida where I live. Here you can get a small, older house (but in a decent neighborhood) for 250K*and up, though to be sure McMansions start around 400K. So is your hypothetical looking for a McMansion in Atlanta, or are they willing to settle for the sort of house their parents may have bought when they were first married?

* A real price figure. In fact there is a 3/2 listed just blocks away for 239K, although I have not seen the inside and don't know if it needs a serious mskeover. The housing in my neighborhood is about 40 years old, and the places next to the river go for the high 300s still. But it's a decent enough neighborhood, not unsafe or trashy, though certainly not toney or gated either.

Re: Re: I own a house, not oil. By your theory falling wages are a great thing also.

Your house is not a source of income unless you are renting it out-- and then the rent will be determined by supply and demand in the rental market not by its sale value (a sign of the problem: rents and house payments have become decoupled). Otherwise, as long as you are using your house for its intended purpose, a place to live, and not as a credit card with plumbing and a furnace, whether its value goes up or down does not affect your finances except insofar as it may change your taxes and insurance.

Re: Atlanta is probably one of the most affordable areas and for $200,000 you don't get anything unless you are 50 miles or more from downtown.

I am ignorant, I admit, about Atlanta housing prices, but if the above is true I doubt Atlanta is one of the more affordable areas. It sounds like it's only slighly more affordable than S. Florida where I live. Here you can get a small, older house (but in a decent neighborhood) for 250K*and up, though to be sure McMansions start around 400K. So is your hypothetical looking for a McMansion in Atlanta, or are they willing to settle for the sort of house their parents may have bought when they were first married?

* A real price figure. In fact there is a 3/2 listed just blocks away for 239K, although I have not seen the inside and don't know if it needs a serious mskeover. The housing in my neighborhood is about 40 years old, and the places next to the river go for the high 300s still. But it's a decent enough neighborhood, not unsafe or trashy, though certainly not toney or gated either.

Re: It is hard for an employer to cut the wage of an indidual worker in dollar terms."

It's very hard to cut wages (except 100%, by layoff), because workers will simply walk-- with the people you want to keep most being the first to go. However, employers can cut labor costs through benefit cuts and the shift of insurance and retirement costs onto workers. That's been the story of the last generation. Pay checks still increase, creating the illusion of wage gains, but benefits become increasingly meager.

[me]

" because workers will simply walk-- with the people you want to keep most being the first to go. However, employers can cut labor costs through benefit cuts and the shift of insurance and retirement costs onto workers. That's been the story of the last generation. Pay checks still increase, creating the illusion of wage gains, but benefits become increasingly meager."

Uh no, peopl;e have to stay to maintain any semblance of health care of teh ever shriniking pension that remains. walking is not an option.

At IBM wages do not increase but the employees share of benefits goes up and the coverage goes down, thus, their take home income shrinks.

$250,000 downtown Atlanta? You are dreaming. Gentrification, lofts, Atlantic Station, Buckhead. Prices start about $800,000 and up. $400,000 is a fixer-uper.

[Jonf]

Re: Uh no, people have to stay to maintain any semblance of health care of teh ever shriniking pension that remains. walking is not an option.

Of course it is. People switch jobs for a better salary and perhaps better benefits all the time. If my employer told me I was going to suffer a 10% salary cut, my resume would back online and I would probably have a new job at my current salary (at least) within weeks. And that's why employers generally do not do explicit salary cuts (but sneak in labor cost cuts via benefit changes): because people like me will walk, while the minimally competent sorts, those who might have more trouble finding a new job, are the ones they will be stuck with.

Re: $250,000 downtown Atlanta?

Did I say "downtown"? No. I do not live downtown Fort Lauderdale either, but about five miles out on the edge of the city. Again, I do not know Atlanta except what little I've seen while driving through on I-75, but I'd be surprised if there weren't acceptable housing in the city, or its nearer, older suburbs, for a young married (college-educated, professional) couple looking for their first house, as long as they did not expect something palatial or excessively trendy. If you can find housing like that in Fort Lauderdale, which has one of the nation's most over-inflated housing markets, it should be possible to do so in most other cities. Of course if you are talking LA, Manhattan, or SanFran then that's another matter altogether.