When real people can no longer afford homes, real people stop buying homes.
Sorry investors. Sorry flippers. Sorry realtors, mortgage brokers, homebuilders and assorted REIC.
This Ponzi Scheme is over.
September 15, 2007
Any questions? There shouldn't be.
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38 comments:
sick chart
Keep voting republican and the median income will keep going down. Vote Libertarian and it will fall through the floor.
Enjoy!
Here's my question
Why do Americans spend money like they're rich?
what were interest rates in 1992? 9, 10%. House at $150K with 10% is as affordable as a $200K house at 6%.
A better graph would be showing percentage of income spent on housing, and I'm guessing overall it wouldn't be that different between now and 15 years ago.
I keep reading how the last housing downturn lasted from 1989 to 1996. Or how housing recessions last for years and years.
Where is this 10 year recession on this graph? The last peak was 1989. This graph would indicate that by 1992 that downturn was over.
Here's a question for the renters:
Don't you wish you had bought a home at some point in the past 15 years?
I'm not math wizard but it looks to me like 15 years of nothing but growth. Has gold done that? Silver? Stocks? Bonds? Oil? Can anyone point to any investment that has returned positive numbers for 15 years straight?
But real estate is a horrible investment. Right you are.
This chart is why home prices will decline. You don't actually need any more than this to know that prices will come down. It's called 'fundamentals'. The rest is details.
Ultimately people have to pay for their homes with their income.
Sometimes things happen that allow people to spend more on a home but it's usually unwise to do so.
Low mortgage rates or lax qualifying standards might allow someone to borrow more money but if everyone does it then it pushes prices up. So you're not actually buying a bigger or better house you're just paying more money for the same house you would have bought before mortgage rates or lending standards dropped.
Eventually mortgage rates return to historic averages and high default rates promote higher lending standards.
So you may be able to spend more money now for a home but future buyers will have less money and you will only be able to sell for what they are able to pay.
That's it. Simple.
Just because you can doesn't mean you should.
So are you saying this game is really over?
here in South of France, the market seems to have ground to a stop. No surprise, I see prices here where it would be impossible to make the numbers work to prefer buying to renting. Like 261K in Euros for an apartement rented for 685 Euros a month. I am serious! Who should be stupid enough to buy this? Unless you are English who just cashed in max on the UK-housing market. But those buyers should be gone by now. I had to fire the manager of an apartement building in which I own an investement apartement (which means positive cash flow every month, no need to wait for apreciation) for incompetence. He got really mad. Before, it was difficult to find a real estate agent for that, just selling was more lucrative. Apparently this attitude has changed.
All this being said, there is no panic here whatsoever. People just don't sell. Market is dead.
...and when real investors realize the AAA paper they're holding has problems not only with the interest, but the principal.....reality sets in!
RE: Off the wall housing chart which shows median housing prices in excess of 5 times annual income:
The purchase of a home should never be turned into a speculative gamble or a get rich quick scheme. The basic housing fundamentals go something like this:
1. A buyer should make at least a 20% down payment on a house that sells for no more than 2.5 times his annual income. If a more expensive house is purchased, the difference should be made up with a larger down payment.
2. The entire monthly payment -- including mortgage, taxes and insurance -- should not exceed 30% of the buyer's monthly income.
3. With these basic fundamentals in place, house appreciation should rise yearly by approximately the rate of inflation, plus 1%.
4. Those who cannot afford to buy houses under the above guidelines should remain renters. They should not be given time bomb loans by greedy lenders.
So, the question regarding the chart remains:
HOW THE FU*K WAS THIS ALLOWED TO HAPPEN !?!
V.L.
OMG, that is disgusting.
HOUSING PRICES WILL COLLAPSE--There is just nothing else that will restore sanity to the market, because no one can afford these prices!!!
The quicker it happens the faster we get back to normal
Hillary will pay your mortgages on all the houses you own
According to the chart, the average home price should drop to $150K or average incomes should increase to $67K or meet somewhere in the middle.
15% unemployment will make this extremely interesting.
"Average income" only counts for the people still employed. What about all those high paying jobs in the housing industry that disappeared recently.
The average income is going down with housing.
but that 150,000 uses the govt numbers that are altered to ignore true employment numbers and income numbers and inflation by politicians wanting to keep the jobs that good numbers "afford" them thus the true value is 87,000 average house price.
$87,000 homes?
The 1960s called and they want their prices back.
You are also predicting movies will be $0.10 again too I take it.
The tinfoil hats are getting tighter and tighter.
Who came up with this magic 20% down and 2.5 times income rule? Purely arbitrary, probably dating back 50 years or more and irrelevant.
I bought my first house 8 years ago. Cost was 4 times my then income when I was single. I put 10% down.
8 years worth of raises/prmotions plus getting married and our household income is almost 5 times higher what what my single salary was 8. But guess what? The mortgage payment on the house is still the same, thanks to the magic of fixed 30 year loans.
That is how it is supposed to work. Stretch to buy as much as you can. Get a fixed rate and as your income increases, your payment becomes easier and easier to pay. My mortgage right now is less than the car payments on our cars (wife's too). Rent for a similar house would be at least double than what my mortgage is, if you could even find one like it to rent.
If you all want to rent for the rest of your lives, be my guests. I am more than content living in my home and knowing my housing costs will be decreasing as a % of salary every year.
It's back to 3x income. I would not pay more than 3x income for a decent home. Anyone looking to buy a home should only look for highly discounted REO's. Let the flippers, lenders and FB's burn.
in the 60's they were 25,000.
in the late 80's they were 87,000.
A slight miscalculation on just about everyones part; it's not 3 times your annual income for a HOUSE, it's 3 times your annual income for the MORTGAGE. You put down more to buy more house. So 200k house is 40k down [20%] leaving a balance of 160k.
160k/3=54k annual income to succeed at your 160k mortgage and no lose your house.
Want more house? Put more down, but the mortgage amount must stay the same.
Anonymous said...
“what were interest rates in 1992? 9, 10%. House at $150K with 10% is as affordable as a $200K house at 6%.
A better graph would be showing percentage of income spent on housing, and I'm guessing overall it wouldn't be that different between now and 15 years ago.”
If a house that cost $150K in ’92 would cost today $200K you would be right.
In my area (mid Hudson Valley NY) a house that cost $150 in ’92 is more like $750K or more today. Matter of fact there are no homes here below $350-400 K on the low end and this is about double then most people in this area can afford.
They where selling like hot cakes for the past 5-6 years cause there was just a buying frenzy, people lost touch with reality.
These homes are not gold plated
They don’t have a ‘view’
They’re not water front properties
They’re not on a private cul-de-sac
They’re on tiny parcels of land
They’re not built with quality craftsmanship / not designed to last
They’re either attached Townhouses or squeezed into developments with neighbors 5 feet on every side.
So why in the world would someone spend 60-70% of his or her hard earned income for a crap boxes like these
Just to say they are homeowners? What a price to pay to impress others who don’t give a damn about you.
These simplistic metrics are all flawed in fairly obvious ways.
median home price versus median income
Ignores bifurcation of the market - in general, poorer people must rent, higher-income folks buy. Ignores changes in the size of typical homes (price per square foot).
price = multiple of income
Ignores interest rates, ignores equity rollovers and large cash downpayments.
debt to income ratio
Getting warmer but still flawed - ignores the fact that wealthier people can afford to spend a greater percentage of their income on housing, if they choose to. A wise person doesn't scale up all his/her expenses with income, i.e. doesn't have to go buy 2x expensive car just because he/she has 2x income, eat 2x more expensive food, etc.
price multiple of rent
Ignores interest rates, inflation risk, and many tax biases that favor ownership.
In 1990 I worked 68 hrs/wk to make $20K/yr. Today I work 35 hrs/wk to make $65K/yr
.
2.5 annual income????????
There have been many accounts of buyers qualifying for 12 to 15 times!!!!!
....and this zero down, no doc s**t has gone along way to fu*kin this up!
.
Question: Why do people still believe in this "superpower" BS?
- Superpower where 40 million don't have health insurance.
- Superpower where 12% of its population lives below the poverty line.
- Superpower that needs bubble after bubble to keep the IV on its economy's arm.
- Superpower with a failing educational system, in which the smartest person in the room is Miss South Carolina.
Yeah, superpower is the second biggest lie ever told after the idiotic "American dream". Keep watching Hollywood movies to feel like superpower...perhaps the Navy Seals or Rambo will save this country. Bunch of morons.
These simplistic metrics are all flawed in fairly obvious ways.
Ladies and gentlemen, Kudlow has spoken. Half of the population doesn't have retirement accounts; the average amount in a retirement account of those who have one is just $8k. Also, 40 million Americans can't afford health insurance. And the most obvious evidence that contradicts EVERYTHING you said is the current housing bust with a millions of foreclosures.
Sure buddy, we believe you. Now you take your bifurcation and sit on it, while saying "I love you Lereah".
Here's the REAL world:
The Associated Press
CONSUMER WOES: Shaken by housing and credit woes, peoples' confidence in the economy sank to its lowest point in nearly 1 1/2 years.
NUMBERS: The RBC Cash Index showed consumer confidence clocking in at 71.1 in September, a sharp drop from August's reading of 89.3.
CONSEQUENCES: The overriding worry is that consumers will cut back on their spending, dealing a blow to the economy.
(AP) Jobless claims up for 6th time in 7 weeks
The number of laid off workers filing claims for unemployment benefits rose last week in another worrisome sign that the labor market is weakening.
The Labor Department reported Thursday that new claims for unemployment benefits rose by 4,000 last week to 319,000. It marked the sixth increase in the past seven weeks and was a further sign that the economy is feeling the impact of a steep slump in housing and a spreading credit crisis.
The government reported last week that employers cut 4,000 jobs from payrolls in August, the first monthly job decline in four years.
The net decline in payroll jobs in August came as a surprise. Analysts had been expecting an increase of 110,000 jobs, in line with growth this year. In other bad news, the number of jobs created in June and July was trimmed by 81,000, indicating the labor market was not performing as well as had been thought.
The surprisingly bad report increased worries that the current economic recovery, now in its sixth year, could be in danger of falling into a recession.
(AP) Incomes lagging behind home values
An Associated Press analysis of new census data provides insight into the reasons for the slumping housing market: Since 1990, homeowners have faced a growing gap between their incomes and the price of their homes.
The widening gap in all but a handful of the nation's 500 largest cities helped make the recent boom in housing prices unsustainable, according to analysts. The rising prices were fueled largely by low interest rates and risky borrowing, rather than increasing incomes.
"We had an artificial economy," said Brad Geisen, founder of Foreclosure.com, a Web site that lists foreclosure properties. "There was all this wealth created in real estate, and it wasn't really created."
WHY do you folk want to be debt-slaves for 30 years with a mortgage or forever as a renter?
Buy a house with a mortgage that consumes less than 15% of your take home pay!!! That way you can bust your ass for a few years and live way below your means to payoff that debt-slave-trap.
The satisfaction of owning outright fee simple and never paying interest again is worth a few years of sacrifice.
Anonymous said...
Question: Why do people still believe in this "superpower" BS?
- Superpower where 40 million don't have health insurance.
Take out 20 million illegals, people are in between jobs and those who can afford but choose not tobuy insurance and that 40 mil is actaully 2-3 million
- Superpower where 12% of its population lives below the poverty line.
Same 12% that was below poverty 40 years ago.
- Superpower with a failing educational system, in which the smartest person in the room is Miss South Carolina.
No clue what the hell you're talking about. Put the crack pipe down.
buddy our govenor that replaced the crook wore tin foil hats because "they" were sending radio waves thru the walls at him , very logical and quickly impeached and back to selling pontiacs..
mid hudson without gasoline in todays world is only valued as a food resourse and at those taxes reverts back to the govt in any hard time and worth less and less like the dollar
anon 7.48 pm = moron...
Anonymous said...
anon 7.48 pm = moron...
The anon 7.48pm makes a good point.
He said stretch yourself to make the PITI payment on a FIXED program. This is exactly what my parents did. They put 20% down and FREAKED OUT when they over bid on the property by get this....$500 over the asking price.
To this day they never refinanced to pull cash out to have "fun", they did at one time take a small heloc out on the house to replace the roof, and the fence, both necessary not cosmetic.
They just finished paying off their 30 year fixed note.
They now own a home free and clear, their taxes for the year are almost what I pay for two months in rent.
If someone can afford to put down a large enough down payment, and can qualify full documentation for the PITI payment on a 30 year fixed, then yes I think its a good idea for them to buy a house.
my parents boughy a back woods fishing camp for cash and built their own house by their own hand, dug their own well and septic system and continued to build till 1965 when busy buddy govt stopped them after years of self sufficiency and self sustainability and put stop work notices on the property and were going to educate them on how to build and live and started to tax them the value of improvements every year equal to the improvement and started to tax them off what was by then a very beautiful property.. GOvt was always the enemy
they will bankrupt you and take your propertys until you need them then they will enslave you more and denigrate your life and person if they do anything for you just to consolidate their power
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