I have been slacking off recently on my blogging. Here are some blog posts of interest:
At The Housing Bubble Blog there is a great post where people Post Local Housing Market Observations Here. One commentator writes of the, " 'Zillow-gap' in Loudoun Co. — getting larger every month! Homes are being listed for 5-20% below the zillow value!" FYI: Loudoun county is an outer suburb of Washington, DC.
Southern California Real Estate Blog tell us why The Fed Cant Save Housing, even if it wanted to! He turns to history for evidence "Fed Funds rates dropped from 9 3/4 in Feb 89 to 3% in September 92, and California still had one of the worst housing-busts in recorded history in the US. A total drop of 6 3/4%! We currently stand at 5.25%. Not possible to even drop that much this time" Right on!
The National Association of Realtors just released some of David Lereah's 'Greatest' Hits. These are some of the most requested power point presentations by NAR Chief Economist David Lereah and others from the last 12 months. It is was quite a story. In a power point presentation from August's Realtors' Leadership conference in Chicago titled 'Reality Check' (ppt) David Lereah basically has many slides showing how housing prices have become divorced from reality.
Please note that the background for the 'Reality Check' power point shows multiple bubble. Below are some excellent some posts about this issue from my esteemed housing bubble blogger colleagues:
Lereah Mea Culpa? (Paper Money)
The End of the Myth (Paper Money)
Lereah Says "Hard Landing" (Marin Real Estate Bubble)
FLASH: I can't believe what I'm reading. NAR admits US housing disaster underway (Housing Panic)
In David Lereah's presentation he writes "Soft Landing," "Price expected to fall for remainder of year," "Price fall to be limited due to pent-up demand at lower prices," "home prices begin to soften," and that a "correction is necessary."
Posts
Now that's funny! Just three weeks ago I was running around my rental singing "I'm not just a Housing Bear, I'm a Housing POLAR Bear"...Family thought I'd flipped the old noodle.
ReplyDeleteThe NAR stole my schtick...Guess, I should either sue 'em or work for 'em
Santa won't be able to get down the chinney's for the next few years. The REPO man will be stuck in there ..and he WON'T come OUT. Ho Ho Ho !
ReplyDeleteThe housing bubble was caused by speculation and rising prices.
ReplyDeleteChanging interest rates is irrelevant.
Lower interest rates fueled the fire but when prices start falling, lowering interest rates is NOT going to support a soft landing. Who wants to buy an asset losing value at any interest rate?
Put another way, who wants to borrow money, at all, to purchase something that is falling in price?
ReplyDeleteEver notice the MSM nearly always says, "leverage, using borrowed money to invest, amplifies returns, but CAN also amplify losses."
So, it's a fact the leverage helps on the way up, but it MIGHT aggravate losses on the way down. Nonsense. The relationship is perfectly inverse. If you bought at or near the top with borrowed money, you will get wiped out.
Anon 11:22am,
ReplyDeleteYou are correct. According to that presentation by Lereah, 28% of homes bought last year were by speculators. Call it a quarter of sales. In other words, it would take 100% of 3 months of sales to clear that inventory at last years sales rate... But they aren't willing to drop their prices...
Lets see... (.28*12)/(1-.28)= 4.7 months of sales just to get rid of flippers homes *if* only their homes sold.
Nope, nothing to see here, move along folks.
Speculation, since 80% of the population moves every 5 years, how long will it take flippers to sell? Will their sales be 20% of total sales? I doubt even with repos it could break 30%. So no matter what, we're looking at another 15 months of declining prices if all goes well for the flippers.
It won't go well for them.
And the builders keep on buidling. See slide 17. The pain will continue until that drops below 3 million (at the minimum).
Neil
excellent post neil.
ReplyDeletethe real bob
Neil,
ReplyDeleteThe only 28% statistic I saw in the presentation was for purchases of second homes. 28% of second homes were purchase as investments, not all homes.
Let's not distort the numbers Neil.
ReplyDeleteLet's not distort the numbers Neil.
ReplyDeleteyeah, no kidding only David Lereah is allowed to do that!!
BTW i was upside down during that interest rate decrease and i couldn't refi unless i brought 60K to the table since my house had devalued that much.
this time people will need to bring 200K to the table to refi if intest rates fall???
Well, you must be "sitting pretty" now if you have owned a home so long. It is probably paid for, right?
ReplyDeleteMust feel good.
I'd be "sitting pretty" if my great grandfather had bought shares in September 1929, too. A disaster for him, in his lifetime, to be sure. What the hell is your point Investor? You are always in here "real estate is a great investment." What BS. What real estate, at what price? For Christ's sake you sound like a stockbroker. "Stocks always go up over the long term." We are all dead , of course, but what the hell.
ReplyDeleteI thought the whole point was to buy low and sell high. I guess I got it wrong. You guys don't ever quit do you?
No the point isn't to buy and sell, it is to buy and hold for the long term.
ReplyDeleteDon't tell me you sold during the last downturn and never bought again. If I were still renting at your age I'd be bitter and depressed too.
"...[i]f I were still renting at your age I'd be bitter and depressed too."
ReplyDeletehttp://www.heretical.com/sexsci/bpsychol.html
Exactly - Va_Investor has been investing in real estate for 25 years, the past 10 of which saw the greatest run up in real estate history. It worked out for her but it hardly makes her a financial genius.
ReplyDeleteAs stated before, investing in SFHs is the worst real estate investment you can make becuase of the high maintenance costs and the risk of losing your entire month's cash-flow during vacant months. (Someone posted some book that supposedly refuted that and it was laughable - it was one of those "you can be a millionaire with a 10-10-10 formula" books. It assumed annual home appreciation of 5%, which is hardly gauranteed. Also, if someone is really doing that well financially, why do they need to write books sharing their secrets and increasing the # of folks also trying to scoop up RE bargains? Anyways.)
And Investor stated before, she was not cash flow positive on properties until she starting putting 30% up front. The fact that she is so Pollyanna on RE makes me suspicious that all the heavy lifting was done by someone else (her husband, perhaps?). She also claimed once that she had been "doing this for 25 years and never has vacancies." That just doesn't ring true. Long-term investors who come out ahead rarely look back and say it was all easy.
Finally, her experience is simply not germane to the discussion on this board, which is whether it is a good idea to purchase a home today or whether prices might decrease enough in the near future to make it worthwhile to wait. Most folks here don't care about buying 10 houses over the next 20 years and renting them out. And even if they were, she hardly comes across as an objective, experienced investor openly sharing the pros and cons.
Yes, you got me. I'm just "lucky". And people continue to pay off my houses. Just dumb luck.
ReplyDeleteInvestor:
ReplyDeleteUmm - the word 'lucky' does not appear anywhere in my post. I was actually accusing you of being dishonest - mainly lying by omission.
I could not care less what you think.
ReplyDeleteThe real reason Fed rates are irrelevant at this point is because of the glut. Low rates will not make people buy homes that they don't need.
ReplyDeleteWe built a fantastic oversupply of homes to meet speculator demand. These excess homes were hidden in the loving arms of investors until recently when they were all dumped on the market en masse. Now that everybody knows they're out there, there's no chance of rekindling the housing bubble no matter how low rates go.
Thanks for the comments on the nil effect that lowering interest rates will have folks. Was looking for commentary on that.
ReplyDeleteAnon 6:10, you nailed it! Great post...
ReplyDeleteB747
Ah, I see it is 28% of 2nd homes. Ok.
ReplyDeleteSo my numbers were a little pessimistic.
I still haven't seen anything that says its smart to buy now. In fact... every fact I read screams "sell!"
As I noted before, something like 69% of American's now own their home. That's a good thing. :) Another 26% are too close to the poverty line to qualify to rent. That doesn't leave a large percentage ready to buy.
And slide 17 still shows a break out in home inventory to an "All-time High."
In the last housing bubble, I watched homes drop 40% in certain neighborhoods. Yes, it was only 18% county wide... But it was 40% in a few select cities.
The fact is that homes are now as much of an investment as a residence.
Since slide 45 shows that turnover is still high... I'm ok waiting on the sidelines. If sales drop from ~8% of stock to the more historical (as I read it) ~5% of stock... That is a 40% drop in the sales rate. Hmmm... what will that do for inventory?
Or maybe its because I just found out my company is moving a group to Pheonix from a higher priced bubble area. If a company cannot make a profit in City X and can in City Y (e.g., like CrisCraft moving out of Florida), they will relocate.
And I see on slide 53 that core inflation is creeping up.
What happens to the housing market and all those ARMs if the Fed has no choice but to raise rates again? If rents go up... so does the core and thus so does the Federal funds rate.
Homes by any traditional measure are simply unaffordable. We're going to find out the answer to the question "what happens we everyone is priced out of the market?"
Neil
"Homes by any traditional measure are simply unaffordable to Neil. We're going to find out the answer to the question 'what happens when Neil is priced out of the market?'"
ReplyDeleteFixed
Anon 5:17
ReplyDeleteIt isn't just Neil. There was an entire article in the Outlook section of the Post this weekend about affordable housing. How in 2000, one quarter of property listing were under $250K in Fairfax Co. Now, one in 20 are that low. Also, in Fairfax Co, if your household makes less than $90K, you qualify for affordable housing.
Anonymous said...
ReplyDelete""Homes by any traditional measure are simply unaffordable to Neil. We're going to find out the answer to the question 'what happens when Neil is priced out of the market?'"
Fixed"
He may not be priced out as much as just looking to get "something for nothing". I think he said in an earlier post that he and his wife earn nearly $250,000 per year and have something like $200,000 put away for a downpayment. They're not priced out .... He just wants to buy your place for nothing so that he can continue a lavish lifestyle.
I remember telling the bubbleheads how for my first home I had to scrimp since close to half my income went to housing costs. Someone like Neil won't do that. He wants his cake and eat it too.
If Lance's description of Neil's situation is correct, then things seem to be working out for Neil. If Neil were to buy tomorrow compared to a year ago, he would have much more to choose from, similar interest rates, and lower asking prices. Plus, he's saved another year for that downpayment.
ReplyDeletePretty funny. Anonymous posters (and yes, unless you publish your real name, and not the internet equivalent of a CB handle, you are anonymous)going on and on about their "accomplishments" and the motivations and mental state of other anononymous posters whom they will never meet.
ReplyDeleteI have over 30 years of experience in RE in every area except sales. And you know what that means? On a blog, squat. I, as well the supposed experts here, could be a retired meter maid with a RE fetish.
Keep that in mind lest you you become wrapped up in these childish "bitter vs. loser vs. liar" troll battles.
Lance,
ReplyDeleteI never stated my income. I did state I could buy a lake front house near Austin for cash. That's it. :)
I don't want something for nothing. I simply do not wish to watch several hundred thousand dollars evaporate. As to lavish lifestyle... then why am I saving 40% of my after tax income?
Oh, I scrimped and saved to buy my first home too. Remember me telling you that? I posted how I lost money on it after a forced coporate move and va_investor made a sarcastic comeback about "the voice of experience." I have been an owner in the past and will be again. Not at today's prices, they're insane. I also told you about the shear number of people I know who cannot keep up with their mortgage payments.
Lance... I used to respect you. That last post shows you weren't reading my previous posts. Good luck. But I'm afraid that I simply cannot take you seriously after that last post.
Its simply too obvious that the only analogous situation to what we're in was Florida 1926. Ok, its not to that severity, but the speculative trends were similar.
Part of my perspective is that I'm involved in hiring in a fortune 500 company. I have been involved with the transfer of highly paid workers out of bubble areas due to the inability to attract talent into the overpriced markets. Remember that? Well... we're transfering people out of DC too. Ok, Mostly out of Los Angeles... but the net flows are there.
I have friends who hire for quite a variety of companies... I do not talk housing with them; we hint to each other how many people we're hiring so that we have an idea of the market (how hard is it to attract talent, wage trends, etc.). For the first time ever, none of us is hiring. In fact, a majority have hiring freezes. Only the managers in the medical field can replace attrition. Most of us are downsizing in some way. We tend to, as a group, see what's happening six months before it does.
As to my buying strategy? There are five flips currently in my favorite neighborhood that have not been able to sell for over six months. I'm simply waiting for them to go bankrupt and I'll buy a later one at auction. The inventory in this neighborhood? The last time it was this high was 1979 when high oil and interest rates kept people from buying in.
Think about the inventory. Its never been this high before! Never. If you've listened to the more rational people on this blog you know that the slowdown is going ahead of schedule. I admit that doesn't mean a thing.
But DC is not more than 4 to 6 months behind California. My California is going to get hammered. :(
For the record, I'm normally an optimist and only five years ago I was pushing friends to buy homes.
You need another comeback other than "you're imature if you're not buying."
Neil
It would be funny to see a graph, where the insults thrown is associated to the drop in housing indicators.
ReplyDeleteBTW - For Lance, a few threads back I pointed out that 80% of income earners had seen zero increase in real incomes. He asked for references, and I was too swamped to go digging. However, today regular commentor Bonddad at DK posted on that very subject, so I'm adding in the link.
http://www.dailykos.com/storyonly/2006/8/28/8539/41276
It isn't just opinion, the article is heavily sourced and contains source links.
I don't know why some of my comments were deleted. It puts all of my remarks out of context.
ReplyDeleteMaybe that is the point. David?
ReplyDelete"I don't know why some of my comments were deleted. It puts all of my remarks out of context. "
ReplyDeleteBlog Rules. Please do a search
We're overdue here for a post showing blurry photos of old DC rowhouses, and a post about how this hurricane season is likely to destroy florida housing.
ReplyDelete"Hmmm... what will that do for inventory?"
ReplyDeleteAnswer: Nothing.
A good portion of the inventory for sale is discretionary. How much? I don't know, but undoubtedly Neil is not alone thinking this is a "good time to sell".
Inventory for sale is not the same as inventory of physical housing units. The Census data that will be released in October will have a count on vacant units that will be a much better indicator of overall supply and demand than discretionary sales listings.
va_investor said...
ReplyDelete"I don't know why some of my comments were deleted. It puts all of my remarks out of context."
same here ... it's impossible to have fair debates when parts of what you say are deleted ... and I also can't understand what blog rules were violated.
Neil, if that wasn't you who talked about the quarter million dollar income a couple weeks back, then my apologies. It was a regular, one of the moderate regulars ... maybe Keith?
I think that I violated the "don't embarrass nikki" rule.
ReplyDeleteIsn't Nikki the person who jumped in here and argued that residential housing is a "scam"?
ReplyDeleteVA Investor,
ReplyDeleteI'm a bubblehead and even I agree that nikki embarrassed herself.
I think the only answer she expected to get was that Auction = New Drastically reduced comp.
While I don't agree that it has no impact on future FMV, I don't believe it equals FMV. I suspect that there's probably an appraisor's rule of thumb that says an auction reflects .7FMV or something like that.
My $0.02.
H,
ReplyDeleteYour numbers are approximately correct. I'm not sure how that sale is qualified by an appraiser.
My $0.02.
It sold as the result of the auction, but not through auction. We still have not heard from an appraiser as to whether this sale would be factored into comps.
ReplyDeleteMy point is that the sale was a tremendous bargain for the purchaser. There are good, and even great, deals out there if one is willing to put in the effort.
In this vein, I do agree with Lance that there is never a "bad" time to buy - just bad deals.
this blog is funny, but i have to wonder why Lance and VA_investor are even here?
ReplyDeleteand paying 50% of your income for housing is insane.....IMHO
"and paying 50% of your income for housing is insane....IMHO"
ReplyDeleteI doubt you are very "humble". Many young people, just starting out, are willing to sacrifice alot of discretionary spending to squeeze into that first house.
Unlike most on this blog believe, the results are not often disasterous.
One may have to forego the new car, the weekend club nights, the plasma and etc., but the rewards will come later.
I think the beer and champagne references might have been mine. Today's first time buyer wants granite and stainless and on and on. What happened to the concept of "starter home".
"and paying 50% of your income for housing is insane.....IMHO"
ReplyDeletePerhaps. Especially if your net monthly paycheck = $3000.00
But what if your net monthly paycheck reads: "$7000.00"?
I don't think it is more expensive than it was in the early 80's when interest rates approached 18%. People still bought then.
ReplyDeletedc_too,
ReplyDeleteI bought in 1981 & 1983 & 1984 & 1985 etc., so I may know a little more about than you. There is nothing misleading or disingenuous about my statements.
I'll respect blog rules, provided they're fairly enforced. The problem here is that they aren't. For example, someone above misquotes Lance, as well as insults Lance. That comment however isn't censored. On the other hand, if anyone criticizes a bubblehead (remember the 70% vs. 65% price drop debate?), than the comment is deleted.
ReplyDeleteRules not fairly enforced make the blog appear to be poorly run. I suggest that either the blog rules are rescinded, or they are enforced against bubbleheads and housingheads alike.
Doubtlessly this comment will be deleted shortly.
anonymous said...
ReplyDelete"As stated before, investing in SFHs is the worst real estate investment you can make becuase of the high maintenance costs and the risk of losing your entire month's cash-flow during vacant months. (Someone posted some book that supposedly refuted that and it was laughable - it was one of those "you can be a millionaire with a 10-10-10 formula" books. "
I'm the guy who posted the "laughable" book. It is not a get-rich-quick book. The author's real estate investing strategy is very similar to Warren Buffett's strategy for stocks. I am well aware that there are very few good real estate investment books out there. John T. Reed keeps a list of real estate "guru" recommendations. Very few of them get positive reviews. John Schaub was one of the few.
It assumed annual home appreciation of 5%, which is hardly gauranteed."
Absolutely true. Most stock and mutual fund books assume an average rate of return of around 10%, but that is also not guaranteed.
"Also, if someone is really doing that well financially, why do they need to write books sharing their secrets and increasing the # of folks also trying to scoop up RE bargains? Anyways.)
Your argument doesn't hold water. There are plenty of authors who write excellent books on stock and mutual fund investing. Have you ever heard of John Bogle, Burton G. Malkiel, Jeremy Siegel, or Peter Lynch? Why should real estate be any different?
Let's say hypothetically that you are a successful real estate investor. You have $1 million in real estate equity and can generate an ROE of 20% per year. (These are completely made-up numbers for illustrative purposes only, BTW.) That gives you an annual income of $200,000. Let's say your loses from writing the book reduce your investment income by 25% because of increased competition. As long as your income as an author outweigh your lost income as an investor, it is still financially worthwhile to write the book.
By the way, I'm a bubblehead.
h,
ReplyDeleteDon't know what data base you are searching, but I specifically remember FHA and VA hiting those rates. I may be 48, but I still remember the early 80's. Any of my contempories recall?
anon 3:11,
ReplyDeleteI agree. The one-sided rule enforcement brings down the quality of the blog.
People went nuts on Lance and nothing was deleted. Tons of personal insults and misrepresentations.
anonymous said...
ReplyDeleteI thought the whole point was to buy low and sell high.
va_investor said...
No the point isn't to buy and sell, it is to buy and hold for the long term.
You are both partly right and partly wrong. The point is to BUY LOW and then HOLD FOR THE LONG-TERM. As Philip Fisher--who was a great influence on Warren Buffett--wrote, "the best time to sell a stock is almost never." The same would apply to a good real estate investment. It is unlikely that you can buy low today, however.
I disagree with you VA. There are plenty of people who don't want or demand granite, and I'm one of them. My question is where are the new homes that are not being built without granite and stainless steel? The builders aren't building those kinds of homes..the condos come automatically with the granite already in them. As far as the whatever happened to a starter home question..I have a better one..how long do people usually stay in their first home (starter home) and if it's going to take me 15 years to get to the point where I can move up is it really worth it? I could move to a transitional neighborhood, but how long do I want to stay there..and since wages have been flat for quite a while and I would like to have some children what do I do about the school system? Since 50% of my income is paying for this home that leaves out the private school option. I'd like to buy, but I think there's this real smugness coming from some of these comments that first time buyers don't want to work. Sure I have no problem buying a fixer upper, but what I've seen when I've gone to open houses is homes in DC that original owners have allowed to go to squat and they're asking me to pay to do the upkeep to their homes based on last year's frenzy. I don't think that's a good financial move on my part. I don't know how some of the owners rationalize the prices for these homes in DC.
ReplyDelete"I don't think it is more expensive than it was in the early 80's..."
ReplyDeleteva_investor, when you say "it", what are you referrring to? Home prices, monthly payments, or something else?
monthly cost as a percent of income.
ReplyDeletedc, I was out there looking at houses and condo's. Were you?
Va_Investor,
ReplyDeleteI was out there too and you are correct about both the 18% interest rate and the high percentage of income required to buy.
Every generation likes to think they have it toughest. Personally, I'm not worried about the young ones on here though, as they'll come to the realization eventually that they're not buying now not because "it's too expensive out there" but because it's too soon for them. They bluntly aren't far enough into their careers to be earning enough to own a home. The ones that worry me are the middle-aged individuals who have sold their homes with the expectation of making a killing by buying back similar homes for half the price after Armagedon occurs. These are the "rapture people". Gambling just like the flippers but without the realization that easy earnings can just as easily turn out to be easy losses. The third group are the ones that you have refered to a "failure to launch". They'll always find a reason to not buy. People ask us what we are doing on this blog. I think the question would be better directed to them since they are here to get reinforcement for their longheld beliefs that renting is better than buying. They contribute little if anything to the conversation of whether there is a bubble and what one can do to buy well despite any market. They just want to keep hearing "you did the right thing to NEVER buy ...ever ever!"
Va Investor,
ReplyDeleteI'm not your contemporary, but here's a page supporting your memory: http://www.mbaa.org/FreddieMacPrimaryMortgageMarketSurvey.htm
September and October 1981: Average mortage rate 18.1% with 2 points. Ouch!
And the cost of that $170,000 (inflation adjusted) house? $2,575 per month (100% financed). The cost of the "same" house in 2005 at $440,000? $2,598. (100% financed at the average 2005 rate of 5.86%)
I'll let other opine as to the significance of the $23/month difference.
Thank you data miner.
ReplyDeletedc_too are you out there? You practically called me a liar.
Data miner; thank you for posting such useful information.
ReplyDeleteExactly! There are a lot of people selling their $500,000 home who plan to buy back into the area a few years later paying around $400,000-425,000.
ReplyDeleteAll I can say is good luck.
“The ones that worry me are the middle-aged individuals who have sold their homes with the expectation of making a killing by buying back similar homes for half the price after Armagedon occurs. These are the "rapture people". Gambling just like the flippers but without the realization that easy earnings can just as easily turn out to be easy losses.”
ReplyDeleteExactly! There are a lot of people selling their $500,000 home who plan to buy back into the area a few years later paying around $400,000-425,000.
All I can say is good luck.
What was the average cost of a home in the '80s?
ReplyDeleteI remember in '82 or '83 looking at unrenovated houses in Pimmit Hills (Tyson's-Falls Church) for around 80K. The area was "sketchy" and the houses depressing.
ReplyDeleteAlso looked at brick colonials in Silver Spring (sligo - four corners) for 100-120K. Nicer homes/area - but no major upgrades.
Bogus condo's at seven corners (falls church) were going for around 50 to 60K. Too depressing to consider living there, for me at least.
"Bogus condo's at seven corners (falls church) were going for around 50 to 60K. Too depressing to consider living there, for me at least."
ReplyDeleteAmen to that.
h,
ReplyDeleteThe market in the 80's flattened due to economic reasons - recession.
I graduated into a recession in 1980. Interest rates continued to spiral up.
My question relates to the basic "cost of housing" as a percent of income. If it turned out "ok" to have bought then, then why is it not ok to buy now (provided you are not a "flipper"). This being in terms of buying a house as a home, with plans to stay awhile.
btw, the silence is deafening from today's 20 somethings as to the "cost" of owning. It is no more discouraging today than it was when I was "starting out".
ReplyDeleteH,
ReplyDeleteWhat about wage growth? When I have a little more time I'll look it up, but my first guess is that it has been significant. I also know that several people here have made claims about wage stagnation, but those claims should be examined carefully.
H,
ReplyDeleteOne more thing, why 6.5%? Bankrate.com lists the mortgage average today at 5.97%.
So 20somethings should run out and purchase right now..because it was just as expensive in the '80s.
ReplyDeleteNot necesarily buy, but quit whining. Buy if you are long term: there are unique benefits to having a low-rate loan when rates increase. Like selling via assumption or wrap=around financing if you are forced to relocate.
ReplyDeleteYou probably have to be over 40 to know these concepts.
I don't think this is about age. Affordability problems exist..whether you claim the cost of homeownership was the same in the 80's or not. I'm sure there are plenty of people who are out of their twenties who fall into the parameters of the affordable housing programs discussed in the Washington Post over the weekend like the one in Fairfax. And for the record I'd venture to believe that most people paid down a lot ore money wen purchasing in the past than they do now. However, I don't know that as fact because I don't have the statistics in front of me.
ReplyDeleteIt is expensive to own a home in the D.C. area. Always has been, always will be. For some it will never be an option.
ReplyDeleteIt is, however, no more expensive than in prior times. So that excuse should be put to rest.
It is, however, no more expensive than in prior times. So that excuse should be put to rest.
ReplyDeleteVa-Investor = Credibility shot
Yeh, take my remarks in context please. See data miner's analysis for ownership costs in the early 80's.
ReplyDeleteh,
ReplyDeleteI don't agree with the interest rate you are using. But let's go back to where the affordability issue first came up above.
I am referring to dc_too calling me a fraud. data miner clearly refures that nonsense.
The general point about relative affordability is getting lost in arguments about small differences in interest rates.
ReplyDeleteI would appreciate hearing from dc_too regarding affordability.
h, my point is that my generation did not have any cake-walk buying our first homes either.
H,
ReplyDeleteSome more back of the napkin for you. I took NVAR's price for a median home in 1981: $100,050, and used BLS' inflation calculator to determine what it would be worth today: $214,960.
The actual price is $538,144. This is 250% of the inflation adjusted value.
I then went to the Census Bureau's statistics for mean household income: http://www.census.gov/hhes/www/income/histinc/h03ar.html
The 1981 mean income for the middle 20th percentile was $18,981. Adjusted for inflation to 2005 dollars this would be $40,820.
The actual mean income for 2005 is $46,301. This is 113% of the inflation adjusted value.
I haven't run the numbers for interest rate difference, but I doubt that a 10% swing on the interest rate (16% vs 6%) will account for the huge percentage gain housing has made over income.
Therefore, I would tend to doubt that as a percent of income, housing debt is the same now as it was in the early 1980s.
My $0.02.
H said...
ReplyDeletedoesn't = don't. Before the grammar police call me out.
Too late. Once a crime is committed, you can't undo it. You're going to Grammar County Jail, Mister!
dc_too,
ReplyDeleteWe were making about that median income then. I think house prices were higher here. I don't know exactly when ARMS came on the scene, but I had a one-year arm in 1983 and in 1984. In 1981 I was "lucky" enough to assume a 12.5% fixed rate.
We had 95% loans with PMI and got "decorating allowances" to cover the 5% down. In other words, no money down loans were available.
We also had a full=blown recession to deal with. I remember savings rates and 14% CD's as well.
I am just attempting to point out that housing was very expensive. I am not a math expert, so I defer to h and data miner for the exact numbers.
What I have claimed earlier is hardly "fraud". Today's costs as a percent of income are not that much different.
Lot's of bits and pieces.
ReplyDeleteH, I agree, two months at 18% is not representative, but those two months did make a big impression on the home buying public. At least I have certainly heard it mentioned enough by people of a certain age. However, 2 years should be representative of the early years of a decade and for 2 years, 1981 and 1982, interest rates averaged over 16%.
Mytwocents, 16% is 266% of 6% so I think you have resolved the question as to whether housing is more affordable now than in the early 80's.
I don't know why what started out as a benign comment about relative affordability of housing now vs. the early 80's has mushroomed into an unfriendly argument, but let's put it to rest.
ReplyDeleteI agree with h that there is a difference in that the 80's saw a gradual decrease of rates which continued for 20 years. This hardly seems likely today.
Does anyone expect rates to drop appreciably from today's levels? I don't. So rates will not likely be a "bailout".
I do agree with Lance that increasing rates can offset monthly savings brought about by lower prices. For people like me (investors-loooonnngg term) monthly cost vs. rent is really all I care about.
As I have stated before, I do expect a correction similar to the 90's. I do not see rents equally mortgage costs ever.
sorry, "equalling".
ReplyDeletep.s. apologies to all offended by my "bitter and depressed" remark. I hate to see people make life-long decisions based on a one-time event. I was attempting to show that that was what the commenter had done - to his great detriment.