The Housing Bubble

Pen,
Forget the “starvation” formulas. The multipliers and percent of income formulas are used by banks in order to decide their risk in giving you a loan. They know that you will cut out a LOT in your budget including your retirement in order to avoid the embarrassment of losing your home.
So you must look at your individual budget and goals and ask yourself some questions.
Status: How important is the opinion of other people to you? Many people will judge you by your address and house. Do you care about that? One caveat is that usually the people you fool by living beyond your means don’t matter and the ones who do see through it right away.
Weath: How important is accumulating true wealth? And the security provided by knowing that you and your children will always have plenty and not have to be suck ups.
Freedom: How important is being able to pick up and move to follow your dreams of just get out of a miserable job where your idiot boss knows you have to take it because you have no other choice. Read about Serfs and you get the picture.
Look at your own budget, take into account your hopes and dreams. Plan for retirement, kids college etc. Beyond that decide if you ever want to be able to go the movies, out to dinner or on a nice vacation. THEN take what is left over and find a place you can afford. THEN let us know what “percent” and “multipliers”, you came up with, I am sure everyone here would be curious to know.

I sleep a lot better when I am about 25% of take home on a fixed 15 or 30 …If that means a smaller home, so be it….I am old
school…I also believe in striving to pay off the mortgage…I wouldnt think about MEW unless of extreme emergency…

“should the income be adjusted for some sort of multiplier to account for double incomes?”

Short answer: I believe that the NAR affordability index (which people often cite) uses HOUSEHOLD income, which takes double income into account.

Long answer:

In general, it doesn’t matter, so long as you are consistent. remember that these “affordability indexes” have a lot of built in assumptions (such as number of people per household, etc) or things that can affect them. In general, the actual affordability index answer number is less important than the trend. To have an applicable trend, you need to make sure that you’re using data from similar underlying inputs.

Thus, you could make an affordable housing index using single average incomes, single median incomes, household average incomes, household median incomes. You could use the median income of households ONLY from the 10-90%iles in order to screen out the extremes on each end. And so on. So long as you used the same data from time to time, you’re ok. Because it’s the TREND you care about more.

so, currently, the NAR uses their own affordability index. If you read their index, you see that the NAR has their own way of making the index. So long as they KEEP the same criteria for developing the inputs to the index, it’s valid. Of note, I believe that the NAR uses median HOUSEHOLD income, which takes care of your “double income” question.

Which is why I’m sure they’ll change the variables to hide the true state of things!

clouseau

“Also, what are you folks on the blog comfortable with for the max PITI (with a 30yr fixed) as a percent of gross for an individual with zero non-mtge debt and one year’s gross in reserves? Case example: a person is making 100K (8K/month or so) and has 100K in reserves after down pmt, closing costs, etc.”

I agree with Jannifl.

The numbers typically used in the past were 28% of gross income, 33% of take home pay.

However, these numbers were derived by the BANKING industry to weed out the riskiest people who would go into foreclosure on their loan. It doesn’t mean that one can really afford that, just that one is less likely to go into foreclosure if you use their guidelines.

Thus, you really will need to evaluate your own life for your tolerance.

I personally pay 7.1% of my monthly gross income (not including bonuses) on my mortgage (PITI payment), and that is perfect for me. I obviously could pay much more if I chose, but it is inconsistent with my life’s goals. (when I bought the house, the PITI was more like 15% of my grosss, but my income increased).

My personal goal is not to live in a rich neighborhood with a bunch of rich folk. My goal was to live in a safe and nice neighborhood near my very close friends, and to be able to retire early. I also did not want to be trapped by my own wealth (many of my partners are working into their 70’s because they needed to pay for their “things”).

My outstanding mortgage is 80% of our yearly gross income. So even though I don’t like that my house is losing “value”, I can afford it easily and my house is worth that “loss” to me. I knew going in housing can lose value, as I saw it in SF in the early 90’s.

You may live somewhere where the above isn’t possible. that happened to me. Living in SF I couldn’t “afford” it by my measures (the bank would give me a million buck mortgage, but I would have killed myself). Thus, I personally chose to move somewhere where I could make MY numbers work. (Mpls, MN)

So you’ll have to decide for yourself.
1) are you a “homebody”? Homebodies may derive more pleasure from having their own home. Are you really loud, like a drum player or something? They may need detached living space too!
2) given your income, what other things do you like to do that cost money? What will you have to give up? is it worth giving that up?
3) how tolerant are you for repairs. My house is AWESOME, and I typically spend about 1.5% of the PURCHASE price on repairs and maintenance each year. the rule of thumb is to expect to pay at least 1%. But I’m finding it’s more like 1.5% (so example: $3000 a year on maintenance for a home that cost 200k)
4) how much is the home compared to a COMPARABLE rental. My home would rent for about what my PITI is on a 30 yr fixed. So going to a rental would not improve my life. How about wherever you are? Is renting way cheaper?
5) how mobile are you? If you’re only planning on staying in an area for under 5 years… you may not want to buy. It takes 2-3 years before you even get settled into a home!
6) how steady is your employment? some people have very steady employment (like partners in law firms, doctors, etc). others are not quite so secure yet. many people, especially early on, are just starting out and are on the bottom of the ladder. It might not be good to lock yourself into a life long decision until you’re more stable.

just a few thoughts.

good luck

clouseau

Forgive the short answer. The median household does not buy the median house. This is why places like my are with single digit affordability has near 70% ownership rates. Gross is also not a good idea. California with its’ 9.3% income tax, 6% sales tax and uniformly high prices will eat your gross and steal your bottom line. Young couples with good incomes are gonna get pregnant, good for them, bad for the math. The list of modifiers to the rules of thumb is long.

Some very interesting responses..here is sort of why I asked..

In my area, the median income is around 52K (104k for a double income)…median home price is around 400k, I think. For example, a 1960s 2000 sqft split level ranch (some updates, maybe) on 1/3 acre in an ok town with an ok school system will run 500K..Same house in a better town, add 125K.

I’m mostly just curious how a family with an income of 100k or so(either single or double income) can buy homes at those prices and much higher. I can’t believe that “everyone” is making 200k/yr.

Which makes me wonder, just how much do people in my area (greater Boston and burbs) make? how many took suicide loans? how many are living on HELOCs? etc., etc.

I see buying the property as just the beginning with many other household expenses to follow, not to mention at the other things the cost money, such as car pmt/ins, travel, entertainment, clothes, and so on.

Generally speaking, it seems like the malls/restaurants are always busy, new cars everywhere, everyone on a cellphone/ipod, everyone with a latte, Home Depot/Lowes packed, etc., etc., etc.

I just can’t understand how people continue on with the spending.

Don’t they ever get maxed out?

For me, 25% to 28% of gross is all I will pay. Right now I rent at 15% of gross income and I don’t see myself buying until prices hit the 25% level and the house is in a good location. No, I am not willing to put one dime into a condo and pay HOA fees, nor will I be buying into something poorly constructed.

No more than 25% of income for housing expense .If you can get it lower than that ,good for you .

With builders not having their margins anymore and demand trailing off, I see many in the realtor, mortgage, and constructions business losing their jobs. This includes real estate appraisers, roofers, landscapers, and even people at Best Buy if all the plasma TV sales screech to a halt. Hold on to your shirts; it’s going to be a bumpy ride.

Allen Sinai: He thinks we are stupid or he is just a Wall Street SCHILL!
Unemployment of 5.5% vs. 4.8% if both of his numbers are based on the current “telephone calls ” {NO inner city metro area’s included” and “birth death rate illusions…Oh 98,000 of the 112,000 job growth came from the birth death rate last week!!!
Is his 5.5% apples to apples to todays..media reported number?
When Allen went to school this was Full employment! Of course as an econo-myth, he must be aware that the Dept of Labor reports the PRE Clinton ERA unemployment numbers on Sch A-12….”Alternate methods for computing under utilized Labor”!!!!!!! {the old headline number}
And of course as a chief econo-myth -If he is not aware of this number he is STUPID! Alternately since he should be pouring over all the numbers in detail, he is aware of sch. A-12 and KNOWS that this PRE CLINTON ERA unemployment rate {known from all prior recessions} has been hovering from 9.0% to 8.4% for the past 14 months….currently 8.8%.

It’s ok, she will just go back to Mexico instead of paying them.

They should have immediately impounded her car and taken her license. Some jail time would be appropriate too. This idiot is a menace to society.

Police said Cisneros said she threw her speeding tickets away because she thought nothing could happen to her if she didn’t pay them.,

Just like I am sure she thinks nothing will happen to her when she commits mortgage fraud everyday…

I live in Tampa (Hyde Park). My landlord has just decided to raise my rent again (a huge increase, the biggest ever), presumably because his building has dramatically increased in value (which is the exuse I was given last year when my rent increased). If I leave, he can raise the rent on this place even higher, and there are endless yuppie wannabes ready and willing to pay whatever he charges (they often go in two or three to an apartment, just so they can have a Hype Park address). I guess, he’s trying to price me out so he can do just that.

I’ve been looking at apartments in Tampa on craigslist, and the prices are ridiculous. Do people here really think this place compares to, oh, I don’t know . . . Beverly Hills, Santa Fe, or Greenwich? It’s as if everyone in Tampa has been drugged or brainwashed. I see words like “trendy,” and “upscale,” and “stylish” everywhere, but THIS IS TAMPA, possibly the ugliest, most backward, and most uncomfortable city in the United States.

“Robert Toll keeps explaining that once all the inventory is absorbed, homes should start appreciating again.”

He is right because by the time all that inventory is absorbed, the prices will be a lot lower than they are now.

He probably also priced it to sell. If someone sells their house for less than comps, then it will sell, but hardly means it’s healthy.

I could sell my house in 17 minutes if I priced it 40% below market.

Might have had something to do with his price.

“He sold his house in just 6 days THRU A REALTOR.” and the moniker is “nobubblehere”. Gotta love the permabull(sh!t) realtors, they’ll lie no matter how ridiculous they sound. I guess if you have to sell these days, they can do all the requisite dirty work- lie, steal, cheat, whatever, to get you out of your overpriced POS.

Your brother’s house has not sold until the check clears. It is probably in escrow for about 60 days. We call this Pending, it is taken off the market, while all the contingcies are met. Like the buyer quailifying for a loan. Hope your brother looks for a back up offer, because the big homebuilders are getting close to 30% cancellations on their sales.

Concerning “Reverese Mortgages”. I’m amazed that people are unable to see through the current hype. First, let me explain something about the USA. The US economy is manipulated and planned. That’s a short version because the examples I could use would take hours of explanation. Reverse mortgages and the blatant increase in property values we have seen go hand in hand with government, fed and bank manipulation. Here’s the reason: Millions of American’s are going to retire over the next 20 years and the current social security system including medicare will collapse. Especially medicare which is the elephant in the room. The USA is bankrupt. Before you start waving the stars and stripes, look up the definition in the dictionary. Wave the flag all you want but smell the coffee. China, Japan and to a lesser degree several other countries, financially OWN the USA. If you feel that statement is incorrect, you need to stop drinking your bathwater or at least stop listening to the t/v talking head flag waving clowns on Fox or CBS MarketWatch and especially morons like O’Reilly. We have deficits (thanks to the Bush administration) as far as the eye can see. Despite the usual Bush-spin, there isn’t a snowball’s chance in hell to get out from under this debt in the far distant foreseeable future AND sustain the current social security system and all the entitlements. You might have heard some of the latest murmers from the Bush administration about, “addressing the problem of entitlements”. Remember, Bush has an agenda which is very well known. That is, to demolish all the social programs which FDR and other less ruthless presidents have introduced over the years. “The problem of entitlements” is a hidden threat meaning drastically CUTTTING entitlements. And I mean DRASTICALLY. Now, I happen to think that this president has, basically, destroyed the United States financially and security wise. That isn’t the point of this posting. This has nothing to do with politics because any future government, Dems or Rep, will be in trouble trying to find ways of holding back the financial tsunami which is gathering strength and which will eventually arrive on US shores. Even the Fed cannot keeping printing money when the bills become due.Foreign countries who hold $$ have a problem when the $$ resembles confetti. I’m only addressing the reasons why Reverse Mortgages are being hyped. They are simply a prelude to means testing. The UK is already bringing in watered down versions of mean testing but in the US it will be far more drastic as the years pass. Simply put, property values were allowed to “explode” (manipulated by the government, aided and abetted by the fed and thru the fed the banks) so that means testing can eventually be introduced. It will work thus: A retired person/couple need medical help. Into play comes the means test. The medical treatment is expensive. The government entitlement (in this case Medicare) will pay “x”. The retiree(s) will have to Reverse Mortgage their property to pay for the excess. While I’m on the subject, let me address the matter of property values. Yes, this IS a bubble. However, as explained, it’s a manipulated bubble. Property will NEVER go back to 1990 or 2000 values. They will possibly go back to 2002 - 2004 levels. That’s how the manipulation was planned. A big incease in values so that people will have a bundle tied up in their property for use in reverse mortgages. Again. there is not enough space or time to explain but I’ll put it very simply. Do you really think the government was going to let the unwashed masses inherit millions of $$ when parents die via their parents property? A young middle age couple in their 40’s who own their own home when suddenly both parents die, they are holding $1,000,000 cash. Multiply that hundreds (if not millions) of times. Ain’t gonna happen folks. By the time these old parents die, with the means testing plan which is coming down the pipe line where Reverse Mortgages HAVE to be tapped into, there ain’t gonna be much of that inheritence left. How much will be left? Well, a pacemaker runs around $25,000. Chemo about $60,000. A close friend of mine just died and was in intensive care for 10 days. The cost came to $470,000. Fortunately, his continued after retirement company health insurance kicked in. Noticed how the big corporations are dumping health insurance? Property values? After the meltdown which will take about 18-20 quarters, prices will level off and a new wave of property buyers will flood in and occupy all that excess inventory. Manipulation, folks. BTW, I’m NOT a conspiracy theory guy. I work in the stock market which is so manipulated that if the average person knew how much was stlen ouyt of their 401k’s by stock manipulation, they would freak. Need to see the bottom in property? Watch the stocks of the home builders like RYL, BZH, TOL. When they flatten out for several months, the bottom is in. I figure 2008/9 will be the time we see the bottom. Oh, and don’t think you can get rid of your “wealth” by giving it to the kids. A nice clause will be voted in which will back date gifts so that anything “gifted” less than 20 years prior to death is non-allowable.

I’m going to wrap myself in a US flag and go shop at Walmart.

And don’t forget to add, “and buy Chinese goods”

Grandpop always used to say figures don’t lie, but liars figure.

Bought 4 ice trays recently at Wal-Mart for 98 cents for 4! Made in America!! Vote with your dollars!!!

I see this more often in my area in the Netherlands and don’t know what to think of it. RE has been extremely overpriced for years here (no chance to buy a decent home if you have a normal job, despite loans for +/- 10x income). Inventory is huge and there is not much that is selling, some expensive homes have been on the market for 5 years or more. So why overpay?

But often the expensive homes that DO get sold are listed at 1.5-3 times the last purchase price of sometimes just a few months ago; and often that is without any changes to the house. Usually these homes are traded through the same agents and my guess is that it’s either about black/criminal money or some other kind of sneaky deal (tax writeoffs, plain mortgage fraud?) organised by these RE agents.

How on earth does one get a 2M mortgage on a 900K sale? I’ve shaken my head at 120% ltv mortgages, but 220+ ltv? What on earth is that?

I visited my sister and her husband in Ft. Walton Beach recently. Rented a nice two bedroom Gulf side condo on Okaloosa Island as a walk in for two weeks at $120 per night. The condo building seemed about half occupied.

I noticed there were a number of Absolute Auctions listed in the local newspaper’s real estate section. Asked my brother in law about the auctions and he said that most auctions were with a reserve but more and more often the Absolute Auctions without reserve are popping up and though most of these properties are not attractive a friend of his picked up a nice place in Destin at a 50% discount to the prevailing market value a couple of weeks ago.

That’s nothing. Come to Moscow.

According to an article I recenly read on http://www.lenta.ru the average price is now $4,000 per sq meter. The market is 95% equity. Lending terms in the newly established mortgage industry are around 10-12% in USD for 10-15 years with a 30% down payment. If we had the same lending terms as described in the article you linked I don’t know how high prices would go.

Two factors dominate the Moscow real estate industry: 1) Commodity prices and 2) Every Ivan Ivanovich from Slutsk, Russia has to have an apartment in Moscow to show that he has really made it.

I noticed the writer, Annette Haddad, managed to insert a few of her typical quotes from “experts” to modify the bad news. She’s incapable of objective reporting on this topic.

interesting story, especially the fact that $ 70 million was offered for the local pub … are there only billionaires surfing at that beach?

BTW, the average appreciation works out at +23% yearly if she can close the deal. That’s about average appreciation of nice beachfront properties in Oz and New Zealand over the last 20 years or so (and a bit higher than gains for very boring homes in the Netherlands over the last 10-15 years…).

SSBG,

Thank you for posting this. I responded last night, but the spam filter seems to have eaten my posts.

EVERYBODY NEEDS TO READ THIS!!!!

It recommends unethical (and possibly illegal) ways for Realtors to dupe buyers into buying homes. Everything here from collusion to remove signs from active listings, removing “reduced price” banners, and ways to manipulate the statistics.

IMHO, we need to alert the Senate Banking Committee, DOJ (to show why they need to continue fighting the NAR and their stranglehold on MLS info), the NAR itself, and your local representatives. If there ever was an argument for a totally transparent RE market, this is it. Print it out and send it to your local newspaper to show how they are advocating hiding information which is **extremely relevant** to buyers.

I was so worked up after reading this last night, I couldn’t sleep.

“BTW, Gary Watts doesn’t have a college degree in economics.”

The Harvard team isn’t any better.

Someone needs to send this Watts Dude the definition of “Fiduciary”…Those were some very sick suggestions….

“However, this year is . . . INVERTED! The latter half will be more active.”

And if the market happens to not come back in the latter half of 2006, then the post-New Year’s period in 2007 will come back strong. But if that does not happen, then the buyers will come back in droves after the Superbowl. And if not after the Superbowl, then just wait until the hot spring sales season in 2007. And if that turns out weaker than expected, then just wait until the red-hot summer sales season…

1. Over the next decade, there will be a 25% increase in the population who are over 50
years of age. They have more money than any preceding generation, due to having duel
incomes, equity growth, and record inheritances! This age group is spending $1.7 trillion
dollars annually!

2. This helps to explain why, last year, 27.7% of all sales (2.3 million) were for investment purchases while 12.2% of all sales (1.0 million) were for 2nd homes!

_________________________________________________________

I hope these Boomers take Mt Watts advice. They could use a financial haircut. Too much money out there chasing too few things. Need to get rid of some of it.

This was hilarious! There are some problems with some of his ‘modest proposals’: The NIMBY effect will occur with taking down for sale signs. Also, once a house sits for 10 weeks, the owner will demand a sign in the yard to draw attention or else fire the realtor. Realtors will expect other realtors to do it, but not them. Also, the immense load of open house signs will also give the Average Joe a hint that there’s a ton of homes for sale in the neighborhood. As for “Price Reduced”, those signs are ignored anyway. If a $900K house is reduced to $890K, does it really matter. If it is priced right, it will sell.

Keep this training sheet. I just picture Watts rearranging deck chairs on the Titanic with this crapola.

I think a lot of posters here have been short TOL for some time. It’s down quite a lot, and may well go down more, but look for possible consolidations to begin shortly. This could really rock your world if you are short the wrong stocks.

Angelo Mozilo, head of CFC, has been paying himself ‘Cote-type’ money.

Cashing about $1.8M in stock every five days or so, for two years straight.

Then in May, ‘06 - boom - dead stop, and hasn’t sold a share since.

Fannie Mae is Countrywide’s bitch. CFC keeps the good loans, and sells the crappy ones to Fannie Mae.

I smell smoke.

I think Fannie Mae is going down the drain, looking for the big taxpayer bailout, and Angelo is hoping nobody puts it together, that he’s the one who caused Fannie’s demise by sending them his junk paper.

Than again, I might be paranoid.

But something is happening at CFC. For Mozilo to be getting paid about $10M a month and then stop cold turkey…………

“I am getting 5% interest on my savings at the bank with 0 risk, the banks are loaning that out for mortgages at 6.5% at hugh risk. So for 1.5% gross profit they are taking on a whole lot. Sound shaky to me.”

At least in Europe the situation is totally different. We get 2-2.75% interest on our savings accounts and IMHO there is a huge risk of bank failure when the RE bubble finally implodes; most of the banks here have a major exposure to RE. Unlike the situation in the US, in most EU countries savers are only protected up to a maximum of EUR 20.000 or something in that range. When this thing blows, it will have happened before the average citizen hears about it; banks will shut down and take all the money of the savers with them (like what happened in Argentina). The FB’s will be more lucky because they probably can stay in their unpaid homes, although they may have to change their lifestyle.

Now for the banks themselves, I think it also different than you think. They provide mortages here at something like 4.5% for a 30-year fixed. But their risk is often zero, because they pass this to pensions funds (= taxpayers), government institutions (= taxpayers) and investors; the bank just pockets the huge commission for the mortgage deal. And the money they are ‘lending’ is not even theirs, it just comes from the savers or out of thin air.

On the other side, all banks in my country have huge (probably over 50%) investments of their own in RE and businesses related to RE. By keeping interest rates low and generally declining (financed by artificially low rates on savings accounts) their RE portfolio keeps going up in value. You can see strange things happening like huge RE funds that hold office/business properties with a 50% decline in rental income within one year (rents have increased way too much), but at the same time a HUGE increase in value of their portfolio (values based on the official rents, even though a large % is empty). So officially, they are still making money on these investments. Sooner or later, the wheels must come off …

Presumably it is FDIC insured? If you are still worried spread around several banks including global banks like HSBC (which I bank with). You can open an online savings account with them.

Well that would suck. B of A fails. Probably not going to happen. But it wouldn’t hurt to have some other kinds of money.
http://www.panamericansilver.com/
This company offers silver coins and bars. I haven’t bought any yet but I do own their stock.
Again I don’t think BofA will fail.

Russ,

You are so far above most of our heads…and I mean that as the highest compliment. Thank you so much for your insight.

I think you would be able to answer this better than most (hope you see this post). Do you think we are experiencing “stealth” hyperinflation right now? IMHO, the only way we can “get out of debt” (default) and create more REAL jobs in the US would be to debase our currency. Obviously, there would be some very negative consequences…but what is worse, hyperinflation or deflation? Especially considering ALL the debt we have, public and private.

Although I’m not sophisticated enough with numbers, it just “feels” like we’re experiencing hyperinflation right now. I’m also curious about our “shrinking” deficit. Seems suspicious, no? Am I way off base here?

actually that’s very good news because it would suggest that the lenders are finally putting the brakes on the crazy lending; was about time …

I can assure you that in Europe (except Germany probably) it’s still totally different; every year you can refinance for 10-20% higher value than the year before. Has been like that for at least 15 years here (and lately, you can also get 110-120% mortages so it’s even better). Even if the mortgage mob dropped the valuations by 50% here today, most people would still be sitting on huge gains of something like 300-500%. Why work if you can get rich much faster and easier being a homeowner?

yes, that happened in the late nineties in the big Dutch cities and around 2000 in the outer areas. I haven’t heard of such feverish bidding activity for at least 5 years or so.

Has anyone heard whether the homebuilders might be exposed for backdating options? I have not heard any evidence to this effect, but given the culture of corruption that reigns supreme on Wall Street these days, I would not be in the least bit surprised if this were the case.

‘”There are two reasons why the signal for this [1990] recession may have been weaker than for earlier recessions. First, restrictive monetary policy probably induced the 1973-75, 1980 and 1981-82 recessions, but it played a much smaller role in the 1990-91 recession. Because the tightening of monetary policy also affects the yield curve, we would expect the signal to be more pronounced at such times. Second, the amount of variation in the yield curve spread has changed over time and was much less in the 1990s than in the early 1980s, making a strong signal for the 1990-91 recession difficult to obtain.”

Basically they are saying that future studies a few decades from now will probably have much higher probabilities of recession at lower spreads than did their study because things, like volatility, have changed.’

I can offer two more reasons. Alan Greenspan vocally favored a flat yield curve, and the empirical evidence suggests that his disciple Ben Bernanke does so as well. To whatever extent the Fed can influence the shape of the yield curve to look flatter than it on average historically increases the probability of recession at smaller spreads.

And that brings me to the fourth reason, which is that the inner circle Fed is clearly aware of the studies showing the link between yield curve spread and recession, which afterall were authored by their in-house researchers. To the extent that the Fed wants to avoid the apperance that the economy is headed into a recession, they have an incentive to manipulate the yield curve in a direction that reduces the perception that a recession is highly probable.

Flat yield curves forever!

Let’s see, you’re up at 3:30 in the blessed am thinking about pizza and posting on HBB. I’ll try to have lunch there today. I know this is important to you.

In one area, they showed the median mortgage as $1,600 vs $900 for rent payment.

??????? Hmm, median SFH about $600,000, condo $350,000. Folks must be putting an awful lot down.

long run will be ? 5-7 years in nominal $s- they ignore real dollar value- too confusing

probably the german fund is one of the many property funds that have been promising 20-25% yoy returns on US RE investments in their advertising…

Looks like they’re scrambling for cash. GS is taking on a lot of risk, IMHO.

Lots of things are suddenly falling: Home sales, home prices, homebuilder stock prices, etc. They all point to the same direction of a popping bubble.

“In this household drama, 55 miles northwest of Hollywood, the loose theme was Mom’s birthday but there was no script for the three-hour run. During a lull in visitor traffic, Mom plopped on the couch in the family room and complained that her feet were sore. Dad removed Mom’s flip-flop and, like any loving spouse, began massaging her bare foot.”

The accompanying photo shows make-believe-wife’s knees fetchingly spread as she receives her foot massage. Where do I sign up to buy one of these $700K homes, complete with Desperate Housewives cast?

Is it just me, or would other people be creeped out by this actor staging? Personally, I like to have the model homes all to ourselves so we can discuss all the features, likes and dislikes in private, without some “actor” interrupting our train of thought.

Bankrupt homeowners who drained the equity cushion out of their homes will have to thank Harney for this advice to ignore risk in their decisions…

‘Although he offers 50-year loans, John Marcell, president of the California Association of Mortgage Brokers, says he tries to steer clients toward other products. Fifty-year loans make sense only as short-term vehicles, he added.

“Basically, this is the program of last resort,” he said. Borrowers should remember that “there will be a day of reckoning and maybe a bad day of reckoning.”’

Huh??? Fifty-year loans make sense only as short-term vehicles?

THAT DOES NOT COMPUTE.
THAT DOES NOT COMPUTE.
THAT DOES NOT COMPUTE.

Bad day of reckoning? Yes, I think he hit the nail on the head with that line. In fact, although we have recently warned by other posters here about the folly of making comparisons between the US market today and the Japanese market in 1990, just before the onset of 16 years of deflating prices, I feel compelled to mention that these super-long-term loans were one of the warning signs that appeared in their market just before the crash.

And the notion that these loans are somehow less risky than interest only is pure, unadulterated hogwash. There is little difference between paying off a loan over fifty years (which somehow does not sound like the short term) and paying it off over an infinite time horizon (which is what you are doing when you pay interest only or less). They serve the same purpose as interest only loans, which is to help lenders keep the party going at the expense of their customers, who are tricked by superficially low monthly payments into buying unaffordably-priced homes at the market peak that will never be paid off. It is too bad that we cannot get the comments from Japanese buyers around 1990 who took the bait, because we could save a lot of households from taking a step towards bankruptcy by doing so…

Poker players as a group are less risk averse and more prone to lose money than the average fool…

I was trying to think of the last time that I experienced the “group laugh”, at my expense, whenever housing was discussed and it has been a long time, at least 9 months or so. My bet, is that not everyone was laughing along with him.

I agree with Jan. I haven’t experienced a bit of derision, for several months now, when I spout off my housing bear views. Used to be I was politely dismissed, usually by a change of subject, but now people just look at me, as if they are sizing me up, and either ask for more detail or at least give that “maybe you’re right” shrug. It’s definintely turning and I’m surprised that there are fools like SD Renter’s poker buddy still in the game. He probably contributes a lot more to that game each week than he takes away. If not, his streak is over.