Posted on 12/28/2007 12:09:11 PM PST by shrinkermd
In 2002, the median price of a single-family home in Los Angeles was $270,000 and the median homeowner's income was $65,000. With a $50,000 down payment, the annual cost of that house (taxes, insurance and payment on a 30-year fixed-rate conventional mortgage) would add up to about 33% of the median household's income -- just under the 35% mark that the Federal Housing Administration calls the upper limit of "affordable."
By 2006, the cost of that same house doubled, to $540,000 -- pushed by unbridled speculation fueled by unparalleled access to mortgage capital. But median income rose a paltry 15%. So today that same set of costs come to 60% of gross income.
That might be a manageable burden when home prices are rising at double-digit rates, creating new equity that can be accessed to support spending -- but not when prices are flat and the home-equity ATM is closed.
There are "experts" out there who once preached that there was no bubble; they now preach that all real estate is local and that prices in your neighborhood won't be affected by foreclosures and price declines elsewhere.
The cold, hard truth is that foreclosures are serving only to hasten the painful process of shifting housing prices back to a level the market can sustain. Prices must and will fall. Everywhere. Probably 25% to 30% from their peak.
(Excerpt) Read more at latimes.com ...
$20,000 in gold in 1913 would be worth about $500,000 now so where does that leave your numbers?
Your analysis is correct. And quite obviously so.
Google “foreign buyers” “real estate” and “New York City” and see what you get!
P.S. How much new residential construction has occurred in Manhattan in the last, say, five years?
not a joke, but not a proposal either. just a thought experiment on supply and demand
Thanks! In almost 9 years on this forum, you are the first to agree with anything I said. :-)
“Money doesnt disappear.”
It’s most certainly disappearing and lots of it.
Some putz pays $500k for a McMansion in the DC suburbs. His 500k goes to the builder/seller, but he has a $500k asset, and things being what they were the past few years, he probably also has a full $500k note.
Score:
Seller: $500k
Putz’s House: $500k
Putz’s Mortgage: -$500k
Total: $500k
Fast foward a few years. Putz’s subdivision had lots of speculators, and he had a few subprime neighbors.
Speculators couldn’t sell,and didn’t want to pay so they walked. Several houses in foreclosure this way.
Putz’s neighbor A got a new job on the west coast. He puts his house up for sale, but nobody bites. After a few months of eating it, he rents it out to an illegal immigrant clan. They park 10 cars on the street and have loud parties, but Neighbor A gets the cashflow to stay solvent.
Putz’s neighbor B also got a job transfer.....they tried to work the two household deal while the house was on the market, but it looked like a long haul and couldn’t do it.
Nobody wants to live next to the 10-car pileup, anyway.
Neighbor B walks, the bank gets the house back but not before the tenants in Neighbor A’s house strip it of all copper pipes and wiring.
Ok so now Putz’s wife says I’m moving to Florida with or without you.
Putz can sell his house for $500k, or anywhere close. He calls his bank and negotiates a short-sale - at a 30% discount.
Here’s the score now:
Original Seller: $500k
Putz’ House: $350k
Putz’ Mortgage: -$500k
Total: $350k
The $150k delta just up-and-disappeared. Yeah, Putz will have to pay the IRS some fraction of the $150k because of his “gain”, but that’s a pitance.
This scenario is repeating itself all over the place. Money IS disappearing.
Who knows whether we’ll face inflation, deflation, or periods of both....but something has to give.
You tell me....where’d the money go?
Not just smart, but sane! It would be insane to keep your house on the market with the dollar where it is and the market where it is.
But there aren't many sane folks out there...
As conservatives we should know that when government sets artificial limits on supply and demand bad things tend to happen. By way of example, a law limiting everyone to only one house provides a powerful disincentive to those members of society who work hard in hopes of one day owning a mountain or beach home.
Our local paper reported yesterday that housing prices have continued to rise in the Charlotte area unabated.
Yeah, the original seller got it and he made a bundle because the inflated house value
What if they allowed a primary residence and a summer home only?
The bottom line is demand for housing and the value of the dollar. If our population continues to grow, which it certainly looks like it will, there will be an ever increasing demand for housing. Since dollars are worth less it will take more of them to buy what one could when the dollar was worth more. Two trends that are unlikely to change anytime soon.
I remember about 30-35 years ago being told that the then-current interest rates (10%) were the lowest I would ever see in my life, and I would be a fool to pass them up.
I know. It was over in the '70's, 80's and 90's and now it's over again.
It will be over a few more times I suspect.
Who's "they"? A few central planners in DC?
Are you really asserting that a few elected officials and/or unelected bureaucrats can run the real estate market better than the collective choices of tens of millions of individuals?
No, no, no. I used that as a way to illustrate a point earlier about supply and demand.
I was in no way suggesting that the government actually do anything like it. I believe in the free market.
Saw the same thing in N California. Bought at the end of a slump in the mid eighties for $200k. Turned down offers near $500k in the late eighties. Dumped house on market in 93 for $340, house is now at $1m.
Anyone who has been around for the last 50 years or so recognizes this pattern. At some point in the next 5 or 10 years, armageddon aside, prices will be significantly above previous “peaks”.
If prices do not fall, or lower prices do not sufficiently bring back buyers to the market, the only other thing that can happen is (1) new housing starts completely stop (except for paid-for custom homes)+(2)only people who MUST sell their homes put their homes on the market (IOW, no “just want to move” sellers to increase inventory).
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