And that is why my home, currently on the market with an asking price less than the value it’s being taxed at, isn’t selling.

If only I’d managed to get it on the market two weeks or more earlier.

Don’t forget the 1999 Fannie Mae was dreamchild of President Clinton. We set up our banks to fail. What have we done!

Your logic is may be okay, but your beginning assumptions are way off.

Just because your father was able to afford a $75k house on a $75k/year salary doesn’t mean that a person can only afford a house that is equal to their yearly salary.

Test your assumption.
If someone who makes $300k/year decides that they can only afford a $10k car, that they would have to make $600k/year to feel like they can afford a $20k car?  No.

Looking only at yearly salary does not account for changes in taxation rates, or standard of living variations, homeloan interest rates, mortgage lenght, or other circumstances.  Someone who has 8 kids needs a bigger house, but probably has less disposeable income and/or a lower standard of living than a DINK couple...so using purly yearly salary info doesn’t make sense.

Generally, experts say that people should spend about 25% of their post-tax income on their home.  Some people choose to spend more, or less, for various reasons known only to themselves.

And looking at merely inflation as reasons for price increases is an oversimplificaiton, too.  Heck, the increase in house price could be due simply to the growth of convenience (proximity to shopping and/or major employment opportunities) near your neighborhood, not merely inflation growth of housing.

I saw someone that said that a quite possibly real reason for the housing bubble were the programs on TLC and HGTV about flipping homes for insane profit (My House is Worth What? and Flip This House, etc).  It makes more sense to me to ascribe this problem to ignorance rather than malice.

Places like San Angelo, TX, continue to have house prices rise by about 2-3%/year, even after the housing bubble burst.  In Hawaii, the prices have stabilized at about 8% off the peak.  So nationwide, I think 15-18% is probably closer to the correct amount of over-valuation than 60%.

The problem for people like Wheels is that that is an average, and it may be a year or longer before the market stabilizes at the new, 18% lower price.

Nathan, in a blog post, I couldn’t have time to address every market specific - I am sure dissertations have been done on the topic.

My rule as a generalized concept, that housing prices grew at a far greater rate than 1.) The rate of inflation, 2.) the rate of growth in salaries, and 3.) higher than an “un-meddled-with” market would have beared remains accurate.

Very obviously there’s not a perfectly linear relationship in every area of the country and between every salary point and every home price. You are missing the overall point to seek out the exception, not the rule.

...maybe.

But it’s daft to imply you need a $350k/year salary to afford a $350k house.  Or even just need to obtain a $350k/year salary in 2009 to equal a 1983 salary of $75k/year.

That makes it all seem like a rant, with more value in emotion than fact.

Or maybe I’m just disappointed there is a complaint without a suggested solution, and I’m just stunned that someone with the implication of libertarian in their chosen screen name would complain about the market (eventually) working just like it is supposed to.

I guess I’m

All of this means the home values were artificially driven straight up to the moon by some market force, which had a far-reaching and gravely under-estimated effect on home values.

The housing bubble started when people started buying houses in order to “make money” instead of “to live in”.

See, this is why I like it when other people post here: the conversations are always interesting.

Actually, my house is in one of the only Denver neighborhoods where house prices continued to rise last year. The problem is that, while there’s traffic, there’s no action.

My house went on the market last September at $15k less than Zillow said it was worth (and about $5k less than the comparables then on the market). I actually had one offer the first week, but it was withdrawn a week later. I’ve dropped the price $15k since then. The home is at a fair price, compared to others in the area, it just seems that everyone wants an exceptional deal.

TW: husband32. Has Zsa-zsa been active all this time?

This wouldn’t be nearly the problem is is if there weren’t hundreds of trillions of redundant credit default swaps held by counterparties with no interest in the underlying credit.  Bad enough that bottom tranches of mortgage-backed securities were scooped up, restacked, and re-rated as new offerings, but then when those offerings defaulted, which was practically a given considering the garbage they were constructed of, CDS counterparties (many of them hedge funds) reaped record rewards for their speculation.  This is what brought AIG down, for example, and it magnified the risky mortgage problem many times over. 
But you’re right, now that the easy finance game isn’t so easy, of course we’ll see fewer buyers, buyers with less purchasing power, and housing declining in value to meet the buyers’ reduced purchasing ability.

Bob, you’ve adroitly touched on a key point here that I didn’t have the space to expand upon in a shortish blog posting - an extension of the unanticipated consequences of government-induced (not-market-created) finance forces. If you force companies to loan money based not on the typical market drivers (read: CRA), but instead out of “outcome-based desires” (i.e. Socialistic needs to bring unqualified borrowers into the market) you will eventually create a market for several unwise activities.

What kind of activities? Behaviors like what were exhibited by the banks in the sale of the CDS, which motivated lenders to offer more high-risk loans to unqualified parties (further falsely pumping up the mortgage industry), which caused ever more home-buyers to enter the market, snapping up ever-more-expensive homes that frankly, barring government intervention, would have been markedly cheaper. Behaviors like mortgage companies coming up with ridiculous ARM or “no-income, no job” loans, loans to illegal aliens, et al, with the ultimate goal of “hey, we’re going to sell this package of crummy loans off to other banks and misrepresent their risk profiles anyway, who cares if they can pay? We’ll be sitting on OUR chair when the music stops. Get that hot potato away from me!”

The whole point of my post (the part that Nathan seemed not to understand, no matter how it was explained to him) was that salaries had risen SLOWER than inflation (about 2% annually v. about 4% annually), and MANY TIMES slower than home prices. I attribute Artificial Housing Inflation to the CRA. Banks would have never gone down this path in the ‘70s and ‘80s if Jimmah Carter hadn’t forced them to. Once they created an industry around this misfit idea, they naturally applied their creative commercial talents and discovered a way to make money conforming to the regulation - by passing the risk onto others.

See what happens when Big Government mandates outcomes based on foolish premises?

Let’s not sling insults.

Disagreement and/or fact-checking bad match does not equal “not understanding”.  Don’t you think you want to acknowledge that you don’t need a $350k/year salary to afford a $350k house?

I’m not happy with the govt’s part in this.  It was wrong to use tax money to push politically correct social (and socialism) engineering ideas. 

This sort of market volatility will happen even if the govt is not involved, however, and in some cases, if the govt does not work to prevent collusion, monopolies, price fixing, etc, could conceivably be much worse.

The problem is ethics, not necessarily govt.

Although I will agree, smaller govt is better, the problem is the people.  Govt enables one sort of selfish, reprehensible, contra-ethical behavior...but business merely enables another sort.  I generally prefer free markets, but govt has its place, and I don’t think the housing bubble and its implosion is purely a govt problem, or could never happen w/o Frank, Dodd, Fannie and Freddie.

Nathan, I’d say I’m not “daft” when I describe my father’s standard of living, which would never have allowed a house payment of a $350/k house until he made more money. When he moved to Atlanta in 1989 and took a job making $175k year in a company and position that was better than he had in Florida, he bought a house that was $250k.

You cant’ get past it - the more you spend, the more you have to make in order to spend it. It’s really not that complicated a question. If someone’s used to having a house payment that’s 10 - 15% of their monthly salary, and the price of a home they buy causes that figure to go to 40%… Then your standard of living may go down. Maybe you’re an adherent of the recent unfortunate trend of “affording” over-priced homes through irresponsible borrowing and lending? What do you do for food with the few spare scraps of income you have left, or is your $500,000 dream home financed over 50 years?

My recollection of America was from a time before a home consumed gigantic swaths of your income - and before said home was used as an ATM machine from which you could pull equity at will. Well, the Equity Font is empty - thus, the crisis.

Government does indeed exist to protect us from threats. It also serves to mitigate and address public and buisiness disputes. It should not be as intrusive as it now is, and when it intrudes, it introduces disruptive complexities into the marketplace that aren’t predictable, and which frequently cause great harm to the economy and the welfare of the citizenry.

This is an odd argument to watch from two people that I both like and respect. I’m not sure that I see where the big point of disagreement might be (read that as a question).

I doubt we’re in much disagreement. Nathan has assumed that I extend and extrapolate a 1:1 relationship between home prices and salaries for everybody in every city, which is not what I wrote, and certainly not what I meant.

My father’s salary v. home price escalation was given as an example propose the notion that housing prices nationwide have escalated far in excess of what an untrammeled market would have produced.

I think he was onto something in his first response about the effect HGTV has had on real estate values. I know my wife watched that channel with an obsession that bordered on “clinical.” Doubtlessly, millions of Americans were similarly affected, some probably to sell their homes. With that show helping sellers craft their presentation, this may have given a boost to home values.

It’s probably my fault.

Most likely a combination of:
1) having a bad day and letting it show in my commenting style/mood
2) Reacting to Libercontrarian as if he were all the libertarians I’ve tangled with before (and so assuming his point was: This is all the Govts fault and would never have happened without govt interference!!!)
3) Being forced to assume that because otherwise, I don’t see the point.

I mean, iPod prices aren’t indexed to salary rates, why should house prices?  The govt increased demand by pushing iffy loan approvals, yes.  But everything else, including cycles of over- and under-pricing, are all part of the market system. So if the point of the rant is NOT that the govt is bad because it caused this and this would never have happened without govt intervention (which is fairly demonstrably false), then is the point that “people are stupid and buy/sell in packs and trends, making and bursting bubbles with regularity” ?  Well, sure.  Quelle surprise.  Life sucks when you miss the signs of a bubble or a burst.  If that’s not the point, then what is?

I purchased a $220k house on a $50k/year salary.  Now my salary is higher, and I’m going to have the house (which I was lucky --not smart, *lucky*!!-- enough to buy right before the housing bubble started) paid off less than 5 years after I bought it.  It’s now worth $280k (dropping down from a high of $305k-ish).  Along the way I also bought an $80k house that I’m living in now.  I expect I’ll have it paid off within 5 years of purchase, as well.  And I got 4.85% interest on a 30-year loan, 5-year fixed and ARM after that.

Now, I got lucky.  But I also prepared.  I also sacrifice.  I also did my homework, and understand the real estate market fairly well nationwide.  So I made some good choices at the right time.

I missed out on the 20%/year mutual fund profits of the mid-80s.  I missed out on the dot-com bubble.  I missed out on getting in on precious metals probably a year ago.  But that’s life.  It sucks that housing is subject to price irregularities on the basis of speculation, but it certainly beats the alternative.

So is the point to complain that he can’t sell a house because prices are depressed?  To crow about being able to buy a house at lower prices now than a year ago?  To complain about market functions driving price “artificially” through the roof 2-4 years ago?  To blame the govt for all the problems in the world?

All four?

I disagree that houses are 60% overvalued.  That doesn’t mean I don’t understand the argument.
I disagree this is all because of govt meddling.  That doesn’t mean I don’t understand the argument.
I disagree that the housing problem is unprecedented in history. That doesn’t mean I don’t understand the argument.
I disagree that the economists will be scratching their head trying to understand how this low point happened.  That doesn’t mean I don’t understand the argument.

It just sounds like a variation of the argument that the new reality was Gasoline is now $4/gallon, and it’s never going to go back to sub $2 again.  Look how long that lasted.

I trust there are market mechanisms that will result in people finding ways to make large sums of money even in this economic climate.  Other people, not so economically savvy, will probably lose money.  The govt will probably get involved.  It will help some people, and hurt others.  If they did nothing, it would help a different set of people, and hurt a different set.

That’s how things work.

We aren’t even in a depression, and probably won’t actually get there, in fact.
And most people won’t even notice the recovery until long after it’s already there. 

That’s how things work, too.

[shrug]

I guess I can wait a year and see how this all turns out before insisting any further on my viewpoint, though.

While I decry the Dodd/Frank/Fannie/Freddie part of the current housing problems, I do consider that pretty much par for the course, and not an aberration as much as an accelerant.

What I’m most upset about is nicely encapsulated by the commenters here.

If the govt has to get involved, it really should be trying to figure out how to reward the people who made the safe, right, responsible choices, rather than using us as a cash cow, or goose that lays the golden egg.  I’m a little tired of it.

I purchased a $220k house on a $50k/year salary.  Now my salary is higher, and I’m going to have the house (which I was lucky --not smart, *lucky*!!-- enough to buy right before the housing bubble started) paid off less than 5 years after I bought it.  It’s now worth $280k (dropping down from a high of $305k-ish).  Along the way I also bought an $80k house that I’m living in now.  I expect I’ll have it paid off within 5 years of purchase, as well.

And when more people are buying up houses as investment vehicles instead of places to live, it drives the price of houses up.

To pay off an 80k house in 5 years you would have to be putting in over 1400$ a month in paying it off. For the 220k house you’re making a monthly payment of 3700$ if you’re paying it off in 5 years.

Just in housing payments alone, you’re paying 61,200. Which means you have to be making at least 100k a year to afford that after taxes.

And I haven’t even touched property taxes, heat, FOOD. Any kind of living.

There was a taxpayer protest in Denver yesterday. Were you there? Probably not. When you’re paying off your overpriced house you don’t really have time to get involved in much of anything else.

I wasn’t at the taxpayer protest in Denver because I live in Texas right now.

You’re right that I didn’t include all the details.
For the 220k house, I’m renting it out, which helps.  I didn’t include that in my income, but it probably is there.  I didn’t start with a $220k loan, which makes a difference

For the $80k house, I didn’t start with an $80k loan, either.  I paid more than 20% down to begin with.

I drive a used car that cost me $1k.  I do get some “bonuses” at times that I apply toward the mortgage as extra principle.  I will get a break on my taxes for serving in a combat zone for a full year (starting in a few months), which I anticipate will help me pay it down.  And I’m using a 1st position HELOC (with a current interest of 4%), which helps pay down the loan much more quickly than a traditional mortgage.

Right now, everything, every extra cent I earn that doesn’t go toward utilities (and I don’t eat out, and we spend about $130/month on groceries) goes to pay down the larger loan. I buy/sell guitars and earn about $30/guitar, which I didn’t include in my income numbers. 

When you add it all up, yeah, I’m making the equivalent of about $110k in salary.

And I should admit: I fudged the numbers a little bit because I didn’t think the details mattered, but when I say I’ll have it paid off within 5 years, it’s actually more like 5 years and 5 months by my current calculations; if we have extra expenses, it could end up being 5 years and 9 or even 10 months.  It would have been more accurate to say “Within 6 years” or, even, as I actually meant, “within the 5th calendar year”. 

My apologies.

Once the big loan is paid off, paying off the little loan within the 3 remaining years before the ARM accelerates will be easy.  I’ll be able to pay about $5k/month.  Short-term sacrifice for long-term gain.

The point is, I didn’t buy these houses to sell them.  I bought them to acquire and maintain:
1) my home for retirement in about a decade or so
2) rental income to supplement retirement income.

Thus, I had no incentive to try and buy no-money-down, or to get ARMs that would force a refinance.  I had no incentive to buy a house on anticipated price increases.  I was looking 100% at location and rent potential.

I hope that helps clear things up.

Interesting that those who would qualify for conventional mortgages were told they weren’t,in order to lead them in to the no interest and other exotic mortgages; they believe what they were told, because for the most part, past practices to keep them away from home ownership had been true.

I think many more people were just greedy,they would have been able to purchase a home with out any incentive from Freddie Mac or Fannie Mae.

In some area Gentrification led to the rise in housing prices. A way to discourage those whom you don’t want as neighbors and squeeze out the older residents who can’t afford the taxes on the increased value of their property.(This may happen to me.)

Seeing the house you live in as an investment and not as a home.

The rise in interest rates on mortgages in the 70’s and 80’s. If you sell a house and get the money back that you actually paid, it is quite a difference between having an interest of 4, 8, or 10 percent.