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Discussion: (11 comments)

  1. PeakTrader

    Aren’t Americans lucky the government is protecting them from buying a new house for $1,500 a month. So, they can move into a new apartment for $2,000 a month.

    1. But some of the protections in the new rules make sense, such as being sure folks make enough money to afford the loan (that is not happening now, but during the boom things were not checked as everyone lost their mind and would loan money if a person was just breathing). The new rules require that the income claimed be verified ( no more liar loans but again people were insane during the boom). As someone noted the rules today will be a non issue with todays underwriting rules, but are designed to prevent going back to the boom crazyness. Actually if you think about it without the government involvement who in their right mind would loan someone money to buy a house for 30 years at a fixed rate? at least not without severe prepayment penalties, if at all. All you would have is some form of ARM.

  2. that chart looks familiar…

    http://research.stlouisfed.org/fred2/series/MORTG

    & you can thank bernanke & co for that…

  3. Vic Volpe

    I’ve owned homes in the Los Angeles area since the 1970’s and I find these charts hard to believe. I think folks (especially first time buyers) would have had a more difficult time trying to buy a home in 2005 than in the late 1970’s. That was one reason we saw a lot of unconventional mortgage products during the housing boom/bubble of the early 2000’s — few people could put up the 20% down to get conventional financing. And that’s another assumption you make in the first chart which I don’t think was the norm.

    1. I would agree there, in that in 1978 a lot of builders in Houston did 5% down mortages with private mortgage insurance. (Of course they build houses in Houston, in Ca it has become almost impossible to build due to both government and natural restrictions, for example the San Gabriel Mountains are not good home sites as the house would wash down hill some winter)

    2. lol, I can see why realtors created this “affordability” index. I mean, look at how affordable houses where in 2005! A bargain versus 15 years before that!

  4. Max Planck

    One of the aspects of the new mortgage rules that were just passed is the elimination of the No Doc loan. However, be aware these loans DID serve a purpose: they facilitated the purchase of homes by tax cheats who were in cash businesses.

    The underwriting went like this: you had to put down at least 20% (usually 25%) for a “stated” income loan. No documentation- tax returns, W-2’s or anything were required.

    However, if your credit report showed excellent results, and easily handled credit (like a $700 a month Land Rover lease with no late payments) you got the loan.

    Many lenders specialized in this sort of loan without high defaults. It will be interesting to see how the new rules affect the mortgage landscape.

  5. Benjamin Cole

    The chart is good news, although median family incomes may have been boosted by the norm of two-earner families.

    I can remember a Life magazine cover in the 1960s about the pending “four-day workweek” and that assumed Mom stayed at home and cooked on appliances that looked like they belonged in a flying saucer.

  6. My home cost $180,000 and my (15 year) mortgage payment is around $1,000 per month. Problem is that my monthly property taxes are almost the same amount.

    How would this picture change if the real total costs of homeownership were calculated?

    1. morganovich

      wintercow-

      how is that possible? where on earth do you live?

      if your property taxes are $10k a year (less that $1000/mo) on a $180k house, that’s around 5.5%.

      i have never even heard of property taxes that high.

      you do raise an interesting point though.

      i wonder if including property taxes and homeowners insurance would make this chart look different.

      adding in maintenance costs (though i’m not sure how to calculate/normalize that) might have some impact as well.

      however, i think this whole analysis leaves out an even more pivotal issue: down payments.

      home affordability comes in 2 parts:

      first, you must come up with a down payment. if you cannot, then low monthly costs driven by low interest rates are irrelevant.

      there has not been a time since the 30’s where negative equity in the US was so bad as it has been recently.

      negative equity is a cost. if you are underwater, you may not be able to afford to move. you probably cannot refi either.

      it would be interesting to graph the average down payment against the net wealth of US households.

      i suspect that that chart would show a different trend and might demonstrate that, despite payments being so affordable, the down payments are not.

      median household net wealth is lower than it was in the 80’s.

      in 1989, it was $79,600. it has dropped to 77,300 from about 127k in 2007.

      in 1989 a median home was $120k. today it is $246k.

      so, in 1989, a 20% downpayment was 30% of savings.

      today it is 64%. that is MUCH less affordable.

      the price of a home in 1970 was $23,400. household net wealth was around $55k. thus, a 20% downpayment was around 9% of savings.

      this would make it seem like down payment affordability is near lows, not highs.

      this is like a very high cover charge at a club. if you can afford it and get the cheap drinks inside, great, but if you cannot, the awesome drink specials are irrelevant for you.

      i suspect that it is down payments, not monthly payments that are holding the housing market back.

      with the FHA now sliding into insolvency, i suspect that this trend will worsen as they were the primary source of low down payment loans. absent their guarantees, 1st time buyers are not going to get 3% down mortgages.

  7. Let me give some other examples. To accurately compare two or more nominal dollar variables in a given year (or month or quarter), we don’t need to adjust for inflation, here are some examples:

    1. Government spending as a share of GDP from 1980-2012.

    2. Manufacturing output as a share of GDP from 1980 to 2012.

    3. Spending on food as a share of disposable personal income from 1929-2011.

    4. The income (or tax share) of the top 1/5/10/50% of U.S. taxpayers.

    For these comparison/ratios of one dollar-denominated variable to another in the SAME year (or quarter or month), there is no need to adjust the variables for inflation. If we want to track or compare GDP or personal income or house prices in 2012 to those same variables in 1950 or 1980 or 2000, THEN we would have to adjust for inflation!

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