What I don't get is why aren't housing prices falling even further? In my recent memory (I moved to US in 2000) house prices rose by 200-400% and they haven't fallen nearly as much lately.
A decent houses/condos in all interesting US metro areas are still in $400K+ range, which is absolutely insane, considering median family incomes.
Even most financial planning books/sites will tell you that it's "normal" to spend about 30% of your after-tax income on housing. WTF? Since when it's been "normal"?
Anchoring. It takes time for people's expectations to adjust to a new reality. Folks are still saying "Well, if I can't sell for $400K [or $1M in my neck of the woods], I'll just take my house off the market and wait for the market to turn around." This'll continue until they realize that they're paying more in taxes and mortgage payments than their house is likely to appreciate in the forseeable future.
A good leading indicator for home prices is home inventories, which are still at record levels (though they've seem to have stabilized for now). The inventory report is a measure of how many homes are nominally on the market but aren't selling because the price is too high - the price has to adjust downwards until inventories reach normal, frictional levels.
The prices are actually only falling in areas where it's possible to build more houses. In those areas, the price of housing must eventually fall to the marginal cost of production. In areas where zoning laws and density make new construction very difficult ( Boston, San Francisco, Seattle, New York) housing prices remain very high. Houses have essentially become collectibles ( like paintings or baseball cards). Because you can't create more of them, the price holds up against an inflating dollar.
Even most financial planning books/sites will tell you that it's "normal" to spend about 30% of your after-tax income on housing. WTF? Since when it's been "normal"?
30% of after-tax income doesn't sound unreasonable to me. Given that:
(a) in most areas there's more people than blocks of land in nice places, and
(b) living in a nice place makes a very significant difference to your quality of life
it makes sense that people are going to be willing to pay a significant fraction of their income in order to live in a nice place.
The only problem is the places where you can no longer buy a house on ~30% of the average local income. That's not sustainable.
At least to me, it seems this entire recession (or whatever you want to call it) is an entirely natural occurrence. When the average debt for a household becomes 120% of income, something is drastically wrong. From indiscriminate lending to sub-prime mortgages, it all makes me wonder, "Well, what did you think was going to happen?"
What this and other articles on the subject don't seem to explain very well, is why this has happened.
A 1973 article from Time concluded :
"Today, outside the mortgage field, U.S. usury laws are full of holes; business loans, car loans and charge accounts are almost always exempted. As borrowers have been discovering since the federal Truth in Lending law took effect in 1969, they pay as much as 20% on loans from finance companies and even 36% annual interest on mail-order loans. So long as such rates are permitted, usury laws are useless and should be scrapped."
http://www.time.com/time/magazine/article/0,9171,907860,00.h...
So guess what? People in government listened (or listened to the financial industries lobbyists...), and they did scrap the few remaining usury laws that were still effective.
25 years later we are seeing, in graphic detail, why all those usury laws weren't so useless after all.
[+] [-] tx|17 years ago|reply
A decent houses/condos in all interesting US metro areas are still in $400K+ range, which is absolutely insane, considering median family incomes.
Even most financial planning books/sites will tell you that it's "normal" to spend about 30% of your after-tax income on housing. WTF? Since when it's been "normal"?
[+] [-] nostrademons|17 years ago|reply
A good leading indicator for home prices is home inventories, which are still at record levels (though they've seem to have stabilized for now). The inventory report is a measure of how many homes are nominally on the market but aren't selling because the price is too high - the price has to adjust downwards until inventories reach normal, frictional levels.
[+] [-] bokonist|17 years ago|reply
[+] [-] hugh|17 years ago|reply
30% of after-tax income doesn't sound unreasonable to me. Given that:
(a) in most areas there's more people than blocks of land in nice places, and
(b) living in a nice place makes a very significant difference to your quality of life
it makes sense that people are going to be willing to pay a significant fraction of their income in order to live in a nice place.
The only problem is the places where you can no longer buy a house on ~30% of the average local income. That's not sustainable.
[+] [-] tdavis|17 years ago|reply
[+] [-] fharper1961|17 years ago|reply
A 1973 article from Time concluded :
"Today, outside the mortgage field, U.S. usury laws are full of holes; business loans, car loans and charge accounts are almost always exempted. As borrowers have been discovering since the federal Truth in Lending law took effect in 1969, they pay as much as 20% on loans from finance companies and even 36% annual interest on mail-order loans. So long as such rates are permitted, usury laws are useless and should be scrapped." http://www.time.com/time/magazine/article/0,9171,907860,00.h...
So guess what? People in government listened (or listened to the financial industries lobbyists...), and they did scrap the few remaining usury laws that were still effective.
25 years later we are seeing, in graphic detail, why all those usury laws weren't so useless after all.
[+] [-] unknown|17 years ago|reply
[deleted]
[+] [-] ars|17 years ago|reply
[+] [-] troystribling|17 years ago|reply