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Can't Afford To Buy A House? Buy It Anyway Housing "Experts" Advise

Tyler Durden's picture




 

“In metros with high-income growth, unaffordable mortgage payments can become affordable within a few years,” writes Trulia Housing Economist Ralph McLaughlin in a blog post titled “For Millennials, Buying an Unaffordable Home Isn’t Always a Bad Idea”. 

Now first, buying an unaffordable home is always a bad idea, just like buying an unaffordable anything. 

Sure, it might one day become affordable, but saying it’s a good idea to buy something that you can’t afford because circumstances could eventually conspire to make you richer is like saying it’s a good idea to quit your day job and become a traveling magician because there’s a chance people will love your act. After all, on this logic, one could buy a Ferrari because there's a chance you could win the lottery next week (well, unless you're playing in Illinois where they'll pay you in IOUs).

In other words, you can justify anything you want by saying it might turn out ok, but the flaw in that logic seems to have escaped McLaughlin (who has a Ph.D. in Planning, Policy, and Design from the University of California at Irvine) because as you’ll read below, he thinks millennials should consider buying houses where mortgage costs are too high as a percentage of their income on the assumption that based on local trends, their incomes will eventually rise. Here’s more:

In many housing markets where most workers see strong wage and income growth – New Haven, Conn., Providence, R.I., and Newark, N.J., among them – mortgage payments actually shrink as part of the monthly budget and can become affordable within just a few years and, in some places, in just a few months. 

 

We’ve crunched the numbers to identify where, and when, buying an unaffordable home might not be such a terrible idea. To do this, we’ve identified metros: 

  • Where the median home is feasibly unaffordable to millennial households (25-34 year olds), that is, where initial mortgage payments exceed 31% the federal government’s definition of unaffordable 
  • And those payments don’t exceed 43% of income, the limit a vast majority of lenders place on new mortgages 
  • And finally, we projected lifecycle income growth of millennial households to calculate the number of years it would take for mortgage payments to drop below 31% of a household’s income. 

It gets still better. Here's a look an infographic which shows you how many it would take in select areas of the country for your mortgage payment to become "affordable":

And here's a chart from Bloomberg which shows New Haven and Providence (mentioned above by McLaughlin as places millennials may want to consider if they want to buy above their means):

So just to be clear, Trulia is saying that it would be a good idea for millennials to buy a house they can't afford in New Haven and Providence because in 3 years it will be "affordable." Here's how Trulia came up with these figures:

Second, we’ve estimated projected 30-year income growth of millennial households. To do so, we looked at the percentage difference in median household income between households aged 25-34 and households aged 55-64 in each metro using 2014 American Community Survey Data. We annualized this percentage over 30 years to get an idea of how much income growth a 25-34 year old can expect over their career, and then, assuming an inflation rate of 2%, use it project future monthly income for the median 25-34 year old household. 

That's it? You just took a look at what older people make versus younger people and annualized it? What happens if that changes? What happens if there's another deep recession? You're looking at a 30-year time frame here. Anything could happen to income trends in these areas over three decades. Not to mention the fact that while losing one's job is always a bad thing when it comes to making mortgage payments, it's made that much worse if you've bought a house you can't afford.

Trulia does go on to show that there are plently of places where buying a home is easily affordable now - like pristine Detroit - and based on the same income analysis, you'd have plenty of cushion the event circumstances change. We recommend millennials choose wisely when it comes to overreaching based on simplistic analysis lest you should end up not being able to make the payments, because then you might find yourself in the market for a rental and with current asking prices in that market going parabolic, you might soon find yourself back in your parents' basement.

 

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Thu, 11/12/2015 - 19:35 | 6784456 Jlasoon
Jlasoon's picture

I pity anyone who has to buy a house today. What a scam!

 

Fortunately for me, my parents binge bought houses on the cheap when we were young. Never had to buy one. 

Thu, 11/12/2015 - 19:37 | 6784467 nope-1004
nope-1004's picture

Define "afford".

Thu, 11/12/2015 - 19:50 | 6784511 glenlloyd
glenlloyd's picture

Talk about the worst possible advice you could give someone today, especially millenials.

TBH as much as Zillow and Trulia are RE shills they really shouldn't be telling people to do this stuff...it's kind of crossing the line IMO. I mean come on, the zillow zestimate was such a bad bad thing, it was never ever right and how could it have been? It's not like they came and looked at the house, they just tried to legitimize guessing based primarily on property tax amounts.

I expect this kind of crap from the NAR but these websites need to just stop.

 

Thu, 11/12/2015 - 20:15 | 6784586 i_call_you_my_base
i_call_you_my_base's picture

Their rent affordability calculator is hilarious too. They suggest you need to make $75K / yr to afford $3K / mo rent.

Thu, 11/12/2015 - 21:05 | 6784754 Stuck on Zero
Stuck on Zero's picture

If the house is 0% down, at 2.7% interest yielding a payment that is less than rent by all means buy it. 

Thu, 11/12/2015 - 21:31 | 6784820 Mr. Magoo
Mr. Magoo's picture

If the house is 0% down, at 2.7% interest yielding a payment that is less than rent by all means buy it.

 

Why not, you will never own it anyway. Just like paying rent to a bank instead of signing a rent or lease agreement will can fluctuate and if you lose your job you can stay in a foreclosed hose longer than you can stay in a rented one

Thu, 11/12/2015 - 21:45 | 6784865 hongdo
hongdo's picture

Best get a non-recourse mortgage.

Fri, 11/13/2015 - 02:14 | 6785456 The9thDoctor
The9thDoctor's picture

I remember hearing this same "advice" in 2006.

Sun, 11/15/2015 - 13:48 | 6796235 auntiesocial
auntiesocial's picture

PT Barnum says...

Thu, 11/12/2015 - 20:24 | 6784610 Kirk2NCC1701
Kirk2NCC1701's picture

Able to pay PITI, if everyone in household has >1 job.

Sun, 11/15/2015 - 13:45 | 6796248 auntiesocial
auntiesocial's picture

don't worry about property taxes, unforseen expenses and home improvement, even though you are really at 70/30 on your income, you will make it up somewhere else! like with the banker bonus you expect at the end of the year! that's the ticket! just sign right here... and here... and... 1 more... here.

Thu, 11/12/2015 - 19:55 | 6784526 WhackoWarner
WhackoWarner's picture

Trulia Housing Economist Ralph McLaughlin

appears to be applying for higher paid speaking engagements.  His logic and bafflegab is a resume submitted to the "elite" circle.  Guess he is applying for a job.  Which by his calculations should qualify him, due to his ability to confuse and lie, this should qualify him for a Hamptons mansion circa 2020 if his lies play out in future pats on the back crony employment.  Maybe Cramer intern?

Fri, 11/13/2015 - 01:53 | 6785423 Charming Anarchist
Charming Anarchist's picture

Real life trolling

Thu, 11/12/2015 - 19:39 | 6784473 Whoa Dammit
Whoa Dammit's picture

This sounds like the right before the next housing bust round up of the last suckers. 

Thu, 11/12/2015 - 19:47 | 6784506 r00t61
r00t61's picture

This editorial by Marketwatch seems to be written in the same vein as this "buy the house anyway" analysis.

http://www.marketwatch.com/story/why-100-of-your-investment-portfolio-should-be-in-stocks-2015-11-11

The title?  "Why 100% of your investment portfolio should be in stocks"

I guess more and more signs that the bubble is really in.  The final harbinger will be the shoeshine boy telling you what Silicon Valley IPOs you should be buying.

Thu, 11/12/2015 - 22:11 | 6784936 VegasBob
VegasBob's picture

Housing Economist Ralph McLaughlin needs to go back to sucking dicks in adult bookstores...

Thu, 11/12/2015 - 19:43 | 6784482 SheepDog-One
SheepDog-One's picture

Credit creation dependant eclownomy collapsing.

Thu, 11/12/2015 - 19:56 | 6784528 seek
seek's picture

Housing will be the last place deflation hits, but when it does, man, it'll be impressive. The collapse back in '07-'08 happened when people still had money to buy but demand due to liar loans, etc, overheated the market, and people stepped in to buy "bargains"

When this collapse happens... few will be in a position to buy, meaning there's no floor to the prices.

Everywhere I look right now all I see is sign after sign of asset deflation. Last week I visited this palatial home, and the guy showed me his shop. Easily 100K of lathes, mills, tooling, collets, etc. I was just shown a drawer of precision collets that was easly worth 5K on its own. The fellow said he'd just put the shop together in the past few months, and I asked him what it cost. $3,500. Machine shop went under, he was the high bid.

There are a lot of "toys" hitting ebay/craigslist right now as people who bought large are trying to extract cash from them.

People are losing faith in the economy and want money, not assets. Deflation. The next phase after this is when they lose faith in money.

Buckle up.

 

Thu, 11/12/2015 - 20:27 | 6784620 Amy G. Dala
Amy G. Dala's picture

Disagree, there is plenty of dry powder out there . . .you know there is when multifamily construction is going gangbusters.  Anecdotally, around here the little guy can't pencil out existing properties for rental . . .you have to build it yourself.

I would be tickled if the assessed value of my house went south.  I'm not going anywhere, it's paid for and the taxes would be cheaper.

Thu, 11/12/2015 - 20:35 | 6784649 i_call_you_my_base
i_call_you_my_base's picture

Multi-family construction is different. Purchasing a $400K single family home to rent is not something that "investors" do because it's stupid. Anyone who can afford the rent on a higher-end property would opt to buy. The single-family housing market cannot be sustained by investors.

Thu, 11/12/2015 - 21:13 | 6784779 Deathrips
Deathrips's picture

Shhh....its a realtor talking.

 

:)

 

RIPS

Thu, 11/12/2015 - 21:36 | 6784835 gimme soma dat
gimme soma dat's picture

Oh my god a realtor!?!!  Let's turn the lights off and pretend we're not home. 

Thu, 11/12/2015 - 19:43 | 6784483 Grandad Grumps
Grandad Grumps's picture

Maybe housing prices should come down to where they are affordable.

Maybe mortgage interest rates for individual occupying homeowners should be zero.

Thu, 11/12/2015 - 20:00 | 6784538 813kml
813kml's picture

"It's never been a better time to get into soul-crushing debt."

National Association of REALTORS®

Thu, 11/12/2015 - 20:16 | 6784589 Amy G. Dala
Amy G. Dala's picture

Or, maybe they should be negative.

Thu, 11/12/2015 - 20:19 | 6784595 A Nanny Moose
A Nanny Moose's picture

The article seems to presume that incomes for Mcburger flipping will keep rising. What a bunch a fuckin' McRetards.

Thu, 11/12/2015 - 19:44 | 6784486 Hopeless for Change
Hopeless for Change's picture

Ignore your common sense and listen to the people trying to sell you something.

Fri, 11/13/2015 - 01:24 | 6785377 cynicalskeptic
cynicalskeptic's picture

The key is buying something you shouldn't be able to afford at a price you CAN afford.  Even better if you do it when nobody else is buying. Best is buying in a place that's always in demand no matter what the economy is doing.

Got married in 1981.  Heard for years that we should 'Buy a house - prices are only going up.'   We're just north of NY - where we both grew up.  Expensive area.  Figured we'd have to follow our friends and move farther up when we did buy.  In the meantime we lived in the Bronx and other places that were 'affordable'.

We thought we should save up until we could AFFORD to buy a house.  Were paying on student loans (nothing compared to today but still a burden) and living cheap.  Saving what we could - for a house and for kids college - long before having kids.  Did all kinds of work on the side to earn more.

Well the market blew up in the late 80's.  Tons of inventory on the market with nothing selling - this back when you needed 20% down with 8-9% interest rates and limits on proportion of income allowed towards housing.

Looked at over a hundred houses before buying in 1992.  Had an 18 month old at the tiem (waited to have kids as well).    Knew the markets as well as the realtors.  Got great advice from one.  Look at the places you think you can't afford - two levels above your price point.  Then bid what you CAN afford.  We WANTED a fixer-upper (one with good bones - appearances mattered little).  We bought a big wreck of a house - SECOND worst on a very good block - across the street from the worst (which meant another $50,000 off the price of ours).   Got the place for a little over half of the original listing price.  Twice the sqft on double the lot size but the same price as the median house sold that year.  Good school district, close in on the commuter rail line.  Paid points to get 8 3/8% - not bad at the time.  Refinanced to a 15 year at a far lower rate in a couple years and paid it off within 20.  We bought the house you trade up to after a dozen years right off the bat - while others were getting 'starter' houses for the same price.  A few years later when those people wanted to 'move up' to a bigger place the prices had almost doubled.  Did 90% of the work on it myself and paid as we went - no additional borrowing.  Saved up enough for two kids to go to top tier college at the same time - no loans.

You have to know that housing does move in cycles - with some pretty major swings.  Buying at peak of an upward trend can be painful later.  You have to know the market you're buying in - and aim for places that hold value, the ones always in demand.  LOCATION matters.  LONG commutes cost you more than you realize - especially if you're driving.  And if you think it's bad NOW, in another 10 or 20 yeaers it'll be absolute hell.  Some place that gives you a short easy commute or easy train access is way better than a nice country place where you've got a 90 minute drive or station parking has a 2 year wait and the train ride is 3 times longer.  Even better if you can walk to the station, stores and schools - saves a fortune in cars as kids get older.   Wife grew up in an exurban locale - every sibling wrecked a car by 20.... lousy country roads and more snow/ice with busses or cars for getting to school.  Our kids walked a few blocks.  Commute was a 30 minute train ride for me - walk to station, 5 minute drive for wife.   

 

Thu, 11/12/2015 - 19:44 | 6784488 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

"Go sell crazy someplace else, we're all stocked up here."

 

As Good as it Gets          Jack Nicholson

Thu, 11/12/2015 - 19:45 | 6784496 Amy G. Dala
Amy G. Dala's picture

So, what's the down side?  Live like a 1%er for a year or two . . .maybe more . . .what's it take to get somebody out of a house after they stop paying?  A year?

Leave the keys swinging in the door (just like mom and dad did in '08!), git some moar student loans and move back in the dorm.  Who needs credit when you have food stamps?

Thu, 11/12/2015 - 19:56 | 6784503 divedivedive
divedivedive's picture

. - test

Thu, 11/12/2015 - 19:47 | 6784505 Amy G. Dala
Amy G. Dala's picture

If it's the banks money, pretty much anything is "affordable."

Thu, 11/12/2015 - 19:57 | 6784519 SweetDougisaTwat
SweetDougisaTwat's picture

If Ralph's advice sounds too good to be true  .  .  .  .

 

PS.  He is such a fucking Ralph, isn't he?!

Thu, 11/12/2015 - 19:57 | 6784532 CHoward
CHoward's picture

Same with retailers.  This holiday season millions of Americans will go out and buy (99.9% on credit) things they neither need or really want - just because it's the thing to do.  We live in a very financially illiterate country.

Thu, 11/12/2015 - 19:57 | 6784534 THE DORK OF CORK
THE DORK OF CORK's picture

The real question.

If they are in surplus why are they unaffordable

 

In Ire?and we have enough empty houses to accommodate 1 million ~ people yet houses are unaffordable.

Says law does not apply.

The banking system can only operate out of scarcity,  it imposes artifical costs so as to sustain itself.

Thu, 11/12/2015 - 20:27 | 6784619 MsCreant
MsCreant's picture

That so called "expert" can't handle your "question."

His head would splatter apart, then vaporize, spraying brains, blood, and bones as he tried to close the gap ripped in the fabric of reality by his cognitive dissonance. 

Thu, 11/12/2015 - 20:34 | 6784647 THE DORK OF CORK
THE DORK OF CORK's picture

The greatest mistake people make.

They use financial costs to define their physical reality.

It's a hall of mirrors 

Thu, 11/12/2015 - 20:58 | 6784725 THE DORK OF CORK
THE DORK OF CORK's picture

Social credit = practical Christianity. 

It's very anti puritanical and so may not sit very well within the Mayflower set but it is worth a listen.

It's also against a central state producing interest free grand projects and the like.

The surplus (nothing more and nothing Less) is simply given away.

Teachings like this got that Jesus fellow crucified.

Fri, 11/13/2015 - 03:48 | 6785561 Tall Tom
Tall Tom's picture

Grace is Social Credit.

 

(Yeah,,,I listened to it and will listen to it again. It is deep,)

Thu, 11/12/2015 - 22:05 | 6784921 Seer
Seer's picture

Physical reality is subjective.  Every single person actually has to make up what it is, doing so through sensory and brain functions.  We are, of course, conditioned to be predisposed to some common interpretations.  One of those predispositions is that all of our interactions are undertaken in an infinite system.  Of course, this isn't stated as such, it's hidden underneath the drug-like-induced mantra of "growth is good."  This article plays into this  very thing.  There's the expectation that growth will prevail.  Income and purchasing power will grow.

I'd like to ask the idiot where he thinks all the credit is going to come from.  While there is likely going to be some sense of another sub-prime implosion, though smaller in scale than the first (but likely larger in impact, esp given current debt levels and economic state), I very much doubt there there will ever be a third.

It's a hall of mirrors because we can't really trust our brains and sensory systems (esp when TPTB are working overtime to jam the signals).

Thu, 11/12/2015 - 20:28 | 6784624 gimme soma dat
gimme soma dat's picture

Don't say that too loud or they'll start shipping you all the invaders.

Thu, 11/12/2015 - 20:02 | 6784544 Give up. Realit...
Give up. Reality is not scientific nor even mathematical.'s picture

At 3% down, perhaps one should consider buying a house, moving in, never paying the mortgage for the year it takes to foreclose, and then on the way out strip the copper plumbing and wiring out of the place for some pocket change.

Also the market's not half-bad on used plumbing fixtures, appliances, kitchen cabinets, stair treads, banisters, and windows.

The last month you could really score and rent your new house out to some crack addicts.

Yes, buying a house you cannot afford at these ridiculously FED-inflated housing prices, might not be a bad idea.  There's some moral hazard, but hey, that never stopped the fucking FED,

Thu, 11/12/2015 - 20:03 | 6784549 malek
malek's picture

 where most workers see strong wage and income growth, mortgage payments actually shrink as part of the monthly budget

Wow.
I'd like to have some of what they are smoking, please.

Thu, 11/12/2015 - 20:14 | 6784583 Lolitsa
Lolitsa's picture

What they're saying, I believe, is that as your wages increase, you have more disposable income as your mortgage payment stays fixed. They just worded it like crap. Nobody knows how to write anymore.

Thu, 11/12/2015 - 20:23 | 6784605 A Nanny Moose
A Nanny Moose's picture

Still. the error lies in the presumption of rising wages. Given that A) prices naturally fall, B) nobody has any money, and  C) everybody is levered to everybody else's eyballs....

"I wish you luck." - Angel Eyes.

Thu, 11/12/2015 - 20:44 | 6784677 MsCreant
MsCreant's picture

Each group compared for the so called analysis is a cohort. While the data itself is interval/ratio data, in the case of the predicting economic activity, it should be treated like nominal data. Using the next bracket's income to project the prior bracket's income increase, assumes a steady math function underpins it. It does not. Social factors underpin it, things that happened to that older cohort to cause their income to increase cannot be depended on to happen to millennials. 

This guy is no social scientist. I would rather attend a seance or read some tea leaves than talk to this guy about buying a house.

I suppose I coulda just said, "Fuck that Newspeakin' asshole." 

Thu, 11/12/2015 - 22:14 | 6784941 Seer
Seer's picture

"This guy is no social scientist. I would rather attend a seance or read some tea leaves than talk to this guy about buying a house."

No, actually it IS a perfect example of a social scientist.  Their aim isn't so much to inform as it is to PROGRAM.  One uses scientific methods to program.

Given a short enough time frame anything can be shown to be successful.  History, however, provides us with a more accurate picture of how things will turn out: we've yet to get perpetual growth to work- all these social and economic "scientists" operate under the premise that growth can be perpetual- we're never aware that we're sitting inside the circus tent (make believe/fantasy world of perpetual growth), in which case we don't see these folks for what they really are- clowns.

Thu, 11/12/2015 - 20:46 | 6784683 malek
malek's picture

I bolded certain words for a reason.

Wage growth is already rare these days, but strong wage growth across a sizeable part of the workers in those housing market areas?
You got to be kidding me.

Thu, 11/12/2015 - 21:54 | 6784894 hongdo
hongdo's picture

My taxes have gone up $1000 per year, so no the house costs do not stay fixed.

Thu, 11/12/2015 - 22:20 | 6784951 Seer
Seer's picture

Really?

You know, I went against the stream of "home prices always rise."  And I lashed out at similar thinking of "taxes alwasys go up."  I bought when home prices dropped (after selling just before the big bubble burst- rented, cheaply, for several years).  And when I bought my place my property taxes, wait for it... WENT DOWN.  That said, they did bump up (though are still not back up to what they initially were) and they're rising.  BUT, for me, in no way am I seeing property tax increases anywhere near $1,000/year.  No fucking way would I live anywhere where that was happening  (and my income stream wasn't likewise increasing).

Making assumptions can often lock you in to shitty outcomes.  Sorry it didn't work out for you.

Thu, 11/12/2015 - 20:03 | 6784551 THE DORK OF CORK
THE DORK OF CORK's picture

If banks followed the teaching of the new testament (to give away the surplus) they would find themselves automatically bankrupt.

 

They can only debit and never credit you

This is the root cause of the western production / consumption crisis

 

Thu, 11/12/2015 - 20:06 | 6784559 SweetDougisaTwat
SweetDougisaTwat's picture

Banks need to be re-purposed--back to their original purpose.

Thu, 11/12/2015 - 20:28 | 6784623 THE DORK OF CORK
THE DORK OF CORK's picture

That is their purpose.

To take away your purchasing power via the bank state (taxes,  Inflation),  then fill that hole with bank credit (even at 0%)

We can see with skoda Ireland charging 0% that charging interest in nice but no vital.

What's important ismaintaining the monopoly of credit.

By producing stuff with real high input costs artificially cheaply at sometimes 0% but refusing you fiat for bread and wine or whatever else takes your fancy.

We can observe quite clearly,  they are front loading your consumption. 

 

Fri, 11/13/2015 - 02:04 | 6785439 Charming Anarchist
Charming Anarchist's picture

I have a simpler idea:  Do away with taxation and let the chips fall as they may.

 

Without taxation, a bank poses no threat. 

Thu, 11/12/2015 - 20:28 | 6784625 MsCreant
MsCreant's picture

Make banking illegal.

Thu, 11/12/2015 - 21:20 | 6784671 THE DORK OF CORK
THE DORK OF CORK's picture

https://m.youtube.com/watch?v=6DH_a6589ik

See 12.30 in particular 

 

Godfrey Goodmans incorrect analysis of reality which was based on (False) monetary values.

Fri, 11/13/2015 - 02:07 | 6785443 Charming Anarchist
Charming Anarchist's picture

There is nothing morally wrong with banking per se.  A bank can operate in a perfectly peaceful manner to the benefit of all parties.  It aint difficult. 

What should be illegal is taxation.  Do away with taxation and a bank poses no threat.

Thu, 11/12/2015 - 22:26 | 6784962 Seer
Seer's picture

The ROOT "cause" is "interest."  Perpetuating a system that requires perpetual growth isn't just a bad idea, it's against The Law (conservation of energy).

Thu, 11/12/2015 - 22:36 | 6784990 THE DORK OF CORK
THE DORK OF CORK's picture

Social credit deals the other cost. 

Depreciation.

The industrial costs cannot be retired usinconventional cost accounting.

Fri, 11/13/2015 - 02:08 | 6785445 Charming Anarchist
Charming Anarchist's picture

The root cause is taxation.

Thu, 11/12/2015 - 20:09 | 6784566 Lolitsa
Lolitsa's picture

Just wait until the interest rates get jacked a quarter point. You'll see banks dumping all the inventory they are sitting on for peanuts right now. Scum bags. So many millions of homeless people and plenty of homes vacant. They will give an answer one day. Every last one of them on an individual basis. Face to face. I sorta feel sorry for them. They don't seem to have an idea what awaits them when they shuffle off this mortal coil. "Abraham. Please let him dip his finger in water and come wet my tongue!" Not happeniin'. Itch in hell fire for all eternity. You thought Guantanemo, the no holds barred torure campus was a hell hole? Just wait 'til you see hell. Nothing can prepare you for that. It will blow your mind, if you had an organic one. My goal is to be on the other side looking over and feeling kinda bad for you but understanding at the same time that you had plenty of chances to help the poor but failed each and every time THE OPPORTUNITY WAS IN YOUR HANDS. 

Thu, 11/12/2015 - 21:23 | 6784801 Faeriedust
Faeriedust's picture

Not that I don't agree with you wholeheartedly on the subject of bankers, but you obviously haven't visited Hell in quite a while.  They've redecorated at least twice since the second century.  These days it looks rather like a collection of old Soviet apartment complexes, complete with the broken elevators.  Not that much different from what their minions attempt to force us all into on this side of the Gate.

Thu, 11/12/2015 - 22:46 | 6785017 Seer
Seer's picture

That this has turned out horribly bad is for sure*.  The bubble was a big mis-allocation of resources.  Handing over the results of that mis-allocation to the homeless, though I totally empathize with them, will NOT resolve anything.  Two wrongs do not make a right.

* History, however, informs that it's always not been so good for the bulk of humanity.  While we can lament about the homeless, most of whom might have been in this situation for a part of their lives, the fact of the matter is that most of the world's population lives in poverty.

If people cannot afford homes then they cannot afford to maintain them.  Eventually (and sooner rather than later) those homes will crumble; and where, then, will people be?  Less ability to perform repairs means that the production of materials needed for repair are produced in lower quantities.  Lower quantities of production on top of production facilities designed for much greater production spells "economies of scale in reverse."  Costs/affordability of said materials, therefore, will only become more problematic.

Maybe we all agree that we'll put on one huge last party and then turn off the lights (light the nukes)?  That way we can all go out on a happy note...

Thu, 11/12/2015 - 20:14 | 6784581 Talleyrand
Talleyrand's picture

 

Dear Mulinyals,

 

Don't buy a house even if you can't afford it. Houses are soul killing machines. Don't do it.

 

Thu, 11/12/2015 - 20:24 | 6784609 A Nanny Moose
A Nanny Moose's picture

VDBTR - Van Down By The River

Bytchez!!

Thu, 11/12/2015 - 20:51 | 6784693 Talleyrand
Talleyrand's picture

There are other possibilties - lots of 'em. Who wants to live in a motor vehicle?

 

 

Thu, 11/12/2015 - 21:01 | 6784735 MissCellany
MissCellany's picture

A van down by the river (or creek) isn't too bad, actually. BTDT.

Thu, 11/12/2015 - 21:19 | 6784791 Talleyrand
Talleyrand's picture

As long as it is not just a cliche, might be OK.

Thu, 11/12/2015 - 23:06 | 6785069 Seer
Seer's picture

I see people living under bridges.  Pretty sure that they'd prefer the 'cliché."

Many here refer to things in the abstract, not having actual experience with such things.  Most don't have a clue about how life is outside our slightly dysfunctional, affluent society.  Here's where my wife is from, though she was fortunate to not have been at the very bottom (but compared to what our "standards" are it sure was a bottom):

http://www.privatephotoreview.com/2014/06/alexander-conrady-children-liv...

It's even more of an impact when the rest of one's senses are exposed to these environments.

Thu, 11/12/2015 - 20:20 | 6784599 Grimbert
Grimbert's picture

This was my parents' policy in the 1970s, when inflation in the UK was 25% but intrerest rates about 15%, and mortgage payments fixed for long periods. My Dad was in the armed forces so his income went up slightly every month to match inflation, so my mum says, so every month the mortgage was a smaller proportion of income. 

Thu, 11/12/2015 - 20:29 | 6784627 Lostinfortwalton
Lostinfortwalton's picture

I was in the armed forces; incomes don't go up every month. You can have annual costs of living wages and increases as you make rank and maybe a small raise if you stay in the same rank for a number of years. Monthly raises? No.

Thu, 11/12/2015 - 23:13 | 6785085 Seer
Seer's picture

I wonder whether it's different in the UK? (doubtful, but it's always a good idea to keep in mind that things are different in different countries)

Thu, 11/12/2015 - 23:58 | 6785202 Iam_Silverman
Iam_Silverman's picture

"I wonder whether it's different in the UK?"

One thing I do know is different, their sailors get to have a tot of rum and a beer while at sea.  I was awestruck when we saw this while on shared exercises in the early 80's.  No wonder everyone onboard the boat I was on immediately volunteered to be an observer on a British warship!

Fri, 11/13/2015 - 02:12 | 6785451 Charming Anarchist
Charming Anarchist's picture

One thing I do know is that working for the military is not working at all.  It is just a bunch of adults playing games. 

Thu, 11/12/2015 - 20:53 | 6784716 Talleyrand
Talleyrand's picture

That was then. This is now.

Thu, 11/12/2015 - 20:24 | 6784607 Hohum
Hohum's picture

A fervent believer in trend is destiny.  A Man of Faith.

Thu, 11/12/2015 - 20:26 | 6784616 CHoward
CHoward's picture

People should buy ONLY what they can afford.  When I bought my home - you can guess the year - I felt lucky to lock in a rate of 10.45% fixed for 30 years!  Several years of that and I was finally able to refinance at a grand 7.85% fixed for 15 years.  Paid the baby off early.  Now people are screaming because rates are 4.0% or they're asking for a measly 3% down.  Come on - be serious - if you're having problem with 4% then you should just rent an apartment and be done with it. 

Thu, 11/12/2015 - 23:27 | 6785120 Seer
Seer's picture

Not only what they can afford today, but what they think they can keep affording!  Many homes are purchased based on multiple incomes, and while the outlays at in the beginning might be quite affordable they might not be so affordable should one of those incomes dry up.  I went through a  couple of instances of losing one of two incomes (once both were gone- survived because I/we weren't overextended.

When you got that initial loan I'm certain that home prices weren't anything like they are now.

Lastly, interest rates themselves mean little.  You can have high interest rates on a small loan or you can have low interest rates on a larger loan- it can come out to be the same.  So, yes, it's an issue of affordability; and along with this also comes being able to afford all the other stuff, such as maintenance (which most don't even plug in to their equations).

"if you're having problem with 4% then you should just rent an apartment and be done with it"

You just put aside your primary premise of basing things on affordability.  Just because someone isn't paying "interest" when renting that doesn't magically make things more affordable.  It's about the ability to comprehensively afford a given lifestyle.  Most people underestimate the full cost picture; though renting often removes some of the "out of mind" expenses it doesn't cure one from poor judgment, poor judgment usually constructed from social pressures and marketing hype (funding someone else's lifestyle at your expense).

Fri, 11/13/2015 - 02:32 | 6785470 Seer
Seer's picture

Down arrow w/o any rebuttal?  Suffering from emotional problems?

Thu, 11/12/2015 - 20:29 | 6784626 Kirk2NCC1701
Kirk2NCC1701's picture

As long as oil is down, dollar recycling requires stocks and RE to go up, to accommodate QE.

Thu, 11/12/2015 - 20:29 | 6784632 WTFUD
WTFUD's picture

Shat(tered) Logic!

Thu, 11/12/2015 - 20:36 | 6784651 Lostinfortwalton
Lostinfortwalton's picture

Couple of small problems. As your wonderful community grows the tax bite increases and your house payment goes up because the taxes are increased. As the value of your housee increases your insurance company wants more to insure it so your house payment goes up some more. And do not ever, ever, even ever consider buying where there is a homeowners association. Monthly dues are a giant waste of money. Maybe a smaller, affordable house on a larger lot and fix it up over time; the old "worst house in a good neignboorhood" ploy.

Thu, 11/12/2015 - 23:54 | 6785190 Seer
Seer's picture

Your house payment doesn't go up as a resultt of increased taxes!  You're trying to wing by an anti-govt/anti-tax position, and while I have no beef with that, I DO have a beef with shitty logic (taxes don't increase mortgage payments).

People fail to comprehend the true costs of things.  And these are the same people that also are in charge of assessing such things!

Increased property taxes are, in a large part, costs that were deferred back during initial development, externalized costs foised upon a community either through outright deception or ignorance.

I live out where MANY people own and drive "light duty" trucks (line is blurring when the diesels are now able to readily pull 20k lbs)  with HUGE wheels and tires.  Those wheels and tires really look cool (and work good when, in the few instances, they're really needed) until, that is, they have to shop for a new set of tires.  Most fail to consider continuing costs, costs for maintenance.  The more you have the more maintenance there is (oh how I know this one!).  At first when everything is bright and shiny it's all good.  But, slowly, maintenance starts barking for more money, along with everything else that seems to (yes, including general COLA-like stuff that businesses and govt entities push for).

"As the value of your housee increases your insurance company wants more to insure it so your house payment goes up some more"

If you don't like this then don't buy insurance.  Moral of the story is: wait till you pay off the home before making any improvements (spend when you're not in debt, concept!).

"And do not ever, ever, even ever consider buying where there is a homeowners association."

I caution against using "never."  I agree that I have no interest in being part of an HOA.  But, that's me.  If others are fully aware of the  ramifications and their wallets and desired living conditions accept living in an HOA then fine.

"Monthly dues are a giant waste of money."

Not necessarily.  They're the cost of maintaining a structure.  Most people don't want to put money aside for repairs; imagine having to live with such folks and when it comes time that you have to make repairs.  Without such agreements it becomes a socialist's utopia (until major repairs need to be made).

"Maybe a smaller, affordable house on a larger lot and fix it up over time; the old "worst house in a good neignboorhood" ploy."

Balance what you WANT with what you NEED.  "Larger lots" aren't necessarily cheap, especially in "good neighborhoods."

I had a smaller house on small lot in a good neighborhood.  Told my then-wife that one day the folks further up the hill in the big houses (we got married on one of the mansions up there) would one day look down at our house as something desirable. Sold that house at the top of the last bubble.  I now have a cheaper house, but my "lot size" is bigger than my entire old neighborhood (it also provides me with "free" heating and some of my food, those things plus a lot of my sanity): also have a new and better wife.  Moral of my story is is that I was flexible; I didn't take anyone's suggestions or opinions as gospel.

Thu, 11/12/2015 - 20:45 | 6784679 khakuda
khakuda's picture

Articles like this make my day. Yesterday there was an article floating around saying that everybody should be 100% invested in stocks for the long term.

YOU NEVER SEE ARTICLES LIKE THIS NEAR THE BOTTOM, ONLY NEAR THE TOP.

Thu, 11/12/2015 - 20:47 | 6784689 mademesmile
mademesmile's picture

Don't be bashing all houses. It took us a year but be bought a 30 acre farm in the Midwest, 20 year mortgage, for less then 20% take home payment. Yes, it was a fixer upper but well worth the $ invested to have a safe place to raise kid, animals and garden. Get out of the city while you can.

Fri, 11/13/2015 - 00:02 | 6785214 Seer
Seer's picture

Congrats!  It's a tough life, but it's LIFE.  After 5 years I still haven't made it to all parts of my property!

Keep in mind, though, that farms aren't exactly safe.  You shoudl see the numbers of missing apendages that my neighbors have, rather, don't have!  I get beat up, just not by others!  Also, animals aren't safe either!  Predators are a constant threat/battle.  Nothing like death to make one appreciate life...

Fri, 11/13/2015 - 18:20 | 6788533 gladius17
gladius17's picture

Where do you live? Sierra Leone?

Thu, 11/12/2015 - 21:08 | 6784766 Bunga Bunga
Bunga Bunga's picture

You can bet the farm on it. Real estate never goes down. What can go wrong?

Thu, 11/12/2015 - 21:32 | 6784823 Sick
Sick's picture

All,  ZH is really good for venting and sharing knowledge but, I do not think we are making any change.  Might I suggest that everyone do what I have done below and share your thoughts with the FED.  I understand all their problems but we have to do something direct.

I just left this message with the Atlanta Fed, on the "Contact Us page" https://www.frbatlanta.org/contacts

-----------------------------------

Don't you think it might be a good idea to put money directly in the hands of the people?  They will spend it into the economy, pay bills, etc.  and then the banks will get it.  What you are doing now by just supporting the banks is not working and never will.  The people need help.

I am 52 years old male with a wife and two children.  We have never been in such bad financial shape.  I have lost my income and we may soon be homeless.  Shame on you.

You must not realize when the system collapses no one will be spared the pain, not even The Federal Reserve Bank.

If you want some fresh ideas as what you can do to save the country I am available for hire.  I do not have a Phd but by judging how well things are going they are not worth what you pay them.

 

Fri, 11/13/2015 - 00:40 | 6785309 Seer
Seer's picture

Huh?

I don't need any fucking "ideas."  I don't need any fucking words.  It's ACTION!  I "DO."

That "money" that you're asking to be placed in the hands of "the people" is supposed to cure what, exactly?  If people were honest they'd pay off their debts (rather than ask others to do it for them): if you signed a contract then YOU are responsible; if you dealt with a crook then that still doesn't absolve you from your implications.  The "money" is FIAT, it's an IOU, a lean on the future of which cannot be made whole on: it's a mathematical issue where by it is impossible for everyone to be able to pay off the principle and the interest on their debts.  There is no real WEALTH behind it.  One day others with actual goods (such as oil) won't accept it.  You get it today and you burn it all up, and then what?  If everyone is broke then no one is buying shit, which means that shit ain't being produced (because it's totally economically impossible to do so- negative margins can only go on as long as folks are willing to toss money into the abyss).

If you think you have it bad:

http://www.privatephotoreview.com/2014/06/alexander-conrady-children-liv...

My wife is from there (she was fortunate to have been from an earlier time in which there were a few more resources available such that she lived in poverty rather than abject poverty).

750 million people in India live on $0.50!  Welcome to reality! (as it has been throughout history- we are/have been living quite high)

The Federal Reserve is not responsible for our inability to understand the exponential function.  Yes, they and the other top-feeders make their living off of us NOT knowing it, but, fool me once shame on you, fool me twice...  To claim that you're now (at the age of 52) only being fooled for the first time is something that I don't buy: maybe I'm a "fast" learner, having figured things out while in my early 40s :-)

Change is necessary.  The only change that you have any control over is the change to yourself.  If things aren't working for you then change yourself: I've done this several times; yeah, it's tough, it's like suffering a death.  AND, if those around you cannot accept the change that is necessary then part ways.  BUT, and here's the thing, MOST change is in one's mental state.  You cannot hope to see any desired changes unless you shift your mind toward that goal (but it has to be realistic, not a fantasy!- you have to commit to working very hard).  "Asking" others to change for you, or to help you change (unless they're counselors or such) ain't gonna do it.  Be your own leader.  Be the leader of your family; if they won't follow then you're never going to be their leader and continuing to "act" the part will certainly lead to a bad outcome.  Please note that when I say "leader" it doesn't mean that your spouse is a passive observer; my current wife is an equal partner, as a team we kick ass (when one struggles the other is there to pick up any slack or provide ALL necessary support- we both succeed or we both fail).

Thu, 11/12/2015 - 21:56 | 6784900 adr
adr's picture

Seven years ago I was looking for my first house. I made $42k a year, but I could buy a really nice home in a good neighborhood for $125k. It was affordable and I bought it. I worked my way up to $65k, and yes the payment was less of my budget. But the point was I could afford the house of $42k.

Three years ago the company I worked for went out of business. I sold the house for a $20k loss after paying the realtor and associated fees because I got a job halfway across the country.

I'm making $85k now but the average price of a home in the town I moved to is over $350k. Not even close to affordable with the insane property taxes.

So I'm making almost double, but can't really afford to live where I am. It would be great if I could have kept my house and made $85k, but there weren't any jobs where I lived that paid enough. So I moved and didn't increase my living standard even with far more income. In fact it went down.

That's the problem with the housing bubble. You might make more money, but job stability screws you over. Each time you move, you go further under water.

Thu, 11/12/2015 - 22:10 | 6784934 mijev
mijev's picture

Depending on where you are ADR you may find a few bargains coming along soon. I just hope the rent isn't a killer in the meantime.

Thu, 11/12/2015 - 22:18 | 6784949 cigarEngineer
cigarEngineer's picture

Thanks for the story. Sounds like it applies to millions in the USA.

Here's what I think: if you (figurative, not literally you) have no family, you have no business buying a house or renting anything more than a bed and a toilet. Vacation? Vacation is for closers. You should be working overtime or staying late for that fat bonus. Can't work more? Go out to meet people (prospective business connections to get a better job).

Anything else is a waste of time and life. Commutes are dangerous, waste of money, and waste of time that could have been used to sleep or make more money. Sleep in car and shower at gym if you can't find a roommate. You need the money to afford the best mate.

Every day you delay starting a family is a day you delay your retirement. People (sons) is the best investment you can make.

Fri, 11/13/2015 - 18:22 | 6788550 gladius17
gladius17's picture

"You need the money to afford the best mate."

Are there a lot of women in your area who are attracted to men who live in a van by the river?

Fri, 11/13/2015 - 01:42 | 6785412 Seer
Seer's picture

Aiming for money doesn't work.  I aimed for love and life and the money part worked itself out.  Lots of soul searching.  Lots of doubts.  Questions and then more questions.  I came to realize that what I had come to know could NOT continue to exist, regardless of how much I would look to apply myself.

In the face of all the social pressures telling me that home prices only go up, of the pressure to seek ever-greater salaries, I backed away.  Sold a house before the bubble burst.  Had a wife leave me because of it (and of ending up with a lower salary).  Funny how life works out when you don't give up.  It was a setback of many years but I now have property and a  life that I was aiming for..  My ex's walking out on me turned out to be a huge blessing (extremely gut-wrenching), for it put me on the path to meet my current wife, the most able, beautiful, smart, dedicated partner that one could ever imagine, for me anyway, and that's what matters!

Focus on the life you want (be reasonable, be flexible) and the "money" part will take care of itself.  Living for life is more important.  I always tell people that there is but one thing that you cannot get more of: time.  Know what you want, and (be smart/comfortable/confident enough to) want what you have!

When having your cake and eating it too just doesn't seem to work, switch to pie!

Thu, 11/12/2015 - 22:23 | 6784929 cowdiddly
cowdiddly's picture

food for though for the younger crowd. (some are not able to do something like this, some might)

Many years ago 2 miles down from me a widow was selling of small rural plots of land off a farm after her husband died. This young guy bought 4 ac from her and paid 2k down and she financed the rest for 3 years. Our school gym was having the floor replaced and had truckloads of 2x12 beams sandwiched 3 boards thick. This guy traded a weed eater and a bench grinder to the contractor for a dump truck load of these beams. He worked all summer un-nailing/denailing these beams and made a table saw out of a skillsaw screwed to a piece of plywood and a 2x4 table. He sawed each 2x12 into a 2x6 and a 2X4 and saved some whole. He built about a 15x 20 cabin out of this lumber bought a mini fridge, 5 gallon water heater, a wood stove,a salvage bathtub and had an Oak tree sawed into 8x8 beams  and made a timber  frame loft in the place for his bed. Counting his front door and some cheap siding he told me he had 360 dollars total in it at the time plus 2k for a water well and 1500 for an electrical pole. It was actually pretty nice but rustic. That guy lived out in that basically a nice hunting cabin for probably 7-8 years rent free. When he left he bought  about a 2800sq/ft  house Cash in a larger town close by. Everyone used to laugh at the guy and thought he was kinda poor.

He is a multi-millionaire now and owns a satellite business with 27 offices, last I heard he was getting a divorce and his ex wife was willing to settle for several million out of court. I used to go by that guys old cabin way back then and check on him to see if he was alive every so often but I like everyone else though he didn't have much as he was always working off a lot and you would have though he could not afford squat. He never even built a drive way just a meandering dirt road back to it.

Never judge a book by its cover. but just something for the single millenial guys to mull over.

Thu, 11/12/2015 - 22:24 | 6784957 mijev
mijev's picture

Cool story cowdiddly. The second moral to it is that if you plan to get married, make sure you hide your assets from your soon to be ex-wife before she learns what you've got in the bank.

Thu, 11/12/2015 - 22:27 | 6784963 cigarEngineer
cigarEngineer's picture

Good story. Sounds like a fairytale millenials will tell their kids. 

You and I both know what happens these days if you build something yourself without permits, or install solar and don't get any electric bill... Besides, forget about buying any land in an accessible place in your 20s without seliling a kidney. After uncle sam and his local cronies get their cut, and putting a sensible amount away for retirement, you'll barely have enough for a hotdog unless you're starting out at $80k+ per year. And probably fewer than 20% of the top performers have the hustle to secure a job like that. Everyone else is stuck in paycheck-to-paycheck wage slavery.

Anyone who is paying attention knows the middle class is F**CKED.

Thu, 11/12/2015 - 23:18 | 6784982 cowdiddly
cowdiddly's picture

No I live so far out they don't even bother with permits out here--40 miles to nearest  town. Our town consists of a school and a store. lol. raw land is still relatively reasonable here, but smaller pieces are hard to find out here but they are around. But you have to do it like he did and work off somewhere, he had a camper trailer he took with him off working. No decent jobs close. He had electricity. But yes its tough out there for these young guys but it was tough out there in the early 70s and early 80s again for a while. Some could still do this here if he was single. You've got to use your head, i was just trying to give them some ideas besides this bull crap advice in this article.  And yes we are fucked.

Fri, 11/13/2015 - 02:09 | 6785446 Seer
Seer's picture

Yup, I was aiming to move to and build in an area where building permits and codes were but a suggestion.  Man, the shit that people ended up constructing!

The story is more about devotion to one's aims/objectives.  Most will see the amassed "money" part rather than the amassed "wealth" part.  One need not have "money" to be wealthy:.

As Derrick Jensen says: "We're fucked, but life is very, VERY good!" (it's entirely reasonable to simultaneously hold two seemingly conflicting ideas in one's head- we're complex beings!)

Thu, 11/12/2015 - 22:39 | 6784998 honestann
honestann's picture

Appropriate blog title...

STUPIDITY FOR DUMMIES.

Fri, 11/13/2015 - 01:22 | 6785371 Dre4dwolf
Dre4dwolf's picture

The banks want people to take out loans.

If a millennial that cant afford a house takes out a 800,000$ loan to buy it, that 800,000$ appears out of thin air (free money from nothing) that gets added to the banks balance sheet like magic.

If the millennial defaults on the house, all that happens is the bank gets a free house.

 

So o/c the bankers are going to tell you to go take out loans and buy homes ..... duh its the fastest way for them to counterfeit money and take control of assets before the collapse.

 

The entire transaction ends up looking like this:

Bank gets Free Money, A house, and whatever money the borrower payed them to stay in the house... say 45,000$ over the year or so before he defaults.

So the bank gets + 800,000$ house + 45K and the Millenial gets to live in the house for however long it took the bank to bankrupt him and kick him out.

 

Bank = Free House and Money

Society = Minus one house.

Seller of house = Money that they probably deposited right back into the bank making the fraudulant transaction.

Millenial = Crushed Dreams, and an empty bank account and living on the street lol

 

Fri, 11/13/2015 - 02:11 | 6785448 yellensNIRPles
yellensNIRPles's picture

Sounds like advice from the same assholes who told my entire generation we should all go to college and we could all be POTUS if we wanted. And of course Jimmy, Sarah and Dave still got the same advice as the rest of us even though they were asleep in the back of the room during economics.

Fri, 11/13/2015 - 05:39 | 6785640 petar
petar's picture

Buying a house is affordable, but property taxes are not! $10-15k taxes a year for a $300k house in the Chicago area is crazy..

Fri, 11/13/2015 - 05:40 | 6785642 Reichstag Fire Dept.
Reichstag Fire Dept.'s picture

Good beach frontage in Somalia! Cheap!

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