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Guest Post: How Housing Affordability Can Falter Even as House Prices Decline

Tyler Durden's picture


Submitted by Charles Hugh Smith from Of Two Minds

How Housing Affordability Can Falter Even as House Prices Decline

The assumption that lower home prices improves the affordability of houses ignores two critical inputs: interest rates and income.

That the U.S. housing market is still in a post-bubble slump is no secret, as revealed by this chart courtesy of note that despite unprecedented intervention, including the complete socialization of the U.S. mortgage market (99% of all mortgages are guaranteed by the Federal government) and the socialization of subprime market for poor credit risks (3% down and easy credit from FHA), this chart punctures the happy-talk illusions of a rebound in housing.

Credit-asset class bubbles cannot be reinflated because they follow an S-curve. No matter how much taxpayer money the Federal government throws into the housing market, it will not reinflate. The financialization (credit/leverage bubble) of housing follows an S-curve as a system, and tweaking the parameters of the inputs (lowering interest rates, buying up toxic mortgages, etc.) doesn't change the curve.

Hubris-soaked central Planners are incapable of understanding that their numerous policy interventions have essentially zero impact on the curve. But if you can't believe systems don't respond to frantic policy measures, then consider these factors:

1. Tens of millions of households are too poor to buy a home (the FDIC calculated 40% of the U.S. households have insufficient income and credit to buy a home) without massive subsidies, and with no skin in the game their purchase is basically a lease with an option to sell later for a private gain at the expense of the government.

if it doesn't work out then it's last one on, first one off: they default with little loss and possibly much to gain, i.e. two years living rent-free in a not-yet foreclosed house.

2. Tens of millions of other households are drowning in underwater mortgages they can afford to pay (barely) but that have crippled their net worth and borrowing power. They are out of the housing market except as potential defaulters.

3. Millions of other credit-worthy buyers have woken up to the fact that buying a house is a form of consumption and a risky "forced savings" investment, as property taxes spiral ever higher and prices continue sagging in many markets. The risk is high and the potential gain is uncertain.

Those snapping up housing for cash are either buying to rent the homes or to speculate that a resurgent housing market will arise and they can "flip" for big profits. This segment simply isn't large enough to soak up all the millions of homes languishing in the "shadow inventory" of homes being held off the market in the vain hope prices will bubble higher.

The general idea of lower home prices is that once prices fall to some magic threshold, buyers will jump in and liquidate the inventory. That notion makes two enormous assumptions:

Interest rates will stay near-zero when inflation is factored in

Household income will stop declining.

In other words, there are three inputs to housing affordability, and price is only one of them. Interest rates and disposable income are equally important. Note that income in all quintiles (the entire spectrum of income--high, middle and low) has been declining since the housing bubble topped in 2007:

Official inflation has been running at around 3% a year, and many other measures suggest that number grossly understates reality by gaming the percentages of various inputs.

But taking the official 3% as a reasonable approximation, then buyers of 4% 30-year mortgages are earning a wafer-thin 1% in real return (4% - 3% = 1%) and they are taking a stupendous risk that inflation will remain well under 4% for the next three decades. Any surge in inflation and rates would destroy much of the value of their investment.

Let's take two examples. Let's say a house that sold for $400,000 at the top of the bubble is now selling for $250,000, $50,000 down (20%) with a $200,000 mortgage at 4%. let's say the household earns $50,000, so the mortgage is exactly four times gross income. The interest on the mortgage is $8,000 annually (principal, property taxes, insurance etc. are added to make up the total mortgage payment).

Now let's say the house declines in price to $225,000, so the down payment drops to $45,000 and the mortgage is $180,000. But let's say investors are now demanding 3% above nominal inflation and mortgage rates are now at the historically moderate level of 6%. Meanwhile, the household income has slipped to $45,000 annually as bonuses and hours are trimmed and workers transition to lower paid positions.

The ratio of income to mortgage is still 4-to-1, but the annual interest payment is now $10,800, $2,800 higher--a 35% increase. By any measure, the house is less affordable despite declining $25,000 in price.

This is how affordability can decline even as home prices continue to slide.


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Sat, 03/24/2012 - 15:04 | 2286893 GeneMarchbanks
GeneMarchbanks's picture

Purchasing Power Bitchez!!

Sat, 03/24/2012 - 15:22 | 2286916 qqqqtrader
qqqqtrader's picture

LOL, posted this less than an hour before this article...

Who's left to buy a home?

But seriously, lets not forget... Real home prices 1890Q1-2011Q4

Sat, 03/24/2012 - 15:44 | 2286952 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

Buy when theres fear in the mind and blood on the streets. Only idiots wouldn't take full advantage of these prices and zirp. I'm currently looking at buying properties in greece via a fund with a major investment bank; in a few years we plan to develop condos, casinos, gold courses, hotels, restuarants, spas, high class gyms, so when the economy picks up we'll be taking full advantage. Just let me know if you're interested in investing via our fund and making a killing along with us. These things just go in cycles, now is the time to buy.

Sat, 03/24/2012 - 16:44 | 2286989 TruthInSunshine
TruthInSunshine's picture

I will not say your very specific-light claim will or will not be proven correct.

I will say that I can legitimately represent that I am involved in and have been involved in funds that either have or are planning to dip their well-capitalized toes into 'vulture prospecting,' and that thus far, at least in the context of those funds that have taken the plunge, the results have been a very mixed bag, leaning heavily towards the loss side of the ledger, including quite a few that unfortunately melted to near-zero or thereabout.

Carrying costs on real property in times like these can be a real bitch.

My personal opinion, based on what I've seen, read and heard, with the 'seen' being the most reliable and credible indicator for formulation of my opinions, is that if you don't have a very special relationship with an arm of government, providing you with at least an implicit guarantee of government making you whole (or, at least more whole) in the event of bleeding (e.g. see JPM or BAC or Blackrock), then you are merely gambling in a highly speculative fashion with your money and/or the money of the people you are managing.

Do you want some high rise condos with oceanfront views for literally 20% of what they were listed for back in 2007, that are brand new, never having been lived in, so long as you agree to buy a minimum lot of 50 units? [And they really are nice, even if the HOA fees and taxes are a huge burden]...

'Cause I know a group that thought they were geniuses buying the whole building two years ago, who would love to sell them to you for that which is now a loss, and just recoup some of their money.


*I am not trying to sound like I know all the answers, but the one caveat I would confidentally allow for in terms of it probably being a great time to buy, is for the individual who is well-capitalized, debt free, loves a particular property, and wants to buy it as the occupant/user on a quality of life basis, especially if it is close to family and/or work, and they do not care what its valuation does going forward, and they can easily manage the carrying costs. This is a different type of investment altogether, having nothing to do with having to obtain a return on investment, since the return has nothing to do with money. However, their aren't that many of these types of indivuals shopping the markets right now (I don't mean that there aren't any, but that there's no enthusiastic rush; I speculate because people like this are very, very intelligent and cautious, and they are not convinced they won't be able to score a better deal, even if it pains them to wait, later).

Sat, 03/24/2012 - 16:57 | 2287054 kekekekekekeke
kekekekekekeke's picture

Where are those condos?

Sun, 03/25/2012 - 00:48 | 2287883 derek_vineyard
derek_vineyard's picture

ben bernanke inflation calculator

cost of food/energy/consumer products      +20%/year     x  .40       +8%

cost of home                                           -10%            x  .30        -3%

wages                                                     -10%            x  .30        -3%

                                                                                      100%= +2%

total cost of living: home, wages and consumer goods   +2%    exactly on target

Sun, 03/25/2012 - 14:37 | 2288726 AldousHuxley
AldousHuxley's picture

If your house valuation stays the same in price next 10 years, then you had 30% decrease in real terms.


roughly speaking....

home price increase > inflation : good investment

home price increase = inflation : break even

home price increase of 0% < inflation : losing money

home price decrease << inflation: you are working for free for years





Sun, 03/25/2012 - 04:16 | 2288042 Idiocracy
Idiocracy's picture

never mind the condos, where are the gold courses???

Sat, 03/24/2012 - 17:13 | 2287091 Waterfallsparkles
Waterfallsparkles's picture

You are right.  Tenant selection is the biggest and you have to carry the property until you find the right tenant.  Other wise you have problems that cost you even more money than a vacant property.

Tenants with a bad credit report will just put you on the list of all of the other people they did not pay and you have to wait in line assuming you ever get paid.  Tenants with bad credit break things when they do not have the rent so they can tell the Court why they did not pay.  A broken Toilet, the Furnace does not work etc.  Plus, unless you do the work yourself the costs are exorbitant and eat into your profit.

Landlords with high overhead make bad decisions to get their places rented.  I had one apartment vacant for 10 months because I could not find a decent Tenant.  Yet, my neighbor with high overhead has rented to anyone that would fog a mirror.  He has had evictions, court battles, repairs, clean ups and subsequent vacancy's.  Yet, he cannot rent or show again until he repairs the damage, re cleans the property and paints.

You are right, being a Landlord is not an easy road to toe.  Sometimes I think I am just a well paid cleaning, painting person.

Sun, 03/25/2012 - 00:26 | 2287859 derek_vineyard
derek_vineyard's picture

Here in Reno homes that cost 150/sf to build can be purchased for $75/sf  in nicer neighborhoods

Isnt there some inflation hedge when the materials and now cheap labor is so much greater than sales price?

Sun, 03/25/2012 - 18:18 | 2289157 Rubbish
Rubbish's picture

Im shopping for an RV, screw all this settling down nonsense. Been there done that.

Sat, 03/24/2012 - 21:00 | 2287562 Marc_W
Marc_W's picture

You're an investor, not a home buyer.  And investing in resort property in Greece will probably work out in the long run as the nation is reduced to being nothing more than a vacation colony for the wealthier E.U. nations.


I'd say there's a parallel between Greece today and Florida before it became the vacation/retirement capital of the Western hemisphere.


But for the individual home buyer looking for a primary residence, this is not the time to buy.  Unless you work for the government and therefore have a guaranteed income for life, in which case, go nuts.

Sat, 03/24/2012 - 23:52 | 2287802 Vic Vinegar
Vic Vinegar's picture

I'd say there's a parallel between Greece today and Florida before it became the vacation/retirement capital of the Western hemisphere.

Um, Florida has a lot of Jersey Mike's sub shops that make a tasty sandwich and the people there still pay taxes?

Your confidence for six weeks in on Zero Hedge is way too high, spacemonkey.

Or just keep on mindlessly commenting and let me laugh at you.  It's all good either way.

Sun, 03/25/2012 - 01:54 | 2287946 Marc_W
Marc_W's picture

Every time I change accounts, and I do so often, I have some stupid fuck like you pulling this shit about seniority and longevity on the ZH forums.


Go fuck yourself.  And go back to Slashdot where you can brag about your 4 digit ID.


The only reason I even have these accounts is because they forced me to.  Let's go back to allowing anonymous posting.

Sun, 03/25/2012 - 03:08 | 2287995 Vic Vinegar
Vic Vinegar's picture

Hottest chick you ever banged?

Describe her in 10 words or less.

Sun, 03/25/2012 - 11:27 | 2288333 quartshort
quartshort's picture

Your Mom.

Only took 2 words...

Sun, 03/25/2012 - 00:03 | 2287817 Arnold Ziffel
Arnold Ziffel's picture

Wow! Your link shows house prices may drop by another 40% t0 50%.

Just another reason wny many say renting is safer right now. Plus, you don't have taxes, maintenance, repairs, etc. A foundation problem/repair can cost 25-35% the value of the house. Mine cost 28% and the company said I "got off lucky."



Sun, 03/25/2012 - 08:37 | 2288147 cherokeepilot
cherokeepilot's picture

Just out of curiosity, how and why do you think that "taxes, maintenance,repairs,etc." are not included in "rent".  They were always taken into consideration by every landlord I knew.  They were factored into the rent that I charged on my properties.  If they weren't you would soon be broke or bankrupt.

Sun, 03/25/2012 - 06:59 | 2288084 Element
Element's picture


LOL, posted this less than an hour before this article...

Who's left to buy a home?

But seriously, lets not forget... Real home prices 1890Q1-2011Q4




And there will be an overshoot of that 100% average line to factor in also -- let's say another -20% or so.

Somehow I don't think many banks are going to make it to the other side.

Sun, 03/25/2012 - 09:51 | 2288201 MisterT
MisterT's picture

US housing is in the crapper and I don't think it should ever be expected to return to where it was in 2006.  Your second chart does a good job in showing that.

However, the first chart is ridiculous.  It starts with the US population (PEOPLE) and subtracts the number of HOMES that are occupied?  What?  This makes absolutely no sense unless you assume that 1) only one person lives in each occupied house and 2) NONE of those people are potentially looking to move.  This implicitly assumes that if you're looking for a house, you're not currently living in one.

Furthermore, it assumes that these groups listed are all mutually exclusive.  In other words, according to the chart, the 49M living in poverty are ONLY between the age of 18-65, or they're living in poverty but not making minimum wage/living with others, etc.  The overlap in groups means that people are being double (or even triple+) counted, leading to the absurd conclusion.

Sat, 03/24/2012 - 18:48 | 2287297 Eireann go Brach
Eireann go Brach's picture

Some of you folks on here are the most miserable bastards walking this planet! It's a great time to buy a home and here is why!

Here is a scenario, 1 person rents for the next 30 years and his rent increases every year, the other buys a house and has a fixed rate and payment around 4% and pays it off in 30 years, he now has no mortgage payment! Whereas the renter will continue to write his check to the landlord until he dies! Who enjoys retirement the most? It's a great time to buy a home for this reason alone!

Sat, 03/24/2012 - 20:18 | 2287468 zonkie
zonkie's picture

You are most likely a real estate agent spraying from your kool-aid bottle.

Here is why your logic is flawed - I used to live in Cupertino in an apartment in 2000, tech bubble burst and everything plunged. My rents went down from $1600 to $850 in 3 years. I had the luxury to negotiate the rents.  I was close to buying a house but then lost my job in 2004 and had to SanFrancisco for another job - I could do that because I was not shackled to a house.

Overall in an ideal world if your income rises with inflation (no one can guarantee that) and you have a secure job (which doesnt exist really) and you do not have to move in 30 years (I am not sure who can predict that) - then your rhetoric holds some water, otherwise go ahead and find suckers to sell your inventory somewhere else.

Sat, 03/24/2012 - 20:42 | 2287513 Caviar Emptor
Caviar Emptor's picture

3 words: Cost Of Homeownership. 

The renter is sheltered from the following rising costs : 

-Property taxes, insurance(s), maintenance costs including labor (renter pays zero), home improvements and upgrades (else not re-saleable) (renter pays zero), retro-fitting new technology including energy and telecom (renter pays zero), security, local services including garbage, legal and banking fees...

In brief, the renter is sheltered from both certainties and uncertainties: rising cost of ownership is a certainty, needing to relocate for job/family reasons presents an uncertainty in a market where selling is difficult, as does the future of all but the wealthiest neighborhoods (the value of your property is tied to the economic fate of your neighbors and other uncontrolable factors)

Sun, 03/25/2012 - 14:12 | 2288689 mkhs
mkhs's picture

What?  You don't think costs are passed on to the renter?

Sat, 03/24/2012 - 20:44 | 2287527 I am Jobe
I am Jobe's picture

Just try not paying your property taxes. Why should folks with no kids have to pay property taxes?


Sat, 03/24/2012 - 21:28 | 2287615 UP Forester
UP Forester's picture

It's for the children, duh!

Sat, 03/24/2012 - 22:21 | 2287700 Crab Cake
Crab Cake's picture

Why? Good question.

Property taxes are in place to make true ownership impossible; bottom line. In the end all reverts to the crown, I mean government. Private ownership of land has been dead for quite sometime in this country. It's a horrific institution, one of many in the frightfest that is the USA, and a blunt instrument of state power that needs to be converted to a sales tax.

There is no such thing as ownership if one must pay the feudal lord yearly tribute.

Sun, 03/25/2012 - 06:59 | 2288085 memyselfiu
memyselfiu's picture

I dunno...around here someone maintains the road and sidewalks, plows in the winter, picks up my garbage/recycling, maintains trees, and provides water and sewer. Not sure if that means I'm paying for tribute or for a service.

But let's go ahead and pretend we're oppressed, shall we?

Oh yes I forgot, the police and fire services take a piece of that action as well.

Sun, 03/25/2012 - 08:32 | 2288138 Oldwood
Oldwood's picture

And what if you want none of those services? They take your home anyway. You become state propeerty.

Sun, 03/25/2012 - 16:33 | 2288967 Esculent 69
Esculent 69's picture

memyselfiu- then why do you pay sales tax or gas tax or carbon tax or dmv fees or alcohol tax or cigarette tax or state income tax (if u live in the fucked up states that sticks it to you by dp like here in communist kalifornia with both sales and income tax) or recylcing tax or regulatory fees/tax or having to pay $39 to become a food server/ waiter/ server here in Kalifornia which is a tax or electronic recylcing fee/tax that charges you per inch on your flat screen tv up to $65 or toll bridge/ tax or tax you on your social security that you already paid for or....................get the point!

I truly HOPE that people like you CHANGE your minds about those that wish to tax you for a public service when it is a prison for you paid by you for when you complain about to much government and not enough services. just think socialized healthcare which is about to be a real part of our lives in 2014, unless you vote for people to repeal it. Just read Hillary Clinton in her own words

Sun, 03/25/2012 - 11:43 | 2288363 Blano
Blano's picture

Your assumption may be correct if someone stays in the same house 30 years.  But who does that anymore?  Not many.

Sun, 03/25/2012 - 13:57 | 2288633 quartshort
quartshort's picture

Your assumption is that the buyer uses a 30 year mortgage. There are a whole host of financing options. Sure...if I stretch myself (family) to the hilt it will take 30 years.!
Here is how I perceive the market at this point. Those with a LARGE down payment should wait for higher interest rates- lower prices wait in the wings. Those that don't probably should be looking as the financing options will change soon. This is partially why the market is in the shape it is in however. Inflationary forces could make this a descent bet. Taxes and insurance are wild cards. In either scenario the goal should be to pay the least loan costs to the stank... I mean bank.
The best bet is all cash but relatively few have that option (yet). Benny is making damn sure it stays that way. At a point in the near future ANYTHING but slices of green colored tree matter will be the wiser choice.

Edit- before I get called a Lowlife Realtor know that I sold in 2007 and I have rented since. I have just started to look. I will not buy at peak season meaning at best next Jan-Feb. Meanwhile my down payment grows. It is hard to live in a bank account.

Sun, 03/25/2012 - 13:28 | 2288606 piceridu
piceridu's picture

I see you have a public school education...math isn't one of your strong suits is it?

Sat, 03/24/2012 - 18:48 | 2287298 Eireann go Brach
Eireann go Brach's picture

Some of you folks on here are the most miserable bastards walking this planet! It's a great time to buy a home and here is why!

Here is a scenario, 1 person rents for the next 30 years and his rent increases every year, the other buys a house and has a fixed rate and payment around 4% and pays it off in 30 years, he now has no mortgage payment! Whereas the renter will continue to write his check to the landlord until he dies! Who enjoys retirement the most? It's a great time to buy a home for this reason alone!

Sat, 03/24/2012 - 20:22 | 2287476 SoCalBusted
SoCalBusted's picture

Maybe or maybe not.  When state and local governments hit the wall looking for new and more "revenue", homeowners are sitting ducks.  I prefer mobility, even if it has a short term premium.


Sat, 03/24/2012 - 20:23 | 2287478 AustriAnnie
AustriAnnie's picture

Not necessarily true.

1) Someone can rent for 10 years at a very low cost, while putting money aside, earning interest on it, then 10 years later BUY the house outright.  Depending on the market/interest rates, etc, he may be better off doing this.

2) 30 years is a LONG time to wait to have no mortgage payment.  If you aren't absolutely sure you want to stay in THAT house on THAT block in THAT town for THAT long, then buying a house may not be the best way to go.  It is a long term commitment.

3) Two words: PROPERTY TAX.   With the unfunded liabilities this nation has, and the debt this nation has, and the rising spending this nation is taking on, taxes will be going up.  Taxes of all kinds, property and income taxes as well. 

4) In a country where entitlement programs are growing, more and more benefits may become means tested.  The system is moving toward one where owning anything (being the person who saved and paid their mortgage and saved for their own retirement) puts you on the list to bail everyone out of every debt they defaulted on.  "From each according to his ability, to each according to his need" -- that is where we are going.

5) Homeownership removes flexibility to relocate.  Labor markets are not what they used to be.  Staying in one town and working for one firm for your entire career is no longer as common as it once was.  The ability to relocate to the best job opportunity, or to lower cost-of-living states may be crucial to survival in the future.  Not only will states enact drastic changes to taxes and regulations, energy costs (if they rise) will hit some areas harder than others.  Furthermore, as long as the gov't gives preferential treatment to their campaign contributors, companies will go in and out of business according to political will.  The districts that receive the gov't money will prosper, while other areas will decline.  If you buy a house now in a town that depends on a few industries or on gov't money flowing to that district, you put your entire livelihood in the hands of politicians.

That being said, buying a home may still be a good bet for some people.  But the above should be considered, especially going forward into the future.  

Sat, 03/24/2012 - 20:29 | 2287499 AustriAnnie
AustriAnnie's picture

6) Unless there is massive migration into this country, as baby boomers move into retirement homes and die off, that will have an effect on demand for housing as well.  It is no coincidence that the housing boom years occurred during the years baby boomers were of the age to demand 3-4 bedroom homes for themselves and their 2.5 children and golden retriever.  

(Not just the demand for housing overall, but possibly also the size of home demanded, may be very different in the future than one would expect by looking at past trends)

Sat, 03/24/2012 - 20:50 | 2287537 Caviar Emptor
Caviar Emptor's picture

Agree. We're in an economy that's signaling wage/income deflation with rising cost of home ownership, cost of doing business and even cost of going to work. Being a real estate owner in such an environment becomes a business venture. Without big capital to ride out the ups and downs this becomes a losing venture for many. What if there's a divorce/illness/tornado/in addition to the usual job change issue? Then there are local factors: the sunbelt seemed the surest place to make a killing in eal estate for 40 years....until 2008. Phoenix, Vegas, Florida, Georgia....OMG. 

What was once a reliable certainty is now very uncertain. 

Bottom line, as long as the real economy continues to deflate (jobs, real wages, advancement prospects, job security) real esate will be a bust except for the super-high end. 

Sat, 03/24/2012 - 20:50 | 2287540 Marc_W
Marc_W's picture

The elites in the Anglo New World Order are obviously betting that their economic system based on infinite growth will continue for the foreseeable future.  This is why all of the Anglo nations are so eager to allow immigrants into the country to spur population growth.


I do not believe the system will be maintained much longer, and infinite growth based fiat economics will disappear.  Therefore, the gamble of the Anglosphere in allowing massive 3rd world non-white immigration is going to backfire in a bad way.  This will pave the way for culturally and racially homogeneous nations like China, certain parts of Europe, and even Japan to prosper and gain the upper hand both economically and geopolitically.


So we will continue to have a "massive migration" into this country.  From the 3rd world hell holes of Mexico and South America.  Only it won't work out how most people seem to think.

Sun, 03/25/2012 - 07:17 | 2288094 The Navigator
The Navigator's picture


You have some points but with respect to China and Japan, I comment as follows:

China is not homogeneous country and this leads to some future problems re prosperity and gaining an economic upper hand - this subject couldn't be covered in 1,000 pages.

Japan is really screwed - demographically, they are projected to fall from 120mil population today to 75mil by 2050 - re tax/social security/GDP and everything else, they are screwed unless they can turn their demographsics around by having more babies and getting rid of a debt/GDP of 200% that they own to themselves (a debt that bankruptcy will aleviate).

Growth in babies/economies/money are all tied together and either these are inflationary or deflationary - when you grow it's inflationary, when you shrink it's deflationary. Shrinking their economy will be painful; something not seen in modern economies. Same for Italy and other European countries.

"May you live in interesting times", a Chinese curse or blessing; either way, we ar there now.

Sat, 03/24/2012 - 20:47 | 2287532 Marc_W
Marc_W's picture

The things you own end up owning you.


I want to stay liquid and mobile.  Free to relocate at the drop of a hat to work for the highest bidder.  Never afraid of losing a job due to geographic immobility.  I don't need a big house full of garbage to worry about.


Besides, you can't "own" property anyway.  You rent it from the banks and the government.  And sometimes you're subject to so many HOA/county/municipal regulations that you can't even decide the color of your mailbox.

Sun, 03/25/2012 - 14:45 | 2288749 Kayman
Kayman's picture

"Besides, you can't "own" property anyway

Our Realtor Troll seems to think making mortgage payments and paying property taxes, isn't "rent". It is.

And his/her simplistic comparison of renting vs "owning" assumes everything else remains equal over 30 years.  It does not.



Sat, 03/24/2012 - 21:43 | 2287629 i-dog
i-dog's picture

7)  Unless you plan on becoming a life-long single, your place of shelter has vastly different requirements over a 30-year span: no children, young children sharing rooms, teenage children not sharing rooms, children gone and living on your own, children returning (with their own children!), etc.

Far better to rent what and where is appropriate for your current circumstances and desires -- while owning rental properties that provide a good return (eg. inner city) and minimal maintenance (eg. commercial).

Some advice from my own parents and grandparents which has served me well ... YMMV:

a. Never own the property you live in unless you plan to rent it out later after moving elsewhere.

b. Never sell a property -- just add more to your portfolio when you can afford it.

c. Don't over-spend on renovations -- what suits you may just be demolished by the next owner.

d. Remember, a house is a depreciating pile of rubble sitting on an appreciating patch of dirt.

Sun, 03/25/2012 - 07:26 | 2288100 The Navigator
The Navigator's picture

i-dog you got it right in so few words.

As a RE broker for 22 years I concur - too many think/thought RE is/was the bubble that would make them rich.

May your points 1-4 live in infamy to save those from future bubbles that will vaporize their dreams.

Sun, 03/25/2012 - 14:24 | 2288709 Kayman
Kayman's picture

 "From each according to his ability, to each according to his need" -- that is where we are going.

Correction: That is where we are. 


Sun, 03/25/2012 - 16:57 | 2289018 Esculent 69
Esculent 69's picture

Kayman- More right than you know. What is the first pilar of communism?  Hell here's all of them just to be absolutly clear who and what we are dealing with.

1. Abolition of property in land and application of all RENTS of land to public purposes.

2. A heavy progressive or graduated income tax.

3. Abolition of all right of inheritance. 

4. Confiscation of the property of all EMIGRANTS and REBELS.

5. Centralization of credit in the hands of the STATE, by means of a national bank with State ccapital and an exclusive MONOPOLY.

6. Centralization of the means of communication and transport in the hands of the State.

7. Exstentions of factories and instruments of production owned by the State; the bringing of cultivation wastelands, and the improvement of the soil generally in accordance with the common plan. 

8. Equal liability of all to labor. Establishment of industrial armies especially for agriculture. 

9. Combination of agriculture with manufacturing industries; GRADUAL ABOLITION of the distinction between town and country by a more equitable distribution of the population of the country.

10. Free education for all children in public schools. Abolition of children's factory labor in its present form. Combination of education with industrial production, etc., etc.

Which political ideology believes in more government to run our lives and which one believes in personal responsibility and individual freedom.  Please vote for the latter and pass it on. 

Sat, 03/24/2012 - 20:55 | 2287547 Marc_W
Marc_W's picture

Who among us is stupid enough to believe we can maintain a stable income while tied to a specific geographic location for THREE DECADES?


I hope you work for the government.  Because job security is a thing of the past.  We're all temp workers now.  No pension, no job security, no income stability.


Good thing the vast, vast majority of young people can't afford a down payment on a home anyway (since the average household headed by a 30 year old has a networth of $3,000), because otherwise some of them might actually be stupid enough to plop down their life savings and "buy" a home.


For a little perspective on what can happen in 30 years, both WW1 and WW2 were fought within a 30 year span.  And you expect me to assume that:

1. I'll want to stay in one place for 30 years

2. I'll be able to pay the mortgage for 30 years

3. There won't be geopolitical instability that forces me out of the area within 30 years

4. etc.


Laughable.  The American Dream of 30 years of debt based indentured servitude paying a mortgage to the bankers is dead.

Sat, 03/24/2012 - 21:10 | 2287581 Vic Vinegar
Vic Vinegar's picture

If ur talking about the big cities in the US your point is valid.  But in a lot of rural areas (or even Detroit for that matter!) you can buy a home working as a K-Mart cashier.  If that gig doesn't last you 30 years, odds are you will find a another one.

It's silly to unilaterally state buying > renting or renting > buying.  It all depends on where you are at.  Even if you don't "own" ur property 'cuz of property taxes, at least you have some $ coming back to you when you sell.  You still get 0 at the end of renting.  Unless you clean real nice and get the security deposit back.

Sat, 03/24/2012 - 22:13 | 2287682 Marc_W
Marc_W's picture

For stupid poor people a mortgage payment can be like a forced savings account.  Since they always spend all of their money, they need a mortgage payment to "build equity" (i.e. save).  Given that most stupid people are, in fact, poor, I think this necessity of buying a shitty home in the middle of Shitsville USA you describe makes sense.


For anyone with an IQ in the upper quintile making 6 figures+, this logic does not apply.  First, smarter people make vastly more money than stupid people.  So "throwing away" your $1,000 a month rent doesn't mean that much when you're netting $7,000+ a month from your salary.  Second, smarter people tend to be more capable of managing their finances such that saving is possible on a voluntary basis.  I save about 50% of my monthly income with a rent that only eats 1/8 of my take home pay.


Social Security, "pre-tax savings" taken out of your paycheck (401K's), your argument in favor of having a mortgage, and other forms of "forced savings" exist because stupid people cannot control themselves and their finances.

Sun, 03/25/2012 - 00:07 | 2287812 Vic Vinegar
Vic Vinegar's picture

For anyone with an IQ in the upper quintile

Never had my IQ tested and never will.  So I'm not really sure what that means.

I save about 50% of my monthly income with a rent that only eats 1/8 of my take home pay.

Good on you!  

You get a Katy Perry video and big :-) from me.  

Don't be so angry - it doesn't get anyone anywhere.

Sun, 03/25/2012 - 09:18 | 2288174 IAmNotMark
IAmNotMark's picture

"First, smarter people make vastly more money than stupid people."

Counter-argument:  Paris Hilton.

Sun, 03/25/2012 - 11:34 | 2288346 RealFinney
RealFinney's picture

I feel like we all deserve to be oppressed by a better class of Overlord.

Sun, 03/25/2012 - 11:39 | 2288356 sun tzu
sun tzu's picture

One out of a billion is not a counter-argument

Sun, 03/25/2012 - 14:51 | 2288758 Kayman
Kayman's picture

"smarter people make vastly more money than stupid people.

So how do you explain the Donald ?



Sun, 03/25/2012 - 13:05 | 2288571 strayaway
strayaway's picture

Costs of repairs, taxes, insurance, new government requirements to sell, etc. will go up. As they are already included in projected rent increases, they mitigate the advantage of having fixed monthly payments when added to those payments.

Sat, 03/24/2012 - 19:26 | 2287378 SILVERGEDDON

Oh, for fuck sake. What about credit worthiness, and standards so tight if they were assholes, you could use them as pencil sharpeners ? Jesus H Christ on a crutch - what about not just being a buyer, but having to be a QUALIFIED BUYER WITH A GOLD BALLS CREDIT RATING ? Give your head a shake, man. No one gets a fucking house. Landlords for life, or rental peasants for life is the new American Way which is Good For The American Sheeple. Welcome to Snidley Whiplash World, bitchez !

Sat, 03/24/2012 - 19:55 | 2287424 Eireann go Brach
Eireann go Brach's picture

Bullshit! The FHA and VA take credit scores of 620 and only require 3.5% down or nothing down if VA, and both also allow you to buy just 2-3 years after a short sale or foreclosure, so the lender rules are not that fucking tight! Stop drinking the Kool aid Silvergeddon and open your fucking eyes to the opportunity to go buy a nice piece of real estate! If you have shitty credit and no money which is a strong possibility, go marry some cunt with some money and use her fucking credit or money!

Sat, 03/24/2012 - 20:38 | 2287517 Normalcy Bias
Normalcy Bias's picture

lol - I gave you a green arrow just for that hilariously tasteless last sentence.

Sat, 03/24/2012 - 20:51 | 2287542 Caviar Emptor
Caviar Emptor's picture

That's called giving them more rope to hang themselves. Just like sub-prime....

Sun, 03/25/2012 - 11:41 | 2288359 sun tzu
sun tzu's picture

FHA also requires $200/mo mortgage insurance added on top of your payments. 

Sun, 03/25/2012 - 02:22 | 2287966 defencev
defencev's picture

Exactly. The author is total idiot and he confirms it once again. He portrays the deflationary scenario (with housing prices and salaries going down) and yet presumes rising interest rates and inflation. Once again, confirms that this website promotes total losers and absolute nonsense.

Sun, 03/25/2012 - 09:54 | 2288204 WonderDawg
WonderDawg's picture

 He portrays the deflationary scenario (with housing prices and salaries going down) and yet presumes rising interest rates and inflation.

True, he extrapolates current conditions, but is there any reason to believe these conditions are going away any time soon? Based on my research and observations, I have every reason to believe these conditions will not only continue for the foreseeable future, but continue to deteriorate for years before they get better.

Sat, 03/24/2012 - 15:06 | 2286896 Snakeeyes
Snakeeyes's picture

I wrote a similar piece on reasons why The Fed can't stimulate the housing market.


Then appeared yesterday in the WSJ discussiing why The Fed had a role in the bubble, but not the RE-bubble.


I agree. That CAN'T reinflate the housing bubble ... and will die trying.

Mon, 03/26/2012 - 12:40 | 2291410 mickeyman
mickeyman's picture

They'd be better off finding a new bubble to inflate instead. That's the American way.

Sat, 03/24/2012 - 15:28 | 2286898 TruthInSunshine
TruthInSunshine's picture

Don't forget other 'carrying costs' (some that will inevitably go higher in real terms, will never cease, and that can be fairly massive as of total % of the initial purchase price of the property) of home "ownership" (land ownership is really a misnomer so long as tribute has to be paid to the empire, whether in the form of taxes or other forms -but I digress for now):


1)  Real property taxes (this one is particularly brutal in certain areas, and can amount to a good chunk of the underlying mortgage payment assuming the property was financed, on a monthly basis: Quick real life example; a friend was considering purchasing a property in an exlusive 'enclave' of Florida, that could be had for 28% of its 2006 high water value based on transaction records, but the taxes were 43,000 annually).

2)  Maintenance

3)  HOA fees if applicable (they can be a real bitch; Brickell Avenue is a great example of 70% empty high rises, where HOAs have increased 300% in the last 4 years)

4) Interest (if financed), as mentioned in this article

5) through x) I know I forgot a few, so I'll let fellow ZHers fill them in,

Sun, 03/25/2012 - 01:07 | 2287900 Arnold Ziffel
Arnold Ziffel's picture
12 Hidden Costs of Homeownership


Oh yeah, don't forget...when you sell the house in 3-5 years when you get transferred or move to a better job (or get fired and MUST move for a job)...the selling costs will be about 8-10% of the house price.

Sun, 03/25/2012 - 15:06 | 2288784 Kayman
Kayman's picture


How about costs that government employees can dream up to occupy their time or dump some crap on you just because.... well... they can.

building inspectors, fire department, water department, health department, electrical department, etc. All can visit and advise you  that you are out of "compliance" with (fill in the blank here).  And, of course, YOU MUST COMPLY.

And out comes your wallet. Another private sector person is robbed in broad daylight, another smug public sector employee shines up that badge he got out of a Cracker Jacks box.

Sat, 03/24/2012 - 15:16 | 2286907 Seasmoke
Seasmoke's picture




Sat, 03/24/2012 - 15:16 | 2286912 Stuck on Zero
Stuck on Zero's picture

Charts of household income are meaningless.  The only thing that counts is income after Federal and state taxes, insurance, tuition, assessments, food, heating, water, transportation, fees, fines, medical, dental, and all other manner of inflicted damage promoted by state control.  It is the spendable income that is falling precipitously. 

Sat, 03/24/2012 - 15:23 | 2286918 Sophist Economicus
Sophist Economicus's picture

Don't disagree with the housing issue, but disagree that it is doomed "because it follows an s-curve". S-curves can be fractal. At the top of the curve there can be one of three events: a cascading s-curve down like Chuck shows, the start of a new growth s-curve, or a 'random topping pattern' which can go on forever or preceded another growth or collapse curve

A long term chart of the Dow will show the ''building s-curves' interspersed with 'random topping action' connecting the waves.

Gold from '68 to '98 shows the up then down curves chuck is talking about

So, what could lead to a boom/another growth curve from chuck's doodling above. Hmmm, let me see, how about millions of escaping Chinese and Europeans with pockets stuffed with gold, fleeing situations in their homeland far worse than ours (and that has to be one nightmare).

Beware of simplistic explanations from Internet pundits, me included

Sat, 03/24/2012 - 15:34 | 2286935 blunderdog
blunderdog's picture

  Hmmm, let me see, how about millions of escaping Chinese and Europeans with pockets stuffed with gold,

Space-alien invasion seems a good bit more likely, but we should be open to all possibilities.

Sat, 03/24/2012 - 20:42 | 2287525 Marc_W
Marc_W's picture

Only the terminally braindead and 3rd world peasants are coming to America today.  Your scenario will play out, only in reverse.  Americans will be escaping the brutal fascist police state of the U.S. and seeking peace, privacy, and freedom in Europe.


Capital flight from the American police state has already begun.

Sat, 03/24/2012 - 23:29 | 2287776 Vic Vinegar
Vic Vinegar's picture

Americans will be escaping the brutal fascist police state of the U.S. and seeking peace, privacy, and freedom in Europe.

That's sarc, right?  I'd rather buy Chilean real estate or own an upscale pet shop in Asia.  How about you?

Sun, 03/25/2012 - 02:10 | 2287957 Marc_W
Marc_W's picture

After the Anglo New World Order collapses man will return to his tribal warfare based roots.  20th century notions of tolerance, diversity, and multi-culturalism will be replaced with intolerance, racial conflict, and genocide.  I.E. a return to man's natural state of existence.


You don't want to be surrounded by people not of your own race when this happens, because they will either murder or enslave you and your family.  Therefore, for a white person such as myself, the long term demographics picture combined with the prospective collapse of the 20th century experiments in diversity, make it clear that Europe is indeed the destination of choice.  Europe or Australia anyway.  North America is overrun with non-whites and the demographic trends give them a majority within my life time.


I don't want to be an old man in an America with a non-white majority.  Given how the country has treated me as a young man, discriminating against me in schools and employment due to my race and gender, I can only imagine what they will do when I am an old man and non-whites are running the show.


The Anglo New World Order is built on global military and economic dominance.  The global economic system it maintains is fiat based and assumes infinite growth.  Infinite growth is impossible in a finite universe.  And the Earth is finite indeed.  The elite has been pushing notions of environmentalism and population control for some time now.  It seems clear that a transition away from "infinite growth" based economics is forthcoming.  That transition will sound the death knell for the Anglo NWO.  Perhaps one cannot occur in the absence of the other.


The E.U., with its stable to declining native populations, large white populations, technological superiority, and well organized societies, will be well positioned in the post Anglo order geopolitical picture.  500 million (mostly) white people with control of territory stretching from Ireland to Siberia.

Sun, 03/25/2012 - 03:22 | 2287997 Vic Vinegar
Vic Vinegar's picture

That said, where you taking Peyton Manning in this year's fantasy football draft?

Sun, 03/25/2012 - 09:28 | 2288168 cherokeepilot
cherokeepilot's picture

"You don't want to be surrounded by people not of your own race when this happens, because they will either murder or enslave you and your family. "  As your fore-fathers did to mine.

Ah!  Yes! An exodus of white people from the land that they "conquered" by declaring it as belonging to some royal being from across the Ocean.   That was the dream of my great grandfather (an exodus of the white man) as he walked the "trail of tears" due to the fact that he was a Cherokee "injun".  It is sad that the "white man" has effectively destroyed this country by welcoming hordes of non-white peoples to what he now calls "his" land.  The real Indians, those from India, believe in karma. So, the rapidly increasing numbers on non-whites in this land appears to create fear in the whites. What a great example of karma. 

Perhaps you might also like to study some history of your wonderful "white" european countries.  You may learn that all was not peaceful and filled with joy.  I believe that there were many conflicts among the various groups that evolved over the centuries.  Seems like W.W. 1 and W.W.2 were fought in and on Europe and I believe that most of the waring factions were "white".

So I'll remain here in the house that I own outright, in the land of my ancestors, pay my property taxes for services that I use, provided by the various government entities, which without taxes would not be able to provide roads, schools, fire and police protection, etc.  I'll watch stupid people elect non-qualified rulers to positions of power where they continue to screw of their constituants white and/or non-white and enrich themselves. I'll gripe and bitch about goddamn illegals and other foreigners (invaders) that are now over-running my grand fathers land.  Perhaps they will accept the original peoples of this land better than the "white people" have.

Sun, 03/25/2012 - 11:46 | 2288369 sun tzu
sun tzu's picture

Study some of your history of native american tribe slaughtering and scalping each other. Put down the peace pipes. You enjoy the white man's technology, don't you? Running water and electricity are nice.

Do you think the blacks and mexicans will treat you guys nicely? haha

Sun, 03/25/2012 - 13:46 | 2288635 cherokeepilot
cherokeepilot's picture

I am well versed on SunTzu.  Hope it will do me well when this society slides into chaos.

Our history is well known to me.  Seems to be a human thing to do.  Don't have any peace pipes, they were broken like your treaties.  I do indeed enjoy the white man's technology. Read my name, cherokeepilot, own and fly an airplane, have many peices of farm equipment.  Didn't claim that the white men didn't bring advances to this land. I have many "thundersticks" and have invested heavily into brass.  Beats the shit out Bows and Arrows. My grandsons are all very familiar with firearms, their use and safety procedures associated with them. 

Mexicans took the entire Southwest from the injuns.  Nevada, Colorado, New Mexico, Arizona, California,etc.  Then the government in Washington drove them out and "granted" land to their fellow whitemen. Now the Mexicans are getting it back without military involvement by simply crossing the border and settling as "illegal" immigrants.  this is with the consent and help of the congess critters in Washington.  Did I mention that those assholes in Washington are stupid and corrupt.  They gave land to their fellow white-men and now are allowing the people they stole it from and chased out of the country to come back.  Do you not think that these Mexicans will eventually come to power and get their land back.  Hell!! they fly Mexican flags at their gatherings and your stupid government protects them while they do it.

Running water is nice, beats the shit out of hauling it from some stream where my horses and cows shit. But even this resource is becoming harder to find and more expensive.  Electricity is a great benefit sometimes.  Having lived without it from time to time makes one appreciate its utility.  One does not necessarily require electricity to have a decent life.  Ask the Quakers.

The Blacks are pretty much the same as the white men so we call them black-white-men.  We seem pretty civil compared to the way the behave.  I will only mention Detroit.

The point of my comment was it seems the author of the comment above was unhappy with the way this country has turned out and wanted to go to a place where all was wonderful.  The result of the white-man's effort at governing this country is what he is unhappy about.  Moving to a place where most people are white will not make him happy because most of those places are as fucked up as this country. Did I mention Germany, France, Greece, England, etc.



Sun, 03/25/2012 - 18:24 | 2289168 Marc_W
Marc_W's picture

I was born in the 1970's.  I don't recall ever killing any Native Americans.  Or owning any slaves.  Or segregation.  Or the Mexican American war.


See, this is the problem.  You want to hold me accountable for the bad things people vaguely genetically related to me did hundreds of years ago.  But you don't want to grant me any feeling of pride for the good things people vaguely genetically related to me have done throughout history.


But you're just parrotting your brainwashed world view given to you by the public schools and media.  Quite pathetic to behold such a simple minded person, actually.


I'm sure you'll be right there with the rest of the brown hordes, crying out for the blood of the white man, saying it's all "Karma" for slavery, the Mexican American war, etc.  Please, do tell yourself that, when you're smashing the skulls of white infants.  After all, they deserve it, because they owned slaves and stole Mexico's land in the South West.


Sigh.  I'm sure you won't comprehend a bit of this post.  Your mind is so polluted with propaganda, lies, and anti-white bias.  But it's not my problem anymore.  America's problems are irrelevant to me because I will be thousands of miles away across the Atlantic surrounded by whites that don't view me as a slaver, murderer, or thief because of the color of my skin.

Sun, 03/25/2012 - 15:12 | 2288790 Kayman
Kayman's picture

Uhh... have you been to England, France, Germany ?


Sat, 03/24/2012 - 15:33 | 2286934 AnAnonymous
AnAnonymous's picture

Yet a higher price that does not ignore these two other facts would not make houses more affordable.

If US citizens living in the US of A cant afford those prices, they would not have been able to afford higher prices.

The declining wages, purchasing power and the rest were figured out before the bubble.

That is the reason why US citizens living in the US of A deemed necessary to inflate a bubble to increase their housing inventory.

Which improved the affordability situation in a relative manner. No matter what.

Sat, 03/24/2012 - 18:30 | 2287263 TheFourthStooge-ing
TheFourthStooge-ing's picture


If US citizens living in the US of A cant afford those prices, they would not have been able to afford higher prices.

They couldn't afford those higher prices. That's why there are so many vacant houses, houses in foreclosure, and houses occupied by squatters. Did you have a point to make, or were you just babbling incoherently?

The declining wages, purchasing power and the rest were figured out before the bubble.

Figured out by whom? Figured out in what way, and for what purpose? Try to be a little more specific than "US citizenism".

That is the reason why US citizens living in the US of A deemed necessary to inflate a bubble to increase their housing inventory.

An increase in housing inventory was not necessary. There is a surplus of unsold, unoccupied houses in the US, not a shortage. Are you telling me that US house builders were engaging in Chinese citizenism, the phenomenon responsible for multitudes of empty apartment buildings and empty cities recently built in China?

If you are saying this, you are implying that Chinese citizenism had blobbed up to absorb the US housing industry. Yet being true to the eternal nature of Chinese citizenism, you will make this implication while denying it at the same time.

Quite a story being sold here. Or perhaps I should say quite a story being financed here with zero percent down payment. If Chinese citizenism made sense, that would indeed be a story...

Which improved the affordability situation in a relative manner. No matter what.

Made me laugh so hard as to almost uncontrollably a piss in my pants. Why do you are posting such obvious not facts? Posting from a Chinese citizenism opium parlor with wi-fi?

Waoooo! Best for you to come down from your drug high and then think better of it.


Sat, 03/24/2012 - 23:33 | 2287781 Vic Vinegar
Vic Vinegar's picture

I greened you b/c AnAnyonmous = garbage.  Keep it up, FourthStooge-ing.


Sat, 03/24/2012 - 23:42 | 2287789 Vic Vinegar
Vic Vinegar's picture

@ AnAnonymous:

A breakdown of your comment 

If US citizens living in the US of A cant afford those prices, they would not have been able to afford higher prices.

is here

Sat, 03/24/2012 - 15:37 | 2286940 Mtn_Wolf
Mtn_Wolf's picture

More doom and gloom posted this time on :HOUSING???lmao>>no matter what crap is post on here (most of which is TRUE and CORRECT) I WILL SAY IT AGAIN FOLKS:


Sat, 03/24/2012 - 15:40 | 2286944 TruthInSunshine
TruthInSunshine's picture


Fiat currency that's not backed by anything of tangible value and central banks (especially of the fractional reserve flavor) have epic track records and lengthy winning stretches.




Sat, 03/24/2012 - 21:15 | 2287602 AustriAnnie
AustriAnnie's picture

History suggests otherwise.

For a partial list of exceptions to the "they always win" theory:

Sat, 03/24/2012 - 21:18 | 2287607 AustriAnnie
AustriAnnie's picture


Currencies that failed:

Sun, 03/25/2012 - 15:20 | 2288804 Kayman
Kayman's picture


All parasites depend on the health of the host.  The American Middle Class was the host. The Parasites are blind to this simple fact and have carelessly poisoned their own blood supply.

No need to beat them. They are beating themselves. Do as little as is  necessary, look after your family and friends. Let the parasites die a putrid death.

No Central Bank has ever founded a country. No government has every survived endless deficits. And even bread and circuses require somebody to do the work.

Sat, 03/24/2012 - 15:37 | 2286941 Why Not
Why Not's picture

Regardless, housing and Fed gov't finances are the primary reason the Fed will leave rates at or near zero for a very long time.

Sat, 03/24/2012 - 15:50 | 2286953 TruthInSunshine
TruthInSunshine's picture

Big call here (I hate it that research analysts at large financial firms have just now started to agree with me, and it almost makes me doubt my own opinion - almost):

Rates are headed higher regardless of what happens, with the possible exception of a major hot war that creates major energy supply risks.

In fact, I would bet money (wait, I already placed the bet) that The Bernank isn't able to ZIRP his way anywhere near through the end of 2014.

Central banks, Bernanke's front and center, have lost their inflation fighting cred, and in fact, real inflation is already chugging along at a minimum of 6% annually (probably closer to 8%).

We know from the Keynesian Alchemist Economic textbooks that there's a 6 month* lag time between jacking interest rates and tempering inflation once inflationary forces are already out of the bottle   - even though The Bernank stated on 60 Minutes that he is a super-Keynesian - and could do the same in '15 minutes.'

*In reality, history has proven that the lag time between raising interest rates and slowing, let alone tamping or bringing about disinflation, is far greater than 6 months, short of monetary shock policy.


Sat, 03/24/2012 - 15:51 | 2286965 fonzannoon
fonzannoon's picture

I give you credit for sticking with your guns truth. I know you called this last week. Couple of bad days in the market and treasuries seemed to get a bid. Was wondering what you were thinking.

Sat, 03/24/2012 - 18:21 | 2287238 WolfePaq
WolfePaq's picture

...but then again a hot war would drive every one INTO TSY and rates would go negative with a price spike.

Sat, 03/24/2012 - 20:46 | 2287530 AustriAnnie
AustriAnnie's picture

"a major hot war" being the question.  War or not, and if so, when? 

Sat, 03/24/2012 - 15:39 | 2286943 TheSilverJournal
TheSilverJournal's picture

Mortgage rates are going much higher than the 6% in the example. They'll hit min. 25% when the inflation train starts chuggin. Another factor that will contribute to housing's slide will be that many of the most driven citizens of the US will leave in search of opportunity.

Sat, 03/24/2012 - 15:41 | 2286947 fonzannoon
fonzannoon's picture

This seems like an argument for a stagflation environment as opposed to a hyperinflationary environment which is what I thought is the prevailing thought around here.

Sat, 03/24/2012 - 15:51 | 2286957 Normalcy Bias
Normalcy Bias's picture

NAR - There's never been a better time to buy. ( live in)

Sat, 03/24/2012 - 20:40 | 2287521 Marc_W
Marc_W's picture

I live in a van down by the river.

Sun, 03/25/2012 - 00:26 | 2287858 Vic Vinegar
Vic Vinegar's picture

Would you be a dove and start a ZH user relationship with me?

Since I'm too stupid to pull lead on this, I hope you will help me out after you are done putting up tired SNL jokes from the 90s. 

Looking forward to the chats, spacemonkey!

Sun, 03/25/2012 - 02:16 | 2287961 Marc_W
Marc_W's picture



Hit me with your Facebook girl. Holla atcha.


Oh wait, I don't particpate in "the social network."  More inclined towards "the anti-social network."


ZH is the site of choice for the sophisticated internet hate machine.

Sun, 03/25/2012 - 03:13 | 2287998 Vic Vinegar
Vic Vinegar's picture

Seriously, spacemonkey - if you were a chick I wouldn't wanna get down with you as you seem super-creepy.

So work me - tell me something that will get you in my pants.

Sun, 03/25/2012 - 18:28 | 2289175 Marc_W
Marc_W's picture

Individuals are irrelevant to me.  I'm here to talk about ideas, economics, and geopolitics.


Shouldn't you be back on Face Book surrounded by other simple minded folks?  Talking about each other's pathetic little lives and such?  Sports?  TV?

Sat, 03/24/2012 - 15:51 | 2286963 tony bonn
tony bonn's picture

"Credit-asset class bubbles cannot be reinflated because they follow an S-curve..."

michael hudson quoted someone else's work on this subject which demonstrates that, along with negative mpd, economic recovery is absolutely impossible....the debt is so corrosive and cancerous that this nation is fast on its way to argentina....actually its situation is far more deplorable...

even some otherwise astute observers are forecasting a housing recovery but they each overlook or deliberately omit the shadow inventory....which is anyone's guess at this point...

there will be no housing recovery - this nation is so beyond fucked that it will be in permadecline for generations to come....

Sat, 03/24/2012 - 20:30 | 2287502 Marc_W
Marc_W's picture

If demographics are destiny then we need simply look to the standards of living enjoyed by our new Hispanic brothers and sisters back in their home countries for a cue as to America's future.

Sat, 03/24/2012 - 21:04 | 2287571 Vic Vinegar
Vic Vinegar's picture

How about an Asian invasion buddy?  This is a good thing.  Asian broads are awesome.

Sat, 03/24/2012 - 22:14 | 2287683 Marc_W
Marc_W's picture



Not fastest growing in real numbers.


The fastest growing race in the U.S. is illegal Hispanic immigrants.


Jesus Christ, the main stream media exists for people like you.  Fuck off back to yahoo news.

Sat, 03/24/2012 - 23:24 | 2287768 Vic Vinegar
Vic Vinegar's picture

I went back to Yahoo news and found five tips for a tiptop credit score.  Does this help you?

Don't get me wrong - there are plenty of hot Hispanic chicks.  Sure, I could bitch and moan about those who have great faces but are too fat, but I prefer to focus on the positive.

Sun, 03/25/2012 - 02:06 | 2287955 Vic Vinegar
Vic Vinegar's picture


Perhaps you could share your points with me on ZHChat?  Otherwise, I'm sticking with this


Sat, 03/24/2012 - 15:52 | 2286967 hangemhigh77
hangemhigh77's picture

You need a place to live and you're homeless?  Go to BOA, tell thejm that you'll do them a favor and live in one of the mansions that they've foreclosed on.  You will mow the lawn and make sure the maintemence is taken care of and for that you live for free. They need us a Hell of a lot more than we need them.  SCREW THE BANKS.  All you homeless people, go git ur bailout.  And then before you leave burn the bitch to the ground.

Sat, 03/24/2012 - 15:58 | 2286975 Sudden Debt
Sudden Debt's picture

So deflation in assets and inflation in costs and dropping wages and higher taxes...

If this is what they call stagflation, i don't like it!

Sat, 03/24/2012 - 16:00 | 2286977 ZeroPoint
ZeroPoint's picture

3 inputs......sounds hot......

Sat, 03/24/2012 - 16:12 | 2286988 Normalcy Bias
Normalcy Bias's picture

...aka the airtight seal.

Sat, 03/24/2012 - 16:17 | 2287003 Sudden Debt
Sudden Debt's picture

... Aka buttplug

Sat, 03/24/2012 - 16:17 | 2287004 Sudden Debt
Sudden Debt's picture


Sat, 03/24/2012 - 16:18 | 2287006 Belarusian Bull
Belarusian Bull's picture

I don't intend to offend americans, but your homes look like they are built of gypsum plasterboard...

Do you still use traditional materials like bricks, wood or cement?

Was just wondering, because our people can't really imagine living in a home build of gypsum plasterboard.

Sat, 03/24/2012 - 16:46 | 2287029 TruthInSunshine
TruthInSunshine's picture

It depends on what area of the country you're referring to, and the age of the homes.

In gentrified areas, many homes are solidly constructed of brick and mortar or even limestone, have hard wood timber (i.e. the stuff you can't even buy anymore) framing, have plaster walls and ceilings that were built by immigrants who brought old world trade skills to the U.S., and have amazingly detailed and perfectly done interior trim. Some of these homes even have real slate roofs.

Of course, some of these same houses also have terrible ventilation, can not be efficiently insulated due to the methods they were constructed by (at a time when heating a home wasn't a big cost or concern), and they would literally go up in flames faster than a matchbox if a fire beset them.

I agree with you about newer homes, generally. While they tend to be far more energy efficient (because of new codes), they are shoddily constructed, mass produced pieces of epic shit, framed with 2x4 pine, and out west and down south, having a literal chicken wire fascia that's sprayed over with cement-like gruel (i.e. stucco), while their 'high end' counterparts homes get dryvit/stoex exteriors (or cement board, if the owners really want to go for the best /sarc).

I have never seen cheaper residential construction in a developed nation than I did in Las Vegas (Clark & Henderson Counties), Gulf Shores, Alabama, Jacksonville-Orlando-Tampa-Anywhere Florida, Glendale/Phoenix Arizona and pretty much any place in California circa-2003 to 2000andNow.

The roofs will last maybe 10 years without a major leak, the exterior will suffer all kinds of bleeding and staining, the exterior wall sheathing will also be prone to being ripped off if a heavy straight line wind manages to occur (along with plastic roof tiles or cheap shingles), and the drywall/sheetrock is already corroding the wiring and giving off sulfurous odor if it was part of the large batch used to build homes in the most bubbly areas during the bubble and was imported from a certain country.

You can build a very high quality, energy efficient (you really can build a near or net-zero home, actually) and healthy (i.e. low VOC gass off) home, but you're probably going to have to do it yourself and be willing to spend a lot more money on the design and materials.

Sat, 03/24/2012 - 16:57 | 2287055 Belarusian Bull
Belarusian Bull's picture

I don't know much about construction, especially construction in US, but this helped me to understand it a bit.  Thanks for the detailed answer!

Sat, 03/24/2012 - 20:40 | 2287519 Marc_W
Marc_W's picture

Europeans seem to build their homes to last generations.  Indeed, often times a home is lived in by multiple generations of the same family.


Americans live in the disposable culture mindset of a nation of consumers that enjoyed a drastically higher per capita income than the rest of the world for many decades.  But that is all changing.  Every year sets a new record for the percentage of young adults living with their parents.  Quality of life and standard of living are on the decline.  Wages are stagnant, and inflation is rampant.  Soon Americans will understand two things:


1. Wooden homes are a declining asset.  And most Boomers will be dying in the same home they raised their children in instead of selling it for whatever imaginary number they thought it was worth in 2006.

2. The American Dream is dead.  Sacrificed at the altar of globalization.

Sun, 03/25/2012 - 07:17 | 2288095 memyselfiu
memyselfiu's picture

You don't know what the fuck you're talking about. Wooden homes properly maintained will last for centuries.

Sun, 03/25/2012 - 18:30 | 2289182 Marc_W
Marc_W's picture

Not if I karate kick your house down.  With your 18 inch stud spacing, toxic half inch thick Chinese drywall, etc.


Pray a strong wind doesn't come by and huff and puff and blow your house down little piggy.

Sat, 03/24/2012 - 17:31 | 2287130 Freddie
Freddie's picture

Some of the houses in Florida are not bad.  The stuff pre-1980 if it is CBS block and tile roof is pretty solid.

I wonder at what point decent house will start to go up as replacement costs go up?  The supply may be too great for that to happen for a while.  Also there are no jobs.

Sat, 03/24/2012 - 16:47 | 2287035 blunderdog
blunderdog's picture

You can still buy decent construction, but yes, most of our newer homes are built of gypsum plasterboard.  They have a wood armature inside to keep them from sagging.

I went through a model home about 15 years ago and it looked OK--16" spaced wall studs, sturdy floors (12" joists?), etc.  Walked through one of the homes for sale in the same development a few months later, and it was garbage, with 20" spaced studs, floors with a lot of bounce, and a staircase that honestly made me think about my safety.  (Great carpets, tho.  And a really well tricked-out kitchen.)

I decided at the time I didn't want anything that was built later than the '80s.  A friend of mine back in the '90s had told me he knew of another construction crew that had put up a few houses without even adding plywood for the exterior walls--it was vinyl siding, then insulation, then drywall. 

This was in the Northeast, where such things can matter. I have ALWAYS been disturbed at the construction quality I've seen in S. Florida and Texas.

Sat, 03/24/2012 - 20:35 | 2287511 Marc_W
Marc_W's picture

That's what they do to trick ignorant buyers.  The structual quality is garbage, but it'll have nice granite counter tops in the kitchen with stainless steel appliances.  The carpets and "wood" flooring will look amazing.  But you'll know everything about your neighbors and the first strong gust of wind is taking the house down with you inside it.


A gilded facade over a cheap, low grade skeleton.  An apt analogy for all of American culture, if you ask me.

Sat, 03/24/2012 - 20:54 | 2287549 AustriAnnie
AustriAnnie's picture

Only thing worse than the brand new shoddy house with granite countertops is the 5 year-old shoddy house, where the real estate agent tells you "the owner just remodeled".  Nothing is scarier than the results of the CPA-by-day, DIYer-by-night, remodel.  These people see a TV show on HGTV and decide to knock out walls and do their own electrical wiring and plumbing.  You never know what you'll find behind those walls....

Sat, 03/24/2012 - 21:14 | 2287600 Jena
Jena's picture

In southern California, newer is not necessarily better in my mind.  Everwhere is subject to earthquakes so I pay attention to houses that are older and have been around a couple of decades.  They've already been through plenty of small quakes and are likely to withstand plenty more.  Plus, chances are they may even be on bedrock as opposed to being in areas that shouldn't have been developed because of the chance that the whole neighborhood will turn to liquifaction (muck, basically) in a really big quake.



Sat, 03/24/2012 - 21:27 | 2287613 AustriAnnie
AustriAnnie's picture

I wouldn't touch property in CA with a 1,000 foot pole.

All the most tyrannical federal laws get tried in CA first.  They will lead the way in income/property tax increases, mandatory energy-efficiency/environmental upgrades, fines for doing anything without spending a few thousand on a permit.  Plus huge pension obligations and debt problems.  And CA loves, more than most states, to take from those who "have" and give to those who "haven't". 


Sat, 03/24/2012 - 22:03 | 2287667 Jena
Jena's picture

Bad government leading to a failed state.  Yeah, that's California -- leading edge.

Sun, 03/25/2012 - 07:19 | 2288097 memyselfiu
memyselfiu's picture

You can thank your building codes- the US has some of the most disjointed codes in the western world.

Sat, 03/24/2012 - 16:49 | 2287040 Errol
Errol's picture

Belarusian, it's worse than that.  The sheathing is often particle-board covered with vinyl siding.  A lot of the newer houses in exurbia will just be allowed to crumble into the ground.  They are one of those "malinvestments" that the Austrian economists are always going on about...

Sat, 03/24/2012 - 17:23 | 2287093 Belarusian Bull
Belarusian Bull's picture

I think Austrians don't mind malinvestments as long as they occur in a free-market enviroment and are allowed to be corrected.

On a side note, here are some pictures of homes typically built in Belarus

They might seem old-fashioned, but give you an impression about typical set of materials we use here.


Sat, 03/24/2012 - 17:39 | 2287145 Freddie
Freddie's picture

The construction looks pretty good.  The houses/cottages look like homes in the UK, Austria, Holland and other parts of western Europe.   The Germans generally build heavy duty homes with brick that could last forever but would be expensive to build.

How have things changed since the fall of the wall and USSR.  Was the house construction quality good and housing available during the USSR period? 


Sat, 03/24/2012 - 18:11 | 2287181 Belarusian Bull
Belarusian Bull's picture

In USSR owning a private house was almost impossible for an average person. The only thing allowed was small summer house called "dacha". These  houses, typically, had 2 floors and basement, were built of wood or bricks, or 2 of them combined and looked like this one

Sat, 03/24/2012 - 20:18 | 2287467 Marc_W
Marc_W's picture

New homes built in America during the past 15 years are of remarkably poor quality.  They are thrown together by cheap illegal Mexican labor in a few weeks using the cheapest possible building materials.


American homes are falling apart after 20 years and most should be condemned in 30.  At the 50 year mark they are nothing but tear downs.  But the Boomers were sold the lie of ever increasing home values, despite the obvious logic that a wooden home won't last forever and is, in fact, a depreciating asset.  The Japanese are one of the only countries on Earth that does dwellings "right."  After 30 years they tear them down and build something new.  Most homes should be torn down at 30 years.


In the past there were fire regulations that required at least some concrete construction separating multi-family dwellings such as apartments and town homes.  The builders got around that by using these new metal plated wooden "firewalls", which keeps down costs and makes for faster building.  Problem is, those flimsy "firewalls" don't do anything to aborb noise from your neighbors.  So you can hear every word of every conversation.  You could rob your neighbors by simply kicking a hole in the wall and walking through.  And the first strong gust that comes along is going to shred your home and anyone in it.  That's one reason so many Americans die in hurricanes and tornados - our homes are nothing but drywall, aluminum/plastic siding, and paper shingles.


Then take into account the HOA fees, insane property taxes, etc. and it's simply not worth it.

Sat, 03/24/2012 - 23:45 | 2287792 James T. Kirk
James T. Kirk's picture

Short version reply to Belarus, taken from LA Story, starring Steve Martin: Main character (Martin) is giving a pretty English reporter a tour of Bel Air, trying to impress her with the "mansions." He proudly tells her "some of these homes are almost 30 years old."

Sun, 03/25/2012 - 01:20 | 2287910 Arnold Ziffel
Arnold Ziffel's picture

Belarusian Bull,you are correct. Many of these were pop-up, zero-down houses that will show their wear very fast. Cheap, knotted wood and poor foundations already haunt many of these neighborhoods.

Sun, 03/25/2012 - 02:24 | 2287967 Donnie Duvanie
Donnie Duvanie's picture

Are you kidding? The markup on homes made with plasterboard is incredible!

Sat, 03/24/2012 - 16:32 | 2287020 Waterfallsparkles
Waterfallsparkles's picture

One of the reasons for the lower prices and affordability rate is Property Taxes.  Property taxes go into the Monthly payment.  Banks use the Principal and Interest and property taxes to get the total payment and then use that to qualify the Borrower.

Although, prices have fallen Property taxes have not.  The States need the Money desperately.  Even if you Appeal your Taxes the Department of Assessment and Taxation will not use any Comparable's that are a Short Sale or a Foreclosure Sale or an Auction.  So, if the Bank is Selling or has sold a property for less than market the State will not consider that sale for your Assessment.  They say that it was not an arms length transaction.

The Bank sales can be off by 25% but the States will not consider them when reviewing your Taxes.  I know I tried.

Bernanke may be able to offer low interest rates but cannot fix the States Property Taxes.

Sat, 03/24/2012 - 20:24 | 2287485 mophead
mophead's picture

This totally depends on the state and county.

Sat, 03/24/2012 - 17:35 | 2287138 Madcow
Madcow's picture

As RE prices inevitably fall back to pre-1980 levels, anyone who bought in after 2000 will be crushed.  for the next 20-30 years, the banks will be foreclosing on at least half of the nations homes, businesses, family farms, state parks, city monuments.   

Considering they never really had the money to invest in those properties in the first place - its a win win win for the banks - and nothing but upside.  Prices could fall another 90% from here and its still infinite profit for the bank.  in they run out of cash, they can just send the bill to the US taxpayer. 

So really, it is in their interest to have a multi-decade contraction in which prices fall back to what they were 30, 40 or evn 50 years ago. 

Sat, 03/24/2012 - 21:24 | 2287593 djsmps
djsmps's picture

Sorry. Double post. But regarding build quality, my modest home was built in 1915. The construction is pretty good.

Sat, 03/24/2012 - 21:19 | 2287608 djsmps
djsmps's picture

I paid cash for my house in 2003, in a non-bubble area of the Midwest. I'm not worried about my house. I'm worried about everything else.

Sun, 03/25/2012 - 00:31 | 2287869 Vic Vinegar
Vic Vinegar's picture

In all seriousness, I saw this quote today that should be shared:

Blessed is the person who is too busy to worry in the daytime and too sleepy to worry at night.

Sun, 03/25/2012 - 11:18 | 2288321 Tapeworm
Tapeworm's picture

This past Tuesday I signed up to buy a HUD house. It was built of brick in 1956 and is in good condition, but hardly updated since new. The city assessment is 120k, but sold for 45,500.

 I wonder what the taxes will do now that it was sold  for about 35% of assessed value. The taxes are now at 8% of the sale price.

 This city is screwed because they spent all of the fat tax receipts in the bubble, and even went on a borrowing spree at the peak.

Sat, 03/24/2012 - 17:43 | 2287156 Waterfallsparkles
Waterfallsparkles's picture

From my observation in Maryland I find that some of the best areas have not taken a beating in home prices.  Yet, if you look at the condo market or the fringe areas they have declined substantially.

With regard to rent I have found that rental prices have not appreciably gone up.  It almost appears that there is a glut on the Market.  Many Landlords are slashing prices to keep their units occupied.  Many of the calls I get about my apartment that was recently available were from people living with Parents or roommates.  Many other people do not have the income to qualify or have really bad credit.  So, many people that want to rent, the rent would be 50% of their income and that is a disaster waiting to happen.  Some people are living in temporary housing like an extended stay Motel that rents by the the week for 3 times the rent of a regular apt.  They will beg you to rent to them as the rent is so high they are living hand to mouth, subjected to eviction every week and cannot afford to stay there.  Although, you feel compassion for them, most do not have a good credit report and they are there because they got evicted from another Landlord that gave them a chance.

It is tough out there for Landlords and Tenants.  Landlords want to protect their property and profits and Tenants want a place to live.  Except there are some Tenants that want to get in and use the laws to stay way beyond their ability to pay and Landlords have to protect themselves from that.

Sat, 03/24/2012 - 18:06 | 2287198 bugs_
bugs_'s picture

after tax income

unfunded mandates from the local grand poobahs

worries about the title

the list goes on and on

Sat, 03/24/2012 - 18:54 | 2287310 Olympia
Olympia's picture


FED printed cheap money and loansharking multiplied this money in an unnatural way within the American economy borders and they discarded them abroad so that they did not threaten USA. USA became the first state in the world with artificial “breathing”...

It cannot be possible but just in the USA for only the last year, more than one million houses were seized. It cannot be impossible but the New World has returned to tents and shelters ..has returned to the ages of Columbus. It cannot be possible that we allow to a few loan sharks looting the toils and the assets of people...

Authored by Panagiotis TRAIANOU 


Sat, 03/24/2012 - 19:00 | 2287323 cat2
cat2's picture

Real muppets live in garbage cans.

Sun, 03/25/2012 - 00:39 | 2287873 Vic Vinegar
Vic Vinegar's picture


You've been here for a year and 32 weeks and gave us this.

This is why people who believe in the pyramid aren't bad; they have just grown past your useless bullshit.

Jay-Z and Alicia Keys, anyone?

Empire State of Mind

Sun, 03/25/2012 - 03:04 | 2287987 Vic Vinegar
Vic Vinegar's picture

Congrats on your green, cat2.  It's a bit ironic that Tyler brings thoughtful, yet challenging news but the most paranoid freaks here like you can get greens.

Seriously, space monkeys.  Somebody greened the comment above.  I'd much rather green the cat who slammed flour in Kim K's face.  

But maybe that's just me?  LOL 

Sat, 03/24/2012 - 19:03 | 2287328 riphowardkatz
riphowardkatz's picture

Credit-asset class bubbles cannot be reinflated because they follow an S-curve. No matter how much taxpayer money the Federal government throws into the housing market, it will not reinflate. The financialization (credit/leverage bubble) of housing follows an S-curve as a system, and tweaking the parameters of the inputs (lowering interest rates, buying up toxic mortgages, etc.) doesn't change the curve. "

What in the hell does that mean? I see no supporing info in the article and it makes no sense to me. If interest rates were below inflation the money is free or better yet you are in essence getting paid to borrow while the value of cash outlay would be cut in half in a short amount of time if were not putting it into the mortgage.

As a store of value homes did great through the 70's and gave you that chance to get out with massive returns during the 80's. The when that bubble popped they again did greta through the 90's until the 2007. Granted you have to know when to sell and that isnt easy but just claiming there is some S curve BS is a joke and defies any kind of logic. If it doesnt please explain what the hell you mean.

If you can find cheaper money please tell me where it is 

That is with CPI not with real inflation. 


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