Here Is What The "Other" Financial Health Metrics Are Showing

Tyler Durden's picture

For all those starry-eyed readers of Floyd Norris' New York Times real-estate column this morning who have been out viewing new homes this afternoon and already scratching together the down-payment with the family's EBT cards, we have a little contextual reality checking. Norris points to the factual reality that a broad ratio of all financial obligations - both homeowners and renters - relative to disposable income stands at an impressive-sounding lowest level since 1984, and uses this wondrous statistic, in its sublime uniqueness, as an indication to suggest the consumer may be coming back as the household debt burden has been so reduced from a record 14% of disposable income to a 'mere' 10.9% now indicating just what good little deleveraging beings we Americans have been.

 

Norris's justification for a bright shining new consumer-driven reality as real-estate must go up from here (given the deleveraging and 'cheapness' relative to income)...

However, as Nomura noted so clearly this week, this statistic is just a small part of everything when we consider the balance sheet (and not just cash-flow) of the household, 'many homeowners are likely to take little comfort from the decline in average debt service costs relative to incomes.' For millions of homeowners whose property is now worth less than the debt used to finance it, mortgage interest costs may be more usefully gauged relative to the equity they retain in their homes.

Mortgage Debt Servicing Relative to Housing Equity...oops! Not quite such a pretty picture...

For them, these monthly debt service payments are necessary to retain their claim on an asset whose value has fallen and might not recover as the $3.7tn negative-equity 'gap' should remind us that the economic crisis of the past decade has taught a new generation a painful lesson about the dangers of excessive debt.

Debt and net-equity in owner-occupied housing...

 

This is the sad reality that millions of households face every month and while the mainstream continue to push the old 'new' normal of the new-new American Dream, with Norris' own hope-laden words so prescient a reflection of this anchoring bias: "the outlook is seldom as bleak as it seems in the immediate aftermath of a calamity", we remind those with animal-spirit-hopers that the economic crisis of the past decade has taught a new generation a painful lesson about the dangers of excessive debt. Unfortunately, as Reinhart and Rogoff’s research reminds us, we could have learned these lessons far less painfully from history books rather than from first-­hand experience.

 

Source: Nomura, New York Times

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
I am Jobe's picture

Amerika's Future- Zero.

College gilrs better start spreading might be able to survive. useless degrees leads to  very lucarative profession in Prostitution.

DormRoom's picture

It's worse.  Diploma mills have saddled millions of American with worthless degress an undischargeble debt.

http://www.reddit.com/r/IAmA/comments/slnne/i_teach_for_a_diploma_mill_e...

America has managed to load unsustainable debt onto every demographic segment.  There is no demographic segment that can make up the consumption gap as other segments deleverage.

Death and Gravity's picture

Yes... Debt Slavery in its full glory. Wherever you go, wherever you will go.... you will be surrounded by debt.

vast-dom's picture

STRIKE ANOTHER MATCH AND START ANEW

CAUSE IT'S ALL OVER NOW BABY BLUE

jeff montanye's picture

actually this is addressed to he who is jobe above who recommends that college girls start spreading and become prostitutes: jobe the tree spike? horny enough to fuck mud (per lenny bruce)?

http://www.homedepot.com/webapp/wcs/stores/servlet/ProductDisplay?produc...

Pinto Currency's picture

 

 

We are in the midst of a calamity, not in the aftermath of a calamity. 

Bleak on.

Ayr Rand's picture

Nomura's conclusion is far too optimistic.

Even though the statistics for average disposable income and average debt imply that households can take on more debt (if they weren't worried about staying employed or anything else),  the fact is that the median or typical household is in worse shape than 5 years ago. 

  • About 90% of the gains of the last 5 years have accrued to the top 10% of households. 
  • Households worth $1.5M and above, it turns out, already had less than 10% of debt /asset ratio as of 2007. With the additional wealth provided by Obama, they are even more secure.
  • Meanwhile, the lower deciles are more and more pinched.
  • The only significant deleveraging of household debt in the last 5 years has been due to foreclosures and short sales. Which lower asset values (as noted in this writeup).
  • The latest debt bubble is educational loans, which (...wait for it... !!! ...) cannot be discharged in bankruptcy or otherwise walked away from. No exit. 

When the BEA, BLS, Census, and Fed start reporting all of their statistics based on decile of household income, i.e., the bottom 10%, the second 10%, etc., up to the top 10%, then the true and very grim picture will emerge. In the meantime, the fixation on averages will keep everything looking rosy due to the massive wealth benefit at the top. The retail investor has already bailed, so the top households will largely evade the effects of the impending stock market crash. 

When austerity measures kick in (and they have not started yet in any meaningful sense) expect the degradation of household viability to accelerate as real incomes are lowered. 

When the foreclosure wave that RealtyTrac and other objective observers of real estate have predicted kick in (RealtyTrac said the cracks in the dam are forming, expect the floodwaters soon), the degradation of household viability will accelerate as household assets plunge in value (again).

Meanwhile, the band of the Titanic continues to play the tune as the spaces on the lifeboats are being reserved for the banksters that expedited the events. 

By the way, I am very interested in seeing reliable information that materially affects this analysis. 

Cheers,

:) AR

boiltherich's picture

Cogent indeed, Ayr, as you were writing you were saying much of what I was thinking while I read the article; "...expect the degradation of household viability to accelerate as real incomes are lowered."  One of the things I was thinking was that the charts and graphs above had to be based on BLS statistics that will never recognize the harrowing fall in median incomes.  That there is any middle class left at all these days in real terms rests upon the use of credit cards to maintain a lifestyle on the verge of being vaporized. 

Several have mentioned a particularly nasty form of debt, the government backed student loan.  I had only taken out a $2,200 student loan when the college fucked up and put me into default, it took 11 years to settle the matter during which time I had no credit in the "formative" years of young adulthood.  Over a debt that no matter what I did just got larger and larger.  I read just yesterday that 50% of new college grads are unemployed, now that is a stunning statistic that refutes any claim that the economy is improving. 

I think that the statistic Ayr cites about 90% of the income gains going to the very top tier is not as accurate as his source wants us to think, in fact all of the gains in income have been financial gains of unearned income based upon the levitation of the S&P and other indices, gains that are paper only, and which cannot realistically be realized since to realize them would require selling the underlying equities and that would lower their market value.  Real net income in disposable cash has fallen for all but the very top tier of households.  I can estimate by how much based on my anecdotal observations, but in fact with skewed or even fraudulent statistic keeping nobody can give you a definitive amount by which incomes and net worth have dropped.  I say it is far larger than even my skeptical friends at ZH are prepared to believe.  And the sheer bulk of the student loan mountain of debt is one laser sharp indication of this, educations that used to be paid for by parents and grandparents who saved decades to put their kids through school now rely upon the loans to get them through it because their incomes have dropped so far so fast it is the only way to pay for college.

Anybody that claims that the public can now afford to take on more debt because the cost of debt service has dropped so much is just flat out not in touch with reality as to the real drop in median income or the quality of that income.  The APR on mortgages might have dropped to historic lows, but the price of housing is still far above the affordability level for the vast majority since incomes in the real world have dropped far faster than housing prices. 

By the way, any positive news in the housing market I am convinced is being driven by horrendous inflation in rental housing.  If other parts of the nation are anything like here where rental housing prices have increased by nothing less than 30-40% since 2007.  I have been searching CraigsList in several regions of the country to find affordable rental housing because it has gotten so bad here that actual rents are secondary to other considerations, landlords now feel entitled to dictate lifestyles of their tenants and even though many of them are in violation of the fair housing laws they seem unafraid of repercussions for discrimination, rentals are so tight now that they can charge what they want and demand you fit their description of a good tenant and still have applicants begging to pay more because there just is nothing out there.  Even the most expensive complexes in this county have years long waiting lists and unemployment is well over 11% and that is only because so many have aged off the benefits rolls.  All the while you can drive down any street and see empty homes with HUD stickers in the windows, on some streets you can see three houses in a row sitting empty in foreclosure.

This will not end well and we are closer to the breaking point than you might guess. 

Marc_W's picture

I think that's the point.  Get everyone (or almost everyone) in debt so when the jubilee/death of the dollar/replacement with digital currency happens all are sinners in the world of debt.  Looks like a set up to me.

Sam Clemons's picture

That or build a huge military by offering debt forgiveness to those who join.

Non tin-foil now, I'm amazed at all these writers and pundits who keep trying to show graphs and charts about how we are getting back to "normal."  Wait, why would we want to get back to "normal?"  

In hindsight, wasn't "normal" just a huge binge debting party, and we are now living with the never-ending hangover.  Why would anyone aspire to start it all over again? 

Dre4dwolf's picture

That or build a huge military by offering debt forgiveness to those who join.

Non tin-foil now, I'm amazed at all these writers and pundits who keep trying to show graphs and charts about how we are getting back to "normal."  Wait, why would we want to get back to "normal?"  

In hindsight, wasn't "normal" just a huge binge debting party, and we are now living with the never-ending hangover.  Why would anyone aspire to start it all over again?

 

-----

 

Thats simple, because drunks like to party..... a lot.

vote_libertarian_party's picture

Surely there is a market for a degree in Asian Lesbian Poet Lit???

DormRoom's picture

Steve Jobs had a liberal arts education.  Stop hating on the humanities. In their minds reside the history of man, and its becoming.

 

http://en.wikipedia.org/wiki/The_Question_Concerning_Technology

UP Forester's picture

C'mon, now....

Everyone with $100K in debt and a degree in Underwater Basket Weaving deserves a NINJA home loan for $350K and a NINJA car loan for a new Escalade.

After all, plenty of BennyBux in Obama's stash to pay off the banks should any payments be missed....

Besides, you don't actually need History classes to graduate, I mean, why learn from others' mistakes when you can learn from the NYT.....

Careless Whisper's picture

@ DormRoom

Steve Jobs had a liberal arts education.

Not quite. He was a college dropout, something I highly recommend.

College dropouts are all over the place: Larry Ellison, Bill Gates, Michael Dell, Mark Zuckerberg, Ralph Lauren, Ted Turner, Karl Rove, Governor Scott Walker, Jan Brewer, Senator, Begich, Clint Eastwood, Michael Moore, Tom Hanks, Steven Spielberg, Oprah Winfrey, Rush Limbaugh, Sean Hannity, Glenn Beck, Alicia Keyes, Nina Totenberg, Brian Williams, Peter Jennings, and on and on. But guess what, my favorite waitress at the local Applebees does have a BA degree from a liberal arts college. Her job before college... waitress at Applebees.

donsluck's picture

Count me, a high school drop out, in! It didn't stop me from passing calculus at the JC, and starting my own successful business. I believe in just-in-time information...

 

Bitches!

Vampyroteuthis infernalis's picture

Steve Jobs never finished school. He went to Reed for a year. Reed is where the rich kids go who embarrass their parents.

djsmps's picture

Please don't put the name of a great marketer of toys in the same sentence as "history of man."

Drachma's picture

"Stop hating on the humanities. In their minds reside the history of man, and its becoming."

Really. The history of man was evicted out of that residence long ago. Something about overcrowding and mental health issues.

Pure Evil's picture

Or a professioin in the tranny porn industry. Gotta keep the perverts at the SEC constantly entertained.

samwell's picture

most college girls are whores to begin with!  spread em!  it won't be that much of a change when they get out of school.  they can pay off all their student loans with "gifts" from "clients" for being an "escort".  maybe the IRS will even get in on the act and figure out a way to charge them taxes on their "gifts".  all will be well

Caviar Emptor's picture

Spiraling cost of ownership

gringo28's picture

whatever. current debt to disposible speaks to the buying power of those who can qualify to purchase versus those idiots who bot at the top and are smoking hopium. the pictures ugly to be sure and it's going to take years but i think Norris' point is simply that there does appear to be a greater ability to purchase. we are seeing this in real time. closing on a new place and leaving stupid fucking expensive Manhattan which is in another bubble aapl universe of its own (and unsustainable in my humble opinion).

bottom line is there does seem to be a lot of activity from urban upwardly mobile types who are bailing high cost environments. the beneficiaries are going to be the burbs i imagine.

narnia's picture

Low interest rate effect on debt coverage ratio does not make up for the fact that fewer people are working, the market is over supplied (in a lot of areas) & the underlying involuntary transactions that make certain areas preferable in the short term (school districts, subsidized transportation) won't last.

holdbuysell's picture

I knew people who went through the Great Depression who always said to me, "pay in cash, never borrow."

Mark Twain's 'history  rhymes' quote comes to mind.

Marc_W's picture

Why?  Here's my advice,

 

"Pay with credit cards, don't pay them back.  Leave the country."

 

You can quote me on that.

seek's picture

They're about to pass a law that prevents someone from leaving the country if they have unpaid taxes -- it's only a small payoff away to expand that to include signficant debt.

I really wonder how long it'll be before DHS pulls your credit before permitting you to leave the country. For all I know, it already happens, they just don't act on it -- yet.

Marc_W's picture

If you buy a one way ticket out of the U.S. it triggers all sorts of flags in various systems.  Especially if you're already on a "list" (wealthy, veteran, terror suspect, former or current security clearance holder, dissident, etc.)  And yea, the IRS reviews your files.

 

But I'll be out of the U.S. before 2013.  And for now, you can still leave $50K+ of credit card debt behind.

 

And I intend to.

FeralSerf's picture

If the Mexicans can sneak in through the southern border, maybe the Gringos can likewise sneak out.  The Tijuana Trolly may also work.

MeelionDollerBogus's picture

Leave while the credit is good, run it up as you're still a valid customer, then never return.

holdbuysell's picture

In other words, 'Corzine' the debt.

Edit: truly a sign of the times. Reminds me of this quote from Hot Dog Movie:

Race Official: And now for the rules of the International, Chinese downhill: there are none.

http://www.imdb.com/title/tt0087425/

 

insanelysane's picture

Why would you want to leave the country now when we are on the cusp of the greatest recovery eva!  /sarc

Poor Grogman's picture

The middle class is exactly where the PTB would lie them to be.

Chained to the wheel of the machine.

Imagine all that disposable income that might flow into tangible assets if it wasn't recycled into the finance industry?

how would the fed be able to pump so much liquidity without that constant Huge deflationary overhang?

How would you run a global empire without the ability to spend colossal sums of money, while letting the consumers deal with the consequences?

Is this all just coincidence? Or are these poor sods where they are by design?

Australians are next, most are already "all in" waiting for those house prices to double again in ten years, just like the nice salesman said.

El Oregonian's picture

Not to worry, because of the great work of the Bernank, the Banksters, and the past Admins et. al; the new "Cardboard Clients" are starting to set up house in a neighborhood near you. Snug as bugs... Huuurayyy!!!

slewie the-pi-rat's picture

equity schmequity

service BiCheZ!

UP Forester's picture

clonien!  I thought you were busy impersonating a Secret Service agent at the YMCA!

Marc_W's picture

Have you seen the kind of house you can buy for $600K in Florida right now?  Fucking mansions.

 

Housing is a fantastic buy right now if you have the money.  If I weren't moving out of the U.S. shortly I would definitely buy a modest home to use as a primary residence right now.

 

But then, most people that have money already own homes.  And most of them are old.  And most of them are going to die in those homes because there are no young people with enough money to buy them.  The game of generational musical chairs using housing as investment vehicles has come to a stop grandpa.

 

James_Cole's picture

A fantastic buy?? John Paulson is that you?

If it wasn't for the gov programs housing would fall off a cliff and even with the massive Gov mortgage intervention housing prices continue to fall. There are ZERO indicators this will change.

Floyd is trying to piece an unrelated metric into a plausible case that clearly doesn't add up (this article is a good example why).

Marc_W's picture

You have to live somewhere.  We agree on that, yes?

 

Most renters that are smart with their money live far beneath their means because they know their rent is money gone forever.  Or at most they're paying $2K a month for a decent apartment near their job.

 

IF you have money, and IF you don't already own a home, buying a home in the U.S. isn't a bad idea by any means right now.  Like I said though, most people that have money and good paying jobs already own homes, so there isn't much demand.

Cursive's picture

@Marc_W

Buying now, you still would not be buying the bottom.  The problem is that rents are not cheap unless you want to live in squalor, so buying now probably beats renting.  Just beware the "asset" will probably decline even more.

seek's picture

I agree with you.

It depends on the market, but last year I helped a friend out with a house in Gilbert, AZ. With a conforming loan (meaning there was a substantial down) the mortgage payment was less than half what rent was for an identical house. So from a cash flow perspective, it made sense.

I still have no doubt that we're just a market "ooops" away from such a house, even with 20%+ down being underwater for years and years. They'd have to be in the place for at least a few years to break even on the loss v. rent, and I would imagine rents will plunge the the market breaks like this. It's really a paradox. The one thing there is no doubt about is that if it happens again, the banks will own another crapload of houses.

RafterManFMJ's picture

Come on Seek!

Don't BS us - give us the rest of the info!!!! Compare Renting to the mortgage payment, plus insurance, plus taxes (hmmm...will they go up, or down over the next 5 years? Hmmmmm.....), upkeep, HOA fees if any, plus set asides for maintenance, etc.  Let's see some real numbers.

Buy or don't but don't kid yourself.  Your friend bought a depreciating millstone, and placed it around his neck; now he is anchored to the spot and cannot move to find a job if need be.  Maybe you are right on the huge savings, but I'd like to see the actual, honest numbers.  And  wonder what the return on the downpayment would be if it was instead put in silver...

Marc_W's picture

Right, you can rent cheap if you want to live in the bad part of town.  But if you've never owned a home and are sitting with 6 figures in liquid assets...maybe buying a decent house instead of living in a shitty rental isn't such a bad idea.  That's all I'm saying.

 

I understand that most of you are extremely old, and fairly wealthy.  You bought your first house 30+ years ago, and real estate is nothing but an investment to you.  But my perspective is different from yours.

 

I'm talking about people that don't already own homes, people that would buy a home and use it as their residence.  Obviously every case is different and there are many factors to consider.

SoCalBusted's picture

Even if rents are more expensive than owning, renters are still ahead.

1. They can easily move where there are jobs and/or better paying jobs

2. No direct threats from .gov (federal, state and local) trying to use their property ownership as a ATM to pay for pension commitments and other budget inbalances.

3. They can make their rent cost go down simply by moving.

4. Depending on their landlord, they can negotiate "creative" rent payments for win-win situations.

5. Depending if they have kids and what stage of life they are in, no need to worry about how to downsize a mortgaged home once the kids (hopefully) leave the nest.

James_Cole's picture

SoCal makes good points.

The question I have is why would you turn 600k of liquid into a failing asset you'll be locked to for a long time to come. Keep the money in something that performs and enjoy the ride down.

If you figured the market was actually recovering and you want to settle down - OK, otherwise doesn't make a lot sense. Not to mention all the fees you'll be paying ontop of your "fantastic" buy.

Marc_W's picture

See, it's hard to communicate with you rich guys on this site.  Nobody has $600K liquid sitting around except the top 1%.

 

I'm talking about a normal guy that is doing fairly well, maybe pulling 6 figures.  He can afford 20% down on the $600K "nice' home.  And meet the mortgage payments with maybe 40% or less of his net monthly income.  He doesn't own a home and has never owned a home.

 

But I guess you'd rather he live in the ghetto and put all of his savings into bags of junk silver coins, guns, and ammo?

 

Sometimes you ZH guys are too fringe even for me.  And I'm the one talking about the New World Order half the time.