This page has been archived and commenting is disabled.

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

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 04/22/2012 - 20:42 | 2365698 I am Jobe
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.

Sun, 04/22/2012 - 20:54 | 2365716 DormRoom
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.

Sun, 04/22/2012 - 21:01 | 2365737 Death and Gravity
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.

Sun, 04/22/2012 - 21:05 | 2365740 vast-dom
vast-dom's picture

STRIKE ANOTHER MATCH AND START ANEW

CAUSE IT'S ALL OVER NOW BABY BLUE

Mon, 04/23/2012 - 00:31 | 2365986 jeff montanye
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...

Mon, 04/23/2012 - 09:06 | 2366426 Pinto Currency
Pinto Currency's picture

 

 

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

Bleak on.

Sun, 04/22/2012 - 22:13 | 2365823 Ayr Rand
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

Mon, 04/23/2012 - 00:33 | 2365990 jeff montanye
jeff montanye's picture

cogent

Mon, 04/23/2012 - 09:03 | 2366414 boiltherich
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. 

Sun, 04/22/2012 - 21:14 | 2365750 Marc_W
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.

Sun, 04/22/2012 - 21:46 | 2365784 Sam Clemons
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? 

Sun, 04/22/2012 - 23:50 | 2365959 Dre4dwolf
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.

Sun, 04/22/2012 - 20:51 | 2365717 vote_libertaria...
vote_libertarian_party's picture

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

Sun, 04/22/2012 - 20:59 | 2365729 DormRoom
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

Sun, 04/22/2012 - 21:02 | 2365738 Death and Gravity
Death and Gravity's picture

Liberal Tarts more like.

Sun, 04/22/2012 - 22:04 | 2365806 UP Forester
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.....

Sun, 04/22/2012 - 22:17 | 2365828 Careless Whisper
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.

Sun, 04/22/2012 - 23:44 | 2365952 donsluck
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!

Sun, 04/22/2012 - 22:21 | 2365835 Vampyroteuthis ...
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.

Sun, 04/22/2012 - 21:36 | 2365756 djsmps
djsmps's picture

--

Sun, 04/22/2012 - 21:35 | 2365772 djsmps
djsmps's picture

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

Mon, 04/23/2012 - 08:41 | 2366359 Drachma
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.

Sun, 04/22/2012 - 20:53 | 2365719 Pure Evil
Pure Evil's picture

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

Sun, 04/22/2012 - 21:37 | 2365773 midgetrannyporn
midgetrannyporn's picture

+1

Sun, 04/22/2012 - 22:12 | 2365818 samwell
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

Sun, 04/22/2012 - 20:48 | 2365713 Caviar Emptor
Caviar Emptor's picture

Spiraling cost of ownership

Sun, 04/22/2012 - 20:52 | 2365718 gringo28
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.

Sun, 04/22/2012 - 22:10 | 2365815 narnia
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.

Sun, 04/22/2012 - 20:54 | 2365721 holdbuysell
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.

Sun, 04/22/2012 - 21:12 | 2365749 Marc_W
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.

Sun, 04/22/2012 - 21:43 | 2365780 seek
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.

Sun, 04/22/2012 - 22:22 | 2365839 Marc_W
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.

Sun, 04/22/2012 - 22:31 | 2365849 FeralSerf
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.

Mon, 04/23/2012 - 03:16 | 2366075 MeelionDollerBogus
MeelionDollerBogus's picture

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

Sun, 04/22/2012 - 22:19 | 2365820 holdbuysell
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/

 

Mon, 04/23/2012 - 06:39 | 2366151 insanelysane
insanelysane's picture

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

Sun, 04/22/2012 - 20:55 | 2365723 Poor Grogman
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.

Sun, 04/22/2012 - 21:06 | 2365733 El Oregonian
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!!!

Sun, 04/22/2012 - 21:00 | 2365736 slewie the-pi-rat
slewie the-pi-rat's picture

equity schmequity

service BiCheZ!

Sun, 04/22/2012 - 21:56 | 2365800 UP Forester
UP Forester's picture

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

Sun, 04/22/2012 - 21:10 | 2365747 Marc_W
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.

 

Sun, 04/22/2012 - 21:18 | 2365755 James_Cole
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).

Sun, 04/22/2012 - 21:21 | 2365759 Marc_W
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.

Sun, 04/22/2012 - 21:34 | 2365771 Cursive
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.

Sun, 04/22/2012 - 21:49 | 2365786 seek
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.

Mon, 04/23/2012 - 01:25 | 2366025 RafterManFMJ
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...

Sun, 04/22/2012 - 21:54 | 2365798 Marc_W
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.

Sun, 04/22/2012 - 21:55 | 2365799 SoCalBusted
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.

Sun, 04/22/2012 - 22:08 | 2365810 James_Cole
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.

Sun, 04/22/2012 - 22:17 | 2365830 Marc_W
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.

Sun, 04/22/2012 - 22:42 | 2365864 malek
malek's picture

 meet the mortgage payments with maybe 40% or less of his net monthly income   Yeah, 40% of your income for the next 30 effing years! With real-inflation-adjusted income surely to rise a lot over the next years. Property taxes and -after some years- maintenance on top of that!

You are either retarded or, more likely, a paid shill.

Mon, 04/23/2012 - 01:32 | 2366027 Marc_W
Marc_W's picture

And yet I'm sure you own a home.

Tue, 04/24/2012 - 01:37 | 2369129 malek
malek's picture

I give you a second guess.

Sun, 04/22/2012 - 22:46 | 2365877 Leboob
Leboob's picture

Don't sweat it kid. Look, if that $$ is burning a hole in your pocket & pm's don't appeal to you and you want a contrarian play, just load up on nat gas stocks. Apparently, the Israelis need a new energy source and this could be your ticket to paradise. (or that $600k steal in Boca you are itching for)

Mon, 04/23/2012 - 00:29 | 2365988 SoCalBusted
SoCalBusted's picture

Acquisition costs are going down because of deflation, but TCO is going up because of inflation/taxes/etc.  Buying a house right now is like the old proverbial "catching a falling knife".  There is still so much shadow inventory that the knife has a long way yet to fall.

To my earlier points, "normal guy that is doing fairly well, maybe pulling 6 figures"... this "normal" guy is scared shitless that he will be out of a job next week.  At that point the whole thing comes crashing down and he would LOVE to rent just to get out of his great deal.

Mon, 04/23/2012 - 01:16 | 2366021 James_Cole
James_Cole's picture

Taking out a mortgage on a house you feel is overpriced is obviously crazy.

Let's say you're paying 2k in rent currently, your mortgage in this situation would be closer to 3500 - 4000 / month (25yrs), a loss of 1500 - 2k every month.

Let's say instead of taking the mortgage you decide to invest your 120k and manage to pull in 2% / year (pretty conservative). Every month by not having the mortgage you can contribute to your money pool, conservatively $1500 - with this formula after 25yrs you're looking at about 780k in the bank. And better than that, as a renter you're free to move around and possibly buy at any point. Your money is also more liquid. 

This is all of course also not considering some of the built in costs of owning a home + the additional costs of buying one at signing.

And I think you can get a decent place outside the ghetto in most cities for around 2k. 

Hardly a fringe idea not to buy a mortgage on a house you suspect will be bleeding for some time to come. 

Mon, 04/23/2012 - 01:38 | 2366034 Marc_W
Marc_W's picture

This is what $625K gets you in Florida right now.

 

http://www.celebritydetective.com/Celebrity_Homes_Rashad-Evans-house-pro...

 

Meanwhile, the AVERAGE home in Australia is over $500,000.  Canada is in an almost equally huge housing bubble.  And in Europe you might as well just kill yourself if all you have is $500,000 American for a home purchase.

 

Yet in Florida it gets you THAT.  And you say housing is over valued in the U.S. still?  Seems like if you compare real estate prices in the U.S. to just about anywhere else in the world they are vastly undervalued.

 

If nothing else I expect rich foreigners to be flocking to the U.S. to buy up our super cheap real estate shortly.

 

Prove me wrong.

Mon, 04/23/2012 - 02:16 | 2366042 James_Cole
James_Cole's picture

"Miami-Dade, FL currently offers 29% of its total foreclosures on the market for re-sale, with 71% of its foreclosure inventory awaiting listing on the market."

http://www.prweb.com/releases/2012/4/prweb9414974.htm

"RealtyStore studied active foreclosure listings vs foreclosed homes held by institutional owners and found the amount of pending listings exceeds the amount of active foreclosures listed for sale by a margin of over 2 to 1. This shadow inventory of foreclosed homes illustrates the significant risk to improving housing market conditions across the country."

ZH has also commented on this many times. 

Mon, 04/23/2012 - 03:12 | 2366073 MeelionDollerBogus
MeelionDollerBogus's picture

"Meanwhile, the AVERAGE home in Australia is over $500,000.  Canada is in an almost equally huge housing bubble. "

Absolutely not. You can find a decent home under 300k anywhere in Canada EXCEPT Toronto, Vancouver, Edmonton. Don't live there unless your job there pays you enough. It's worthless to you otherwise, no matter your income, because you can't truly enjoy life in places like that. Vancouver coastline being the exception but then you can get creative. Exception to exception: Fukushima radiation is incoming and all the testing stations were shut down.

If you pay more than 300k for a house in Canada you are a) fucking retarded or b) have so much money you will act retarded until you don't have that much money anymore.

Mon, 04/23/2012 - 09:28 | 2366476 boiltherich
boiltherich's picture

HA!

You can find a decent home under 300k anywhere in Canada EXCEPT Toronto, Vancouver, Edmonton.

In other words every city in Canada where people live and homes actually ARE!

That is like saying you can find inexpensive houses to buy in the states except New York, LA, Chicago, Dallas, Phoenix, SF, Miami, Atlanta, DC, Columbus, KC, Houston, NJ, Boston.  You get it?

Think back to 2006 at the peak of the bubble, you could have said the same thing about the USA then but on a larger scale, if you were willing to drive a few hours from where people lived you could still find the rare bargain, but only a very few with incomes not dependent upon working in an urban area could do that.  What you are saying is that on an INDIVIDUAL scale you might be able to find a house on the north shore of Hudson Bay that is still reasonable, but come on, on a macro scale housing in Canada is just as much in a bubble today as the USA was in 2005.  Australia is on the verge of their bubble being pricked as well being supported by government programs and mining exports, as the world contracts I think you will see profit margins on Australian exports dry up.  Though they have far to devalue before they are back to normal exchange values. 

Mon, 04/23/2012 - 10:03 | 2366594 OutLookingIn
OutLookingIn's picture

Median household income in Vancouver is about $54,000

But average housing costs above $500,000

Toronto is just as bad. All major metropolitan areas in Canda have expensive housing when compared to the average household income. The cracks in the house bubble are beginning to show, as they are in Australia. And as they are widening in China with complete cities where nobody lives. Europe is a slow motion train wreck in the process of crashing by inches. Japan has been counted out and is dead. Just refuses to roll over and lay down!

Everything is going to be hunky-dory though, because Christine went around with her hat in hand and borrowed a bunch of debt to pay down debt with! Marvelous! Stupid is as stupid...

Tue, 04/24/2012 - 01:35 | 2369127 malek
malek's picture

My girlfriend knows a couple in Vancouver, and told me they bought their house for 300k some years ago, and it is now estimated at 1.2M

Even without knowing anything about what taxes you have to pay in Canada on RE gains, I could only push out with exasperation "Tell them to sell RIGHT NOW! Even if they have paid off nothing of their mortgage and tax on gains is 50%, they have made $450k - how long can you pay rent from that?"

She only looked at me in disbelief.
And told me now matter what she would say, that couple is never going to sell their house.

How dumb can people be?

Sun, 04/22/2012 - 22:58 | 2365898 FeralSerf
FeralSerf's picture

I don't like landlords, either being one or kissing one's ass.  There's plenty of $200K - 300K Mcmansions on the market that can be had for not much down payment and payments even less than a comparable would rent for.  And I can paint it any color I want, bury stuff in the backyard  and even have a dog.  When the shit finally hits the fan, and it will, however I might not still be alive, the balance on the mortgage after the reset will be chump change.  Oweing a large mortgage in pesos has paid off before.

Mon, 04/23/2012 - 00:59 | 2366009 SoCalBusted
SoCalBusted's picture

True, landlords can be a hassle.  BUT, they really like it when you pay the rent on time or early.  Fast pay makes fast friends.  Also, being quite handy, I don't hassle the landlord on the minor stuff, since it adds to their cost to call someone.  I fix it myself, but will call them on the bigger things.  Since I am thinking like a landlord, they know I am looking out for them and their property- makes for a great relationship.

Mon, 04/23/2012 - 03:08 | 2366068 MeelionDollerBogus
MeelionDollerBogus's picture

"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"

You couldn't get me to do it with someone else's money and someone else's pencil-dick to type in the PIN authorization.

USA is turning into a nazi police state, government will seek both hyperinflation and high taxation at the same time & the locals are going to riot in short order.

On top of that most house prices that haven't dropped I bet are 200% above their fair market value - many from appraisal fraud, many more from bank balance sheet fraud. I bet that 600k home goes for 200k. Next year.

Smart money is LEAVING the USA for at least 10 years. Every penny, every asset, every potential residence. Not in the USA.

Mon, 04/23/2012 - 07:11 | 2366189 hardcleareye
hardcleareye's picture

I agree with Kyle Bass, the dollar is "safe" for the next 3 years or so, it will be the flight to safety currency when the Euro does it's thing and than when Japan finally falls on its sword. After that look out.

Now is the time to get a place set up outside of the US.  Take your time, look around and don't burn your bridges.

Mon, 04/23/2012 - 08:08 | 2366288 Obadiah
Obadiah's picture

Well what the fuck does the actual cost of a building a home cost?

$120 /square

$130 square

 

If I plan to live there forever is whats the price I can say is a steal?

 

Mon, 04/23/2012 - 12:15 | 2367213 Marc_W
Marc_W's picture

Oh I agree.  But many sheeple are able to stomach the fascist police state.  They like it, it makes them feel safe.  This reflects the opinion of the majority of Americans.  For them, these concerns of liberty mean nothing.  For sheeple with money, buying right now isn't a bad move in my opinion.  Taking the contraryian view to the usually "ALL IS LOST, DIG A HOLE AND DIE IN IT!" doom and gloom representative of the Zero Hedge group think.

 

For people like me, it is obvious that the time to leave is now before the gates come crashing down.  And my plan is already in progress.  I expect to be out of the American police state by the end of the year, never to return.

Sun, 04/22/2012 - 21:31 | 2365770 mumbo_jumbo
mumbo_jumbo's picture

yeah a $600K mansion......sheesh who can afford that on an american salary.......not one person i know.

Sun, 04/22/2012 - 23:02 | 2365906 FeralSerf
FeralSerf's picture

Payment on a $600K mortgage (if one can qualify for it) is $2,530/month now.  How much is the rent?

Mon, 04/23/2012 - 07:28 | 2366220 Mentaliusanything
Mentaliusanything's picture

Australia is not in a bubble .. Its not ... its really cheap to buy a good shoe box.

http://www.realestate.com.au/property-house-qld-brisbane+city-110211689.

I want it (and the termites) so bad ... must get a loan .. must .. Its never been a better time to Buy the agent said.

What could go wrong.....

A pox on all of you

Sun, 04/22/2012 - 22:30 | 2365848 jimmyjames
jimmyjames's picture

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).

**************

When you hear this guy a few/several years down the road write about the evils of debt and home ownership-we'll know its bottom-

Sun, 04/22/2012 - 21:12 | 2365748 TideFighter
TideFighter's picture

I'm going to get me a tax-free, maintenance-free, mortgage free place right on the beach. I think they call it a pavillion.

Sun, 04/22/2012 - 21:23 | 2365761 cjbosk
cjbosk's picture

NY Times?  Who's that?

How about a topic on mean reversion in housing, now that's the chart no one really wants to see now do they.

Sun, 04/22/2012 - 21:25 | 2365765 Cabreado
Cabreado's picture

"...so far that consumers are again a source of growth? That fact is a reminder that the outlook is seldom as bleak as it seems in the immediate aftermath of a calamity."

 

Great job, Floyd.

NYT subscriptions for everybody!

Quick, before even the stupid recognize Floyd's fluffy drivel as self-serving lies.

History will show, Floyd, that you were in fact part of the problem.

Sun, 04/22/2012 - 21:26 | 2365766 philipat
philipat's picture

Where does the NYT find all these fucktards to write all this superficial drivel? The last one was Ben Stein who even the NYT had to fire eventually because the readers who took his financial advice could no longer afford to buy the papar. He is now a contributor to Faux Noise, so there is some justice.

Sun, 04/22/2012 - 21:26 | 2365768 Marc_W
Marc_W's picture

Ben Stein, I remember him writing on Yahoo Finance.

 

These are not fond memories.

Sun, 04/22/2012 - 21:54 | 2365795 Marina
Marina's picture

Bueller? Bueller?

Sun, 04/22/2012 - 21:39 | 2365774 buzzsaw99
buzzsaw99's picture

That statistic is misleading as those who have cash and no debt got that way by not borrowing and spending in the first place. Don't tread on me bitchez.

Sun, 04/22/2012 - 21:42 | 2365777 dust to dust
dust to dust's picture

CONTEXUAL REALITY CHECKING and THE NY TIMES. TOTALLY BOGUS. All the NEWS that is FIT to PRINT. Wait I think that was another NEWSPAPER. 

Sun, 04/22/2012 - 22:06 | 2365809 ISEEIT
ISEEIT's picture

Ha-Ha

Sowwy, I just can';t help it.

With my dying breath...I will vote for JesusI mean obama


I will cross my pinkies and my toes,,,

My impotent can smash your important.

 

Wanna bet?

Mon, 04/23/2012 - 01:33 | 2366029 RafterManFMJ
RafterManFMJ's picture

Drunk or ESL?

Sun, 04/22/2012 - 22:40 | 2365811 jomama
jomama's picture

there is this cat at work who's determined to 'buy' (read: take out a massive loan and blow what little savings he has on) a home for his new wife and newborn daughter for he and them to live in.  on 50K gross/year. (in sonoma, ca.)

i show him a couple articles like these from ZH, last week the one on how 6.6m more foreclosures are to be liquidated in the coming years, and he just shakes his head and says whatever, i don't care.  

i'm content to let people drown in their own ignorance.  but i'll be pissed as fuck if some kind of jubilee gives this guy a free home for willingly going in way over his head.

Mon, 04/23/2012 - 11:32 | 2367031 boiltherich
boiltherich's picture

Fifty grand a year in Sonoma?  You qualify for food stamps on 50k a year in Sonoma.  I know housemaids there that make more than that.  I would like to know how someone with 50k a year of EARNED income from employment as opposed to interest on a huge trust fund qualifies for any mortgage there, I lived down there from 1982 through 1992 and you could not buy a tract house in Santa Rosa on that income.  I knew people with 100,000k in wages per year that could not buy a house there in the 80's.  I knew one family where the dad drove clear to Sunnyvale every day for his job at which he made 80k a year and they really struggled to make ends meet. 

Sun, 04/22/2012 - 22:35 | 2365855 ReactionToClose...
ReactionToClosedMinds's picture

thank you ZH .. this is why I continue to come back to 'read' & view analysis one gets no where else.

 

maybe there is 'controversy' about what ZH posts ... but it is invaluable as a reality check

Sun, 04/22/2012 - 22:35 | 2365857 johnnysize
johnnysize's picture

Nomura? Cmon, shouldnt they stick to analyzing how they went from making money to losing money by sucking the global heroin pump? 

 

Sun, 04/22/2012 - 22:51 | 2365888 johnnysize
johnnysize's picture

Id guess in this zero interest rate environment that real estate and real land might be the best place to put your spare cash. Im not talkin Toll bros .The local b of a vault might not be the spot for someone lugging bullion and who can afford the 150k down on a 600k home. Theres tons of shitty real estate in the US. Try buying homes where people want to live or land where no one cares. Renting is like arbing a spread without locking in your stock loan rate! Mr. Antolinniollibieolichilattacione will gladly take your rent SUCKERS. 

Mon, 04/23/2012 - 06:51 | 2366168 cooperbry
cooperbry's picture

Just yesterday, my wife was complaining about food prices again.

Mon, 04/23/2012 - 10:16 | 2366650 OutLookingIn
OutLookingIn's picture

Yes. The grocery shopper knows.

As does the schmoe filling up at the gas station.

Hows that insurance premium? Gone up a tad has it?

Devalued currency induced cost push inflation. And you aint seen nuttin yet! Just wait. Won't be long.

Housing deflation ~ survival inflation. Hyperinflation? No. But high/hot inflation with more downward pressure on wages, with higher taxes and lower government benefits. What does that say? Ongoing depression.

 

Do NOT follow this link or you will be banned from the site!